I am re-reading Michael Lewis' Flash Boys book, and I have a question about how a High Frequency Trader was able to front-run an order in a particular example mentioned in the book. On page 78, chapter Ronan's Problem, it describes how the president of a large hedge fund noticed that his trading costs had increased substantially. Upon a consultation with Brad and Ronan, where he learns about what high frequency trading is and how it is increasing his costs, he attempts to capture an example using his own personal brokerage account.
After Brad and Ronan had left his office, the president of this big hedge fund, who had never before thought of himself as prey, reconsidered the financial markets. He sat at his desk watching both his personal online brokerage account and his $1,800-a-month Bloomberg terminal. In his private brokerage account he set out to buy an exchange-traded fund (ETF) comprised of Chinese construction companies. Over several hours, he watched the price of the fund on his Bloomberg terminal. It was midnight in China, nothing was happening, and the ETF's price didn't budge. He then clicked the Buy button on his online brokerage account screen, and the price on the Bloomberg screen jumped.
"I hadn't even hit Execute," says the hedge fund president. "I hadn't done anything but put in a ticker symbol and a quantity to buy. And the market popped."
The last part of this exerpt from the page is what really puzzles me. Because the implication is, that a high frequency trading algorithm was able to front-run him, and upon seeing the order, lifted the ETF's price before it entered the market. However, the president did not click the Execute button, merely typed in a ticker symbol. So, how could this high frequency trading algorithm observe an order come in, if one wasn't even made?