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Stock Market Manipulation By Millisecond Trading
cfa22 writes "Nice piece in the NY Times today on ultra-fast trading on the NYSE and other markets. The 'algos' that make autonomous trading decisions have to be fast, but I wonder: Is network speed ever a bottleneck? Can anyone with inside experience with millisecond trading provide some details for the curious among us regarding hardware architectures and networking used for such trading systems?" According to the article, high-frequency traders generated about $21 billion in profits last year.
Lol.
I often do wonder how we ended up here. Most of the wealth of the world is held not by its citizens, but by corporations. Corporations are owned by funds, which are owned by investors which... and by the time you drill through the obfuscation there seems to be nobody that actually accounts for most of the wealth created by the people that actually produce stuff.
And then you have the wall street leeches who juggle numbers around and suck millions out of... what exactly? The world is not richer for them in any material sense.
All the while I'm wondering why the day I can retire seems further and further away despite massive advances in technology. Shouldn't we all be creatures of (comparative) leisure by now?
This kind of activity is an abuse of the free stock market system.
This activity does not generate wealth. It doesn't create something from nothing. And it doesn't add value to society. If they generated 21 billion, then 21 billion was necessarily lost by others.
People should look down on this kind of business and method of trading.
TI'm just wondering why the average Joe has to work as hard as ever and still has a struggle to provide for his (ever retreating) retirement, when traders trade in more than enough for everyone.
I guess that makes me a socialist or something.
I am sorry, I don't work near as hard as my father did. I would have trouble convincing my grandfather that I work at all. Your question doesn't make you a socialist, it makes you an idiot who has no idea what life was like for people through most of history (and still is in much of the world).
The truth is that all men having power ought to be mistrusted. James Madison
All you needed to stop were the bailouts. The behavior at that point would have corrected itself since many of these companies would have been out of business.
You seem to delight in the fact that the author got an undergraduate degree in History before his Harvard MBA. Either you have an MBA from a competing school, and think that Harvard MBAs don't have to work as hard as other folks, or you have NO MBA, and believe that your "life experience" is better than any graduate degree. Neither qualifies you to judge "arts graduates" as a whole.
This is an outstandingly bogus article, what happens when arts graduates attempt to understand anything except celebrity gossip.
>"The result is that the slower-moving investors paid $1.4 million for about 56,000 shares, or $7,800 more than if they had been able to move as quickly as the high-frequency traders."
That's really quite amazingly precise. So precise that I believe not a word of it.
Yes, by all means let's distrust "precise" figures -- you probably ignore facts as well.
I can arrive at a slightly more accurate figure with some simple math. The stock opened at $26.20. The threshold being exploited was $26.39, 19 cents above the opening price. If we allow a for a 5 cent rise from the opening stock price (supposition on my part, but I think it's reasonable to guess that the price moved before the exploits occurred), then the algos gained $0.14 per share on 56,000 shares (from TFA), equaling -- huh, look at that -- $7840.
Not bad for a BFA, if I say so myself.
No, it doesn't.
I think our entire society (Except stock traders) would be a hell of a lot better off if you were required to own stock for six months.
People might actually start purchasing stock based on actual company performance. They'd start expecting to make money via dividends, aka, company profit, instead of random fluctuations in the price caused by CEO manipulation.
Like the CEO, oh, firing half the workforce to cause an upward stock price bump for two months, so they get their bonuses. Oh, and incidentally cripple the company, but what the fuck do they care, they're out the door to another company.
Stock ownership is company ownership. It is not a fucking bingo game. Although if that existed by itself, that would be fine...the problem is that the idiotic bingo games get play by the board, which starts operating the company for the benefit of the bingo game, instead, of, I dunno, the actual company.
As a lefty, I'll complain when companies put profits ahead of employees, but hell, they've stopped doing even that. At least that system worked somewhat. Make the workers too unhappy, abuse them too much, and you don't make as much money.
Now the people running the company are rewarded solely based on an idiotic bingo game, which bears no relationship to how much money the company makes. And it doesn't matter how much the workers abused, because the actual business of actually producing goods and services is irrelevant to the paycheck of the people at the top.
Until the entire company collapses, at which point they walk out the door with a shitload of money and head to another company, whose board will happily hire them because it will make their stock go up. Which they can sell to poor unsuspecting suckers, and walk away with a lot of money to pour into the next business, building it up as an actual industry, until they can hire a stock-pricing oriented CEO and suck all the cash out of that stock, too.
If corporations are people, aren't stockholders guilty of slavery?
As an investor (which is the term the article is using--among whom are you and I), you had better not be trading like these traders. These traders are Market Makers, which are specialized traders that provide liquidity (a very important thing) to the market. If you don't have real market makers, then the stock market is going to look like what Mortgage Backed Securities look like right now: there will be periods of time when nobody wants to touch the stuff, and if you are an investor, you are truly screwed if you need to buy or sell your security.
These market markets are looking to capture a spread (the cost to buy or sell)-which by the way is much better for the investor than 5, 10 or 20 years ago--capturing a fraction of a penny a billion times a day. The key component to a market maker's success or failure is understanding supply and demand. This was true even before the computers came in. The computers can only detect it much faster, so you get what you mentioned first--better price discovery. It's not that the investor is getting screwed out of 20 cents, it's that they're not getting the 20 cent discount they used to when the market makers were humans standing in the pits.
As an investor, you really shouldn't care if you get Broadcom at $26.20 or $26.40. Yeah, it's nice if you get it for the cheaper price, but the reason you're buying Broadcom is because you think it's a good investment, and if $0.20 ruins that investment for you, then I guarantee it's not a good investment.
The $0.20 might ruin a day-trader's day, but day-traders are not investors nor market makers. You and I are not day traders. The only thing the electronic market makers ("high-frequency traders") ruin are slower, human-based market makers' profits and day-trader's profits. It's certainly not worth an article in the New York Times.