High Frequency Traders (HFT) can employ a tactic called “pinging the book,” whereby they enter and cancel orders within milliseconds to entice another investor/trader into trading. It’s an attempt to solicit otherwise hidden pockets of liquidity from those who are allegedly waiting passively for a specific price that has not yet been achieved.
Although pinging the book is not illegal, it reminded me of something knows as “painting the tape,” which is illegal.
Painting the tape:
An illegal action by a group of market manipulators buying and/or selling a security among themselves to create artificial trading activity, which, when reported on the ticker tape, lures in unsuspecting investors as they perceive an unusual volume. — Investopedia
What do you think?
I am a proponent of HFT and I don’t care if it creates liquidity or not. Long term investors shouldn’t be looking at their holdings every day. If you buy at $20 and sell at $40, you’ve made $20 gross. It doesn’t matter if 100 MM shares have traded between ha’ pennies. Ultimately, I’m bullish on entrepreneurialism to the extent that whatever is done is not illegal.