Here is an interesting video by Nanex: http://www.youtube.com/watch?&v=rB5jJuMP84E
Perhaps some of you have already seen something similar. It is an animation of the order routing. It shows 1/2 second of trading activity in the stock Johnson & Johnson slowed down to a couple of minutes.
I'm a bit confused on how the "moving symbols" should be interpreted. Firstly I thought that it was the orders that are sent to the other exchanges due to "Smart order routing", in order to provide the trader with the best execution of his trade. However, the description of the video says:
"Note how every exchange must process every quote from the others -- for proper trade through price protection".
This lead me to believe these are the quotes that are sent to the other exchanges.
The description of the video also says:
"Watch High Frequency Traders (HFT) at the millisecond level jam thousands of quotes in the stock of Johnson and Johnson (JNJ) through our financial networks on May 2, 2013. Video shows 1/2 second of time. If any of the connections are not running perfectly, High Frequency Traders can profit from the price discrepancies that result. There is no economic justification for this abusive behavior"
Could someone give a more detailed explanation on how high frequency traders jam the networks to exploit these price discrepancies?