Slashdot Mirror
Market Data Firm Spots the Tracks of Bizarre Robot Trading
jamie spotted a fascinating story at The Atlantic about "mysterious and possibly nefarious trading algorithms [that] are operating every minute of every day in" the stock market:
"Unknown entities for unknown reasons are sending thousands of orders a second through the electronic stock exchanges with no intent to actually trade. Often, the buy or sell prices that they are offering are so far from the market price that there's no way they'd ever be part of a trade. The bots sketch out odd patterns with their orders, leaving patterns in the data that are largely invisible to market participants."
Spotting the behavior of these bots was possible by looking at much finer time slices than casual traders ever see — cool detective work, but as the story points out, discovering it is just the beginning: "[W]e're witnessing a market phenomenon that is not easily explained. And it's really bizarre."
The "market" is a fucking scam.
There, that wasn't so hard, was it.
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The machine intelligences are communicating through hidden channels in our global network.
Judgement Day is close.
It's the famous Nanosecond Buyout!
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... it's just SkyNet looking after its retirement holdings.
The Mongrel Dogs Who Teach
That the trades are trying to trigger "limits". ie. Someone may have pre-programmed a system to automatically dump stock if the price tanks, so when one of these trades comes in the price looks as if it is tanked, the stock sells and the buyer snaps up a bargain.
Nullius in verba
It's probably someone programmed it to spam with lowball offers in hopes that some actually succeed. It wouldn't take very many successes for the buyer to make a profit.
Looks like someone misplaced another decimal.
Orwell was an optimist.
This looks like high frequency traders have moved on from just gaming the market and now are trying for flood each other with bogus data hoping to trigger a bug in the competition's software or simply overwhelm it.
"The "market" is a fucking scam."
I think I'd prefer to say that the market has a purpose, and that purpose has absolutely nothing to do with maintaining wealth for the casual investor. Once you abandon the idea that the market gives a damn about the solidity of retirement accounts or the portfolios of the masses, then it's easier to accept that the purpose of the market is to move money around and around in a big circle, while slowly siphoning it off into the pockets of particular groups.
Stocks are a massive game of hot potato. Whoever is holding the stock with the game is over gets burned.
I say it's not necessarily a scam because it should be clear to anybody looking in that this is how it works. Like the rake at a poker game, if you wait long enough the house has all the money. This fact isn't hidden - you just have to wake up to the implications.
It's quite obvious to me. Those trades are going up to test and confuse the competitors' trading bots. That's what I would do.
If it's confusing to real people, then it's certainly confusing to a bot trading program.
They are designed to create timing opportunities in other trades.
Its corewars, but with real money instead of simulated computer memory.
http://www.corewars.org/
The name of the game is to send a "signal" that confuses the other guys bots, such that you fool them into making you money.
Very much like aircraft radar guided missiles vs radar jammers vs anti-jamming missiles
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
They're obviously designed to manipulate trading volume in order to fuck with the church of technical analysis believers.
When you understand how the spread of ask/bid prices impact candlestick charts, and subsequently: the market's perception of bullish and bearish indicators, you can see how sinister this really is.
http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:introduction_to_candlesticks
I read an interview a few weeks ago about these trades. When we're talking about the majority of all stock trades being done by these incredibly fast bots, where people are looking for every possible advantage, there are many tricks. One of them is to flood out a huge quantity of bogus bid/sell offers in sufficient enough bulk that it may cause your competition's bot to slip a few micro seconds. Just enough for your own bot to snipe a fraction of a cent advantage.
If you are interested in the 'Cyber-War'. Forget China, head to Wall Street.
-Rick
"Most people in the U.S. wouldn't know they live in a tyrannical state if it walked up and grabbed their junk." - MyFirs
I have a simple solution for problems that could be caused by these high-speed robots doing the trades, and also for eBay's 'sniping' problem (where your item sits for days untouched, and then the bids all land in the last thirty seconds).
Just add some 'fuzzy logic' to the time things happen. eBay auctions would randomly end 'between 10:05 and 10:10", forcing snipers to bid before the end of the trading. Same for the stock market, just have trades execute, by law, on a 'random' basis within a certain time period after they're filed. I'm not sure what the right balance between stability and liquidity is, but I'll guess that a two minute window would discourage most high-speed trading.
"Sometimes, I think Trent just needs a cup of hot chocolate and a blankie." -Tori Amos on Nine Inch Nails
Usury is the sin of lending money for unfairly large amounts of interest. Capitalism is an economic system of lending money for as much profit as possible. Capitalism makes labor subservient to money. It lets people expand their power over others, not by working, but by lending. This unfair adjudication of risk and reward, and the subsequent consolidation of power into fewer and fewer hands, is why many religions, at one time or another before the rich took them over, considered usury a fairly serious sin.
The rich do not have to work to earn a living, they just sit back and let the money roll in. Supposedly the return they get is for the risk, but there is no risk involved. The rich can buy politicians, laws and experts who, in practice, reduce the risk to near zero. The average investor faces at least some real risk, but not the truly wealthy.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
High frequency trading is an abuse of the system. Stop it, take the market away from gamblers and return it to investors.
Doesn't seem to me that it is just "bizarre". Whenever someone is doing something "for no reason", look other way! Seems some kind of ninja smoke for me. Maybe there are even thousands of bots that are trading normally but we don't notice. The real thing is that if you control a LOT of this bots you can suddenly begin to drive the trade market to where you feel like.
Anyway, didn't RTFA yet..
This is not 'weird' at all. It's just one bot trying to fool another by making it think there is excess liquidity on one side. Oldest trick in the book. Also entirely against the rules. So it proves there are slugs out there gaming the market, but there's no question about WHAT they are doing, that's perfectly transparent.
"Malo periculosam, libertatem quam quietam servitutem." -- Jefferson
WoW has rules against using scripts, bots, and 3rd party programs to play for you. Failure to abide by the rules get you banned.
The stock market trading system has no rules against scripts, bots, and 3rd party programs to buy millions Every time I think about how WoW regulates the artificially increasing of fake wealth while the stock market has no regulation regarding the artificially increasing of actual wealth, I die a little inside.
I judt got a nre Kinesis keybiartf so please excusr ant egregiou typos.
My problem here is the quote "Unknown entities for unknown reasons are sending thousands of orders a second through the electronic stock exchanges". How can you have unknown entities trading? They have to be identifiable in order to make a trade! Or am I insane?
This is probably just testing by foreign actors to see how hard or easy it is to destroy the market, don't worry about it. Keep you gold under your mattress and everything will be all right.
It's called a "ping" and there's a perfectly good explanation for who is doing it and why... you can lead them to google but you can't make them search.
Is this anything like the IP-in-DNS, or, that the pattern/trade IDs and prices are coded messages?
Could be off-the-books messages passed between individual traders and/or houses.
Looks like the trading links would be a good place for a real-time wiretap to capture insider trades that do not show up in the email and 'phone logs.
Back when I used to play MUDs, I remember setting up triggers in Gmud. I idly thought to myself, "What if I could do this with the stock market?"
Back when I used to play World of Warcraft, I remember all the auctionbots people would set up to automatically undercut you down to one copper over what was profitable. You could search for a specific item, see one person selling it for say, 1000 gold, put your item up for 990 gold, search for that item again, and see that all five of their items up for sale are now 989 gold and 99 silver. If you set it somewhere absurdly low like 500 gold, it would be bought out by a bot within seconds of posting it. Of course, after buying it, their prices were back to normal. Of course botting is illegal in World of Warcraft.
Again, I applied this thinking to the stock market. What if you had bots to buy if the price was favorable for very popular stocks, but they could manipulate the market to make the price favorable? This kind of manipulation can and will lead to some dire consequences as people no longer act predictably for fear of the bots manipulating them.
Job? I don't have time to get a job! Who will sit around and bitch about being broke and unemployed then?
I suspect that a fair amount of this is emergent behavior - complex patterns from simple rules. For example, if two bots are making test purchases of a stock, one penny greater than the last buy, up to a fixed, you end up getting these odd patterns. The two programmers may not have planned the interaction at all, though they have these weird Game of Life sort of patterns in the data.
I've never really understood the complaints about eBay sniping. Set your maximum bid at the actual maximum that you want to pay. Whether someone snipes or not, if your bid is the highest you will win. If it's not, you won't.
Even if it is an actual problem for some reason though, I'd think that the simplest solution would just be to extend the auction slightly every time there is a new high bid. Add 5 or 10 minutes every time the bid increases, and sniping would be totally ineffective.
Sturgeon was an optimist.
Please don't call this fuzzy logic. Fuzzy logic is a generalization of traditional logic (see http://en.wikipedia.org/wiki/Fuzzy_logic) It is deterministic and NOT inherently random. Sure, you can add randomness to it, but adding randomness does NOT make something fuzzy logic.
So put that in your pipe and grep it
The solution to the eBay sniping problem is to operate like a real auction, i.e., when the auctioneer gets a new bid as he is counting down to
close the auction, the closing time gets extended. So, for example, every bid on eBay in the last 5 minutes extends the closing time by 5 minutes. Same rule applies to the new extended closing time. So no one willing to continue bidding ever gets cut off by the clock.
I've seen this reported on Zero Hedge for months now. The purpose of spamming the market with order quotes is to slow down the competitor's computers, to give you a slight edge in monitoring the market. Basically, you flood the market with order quotes. The competitors' algorithms have to take these into account, while your algorithm can be designed to ignore them. This gives you a slight edge over the competitors in processing actual market data and making determinations.
It looks to me like the orders are trying to match against dark pool bids/asks, and/or all-or-nothing bids/asks. Another possibility is that they are trying to extract non public information from the trading system by purposefully loading the system down and timing responses.
High frequency trading bleeds money away from institutional investors (by sussing out dark pool bid/ask levels) and from market makers (by stealing ETF rebates for volume). Also, most brokerages use fairly simple algorithms to handle market orders which can be sussed out by the more sophisticated algorithms used by the HF traders.
None of this will really effect the retail investor, it amounts to a penny or less on some transactions. Frankly, people have it easy these days where the bid/ask spread is a single penny. When I began trading in my late teens the bid/ask spread was in fractions and was considerably more than a penny. Retail investors get much better pricing these days.
-Matt
The irony is strong with this one.
You have proposed a solution to introduce more accountability, transparency, or ethical considerations into the free market. Wall Street will not accept your proposal because your solution:
(x) reduces profits gamed from the current flaws
(x) introduces accountability
(x) introduces transparency
(x) introduces ethical considerations
You're right. Sorry about that, I hadn't read-up on the term.
"Sometimes, I think Trent just needs a cup of hot chocolate and a blankie." -Tori Amos on Nine Inch Nails
Recently the exchanges are starting to get tougher on brokers as far as the maximum number of unfilled or modified orders they are allowed. In turn the brokers are getting tough on clients that are submitting too many of these bogus orders.
The ratio of people to cake is too big
Interesting idea. IIRC eBay already has an anti-snipe option to delay the close to X minutes past the last bid.
Some sort of automatic low bid type thing? Let's say you see 50 brand new cars on eBay with no reserve and you automatically bid $10 on every single one, knowing you have practically no chance in winnin, but thinking that one might stand. Perhaps its an automatic feed designed to buy shares of say, Walmart, but only if it hits .30 cents a share?
Robots are evil, and they eat old people's medicine for food.
Very interesting article. I find the comment that these might be test runs, or high frequency traders testing their algorithms before the markets open to be fairly reasonable. If you're trying to see if your program works, and you don't actually want to run a bunch of transactions, you might just set up loops that increase the price by steps, or increase the number of shares by steps.
They do exactly this in New Zealand on TradeMe. Auction extends by two minutes every time a bid is placed within two minutes from the end. Great system for sellers; irritating as hell for those used to 'sniping' bargains on eBay while still resident in the UK. Probably on balance a better system though.
Violates a principle of business law: these machines, despite being machines, know the price they're going to trade at before they agree to the trade. If you put in fuzzy timing you are also necessarily putting in fuzzy pricing.
You and me, since we have to go through brokers, are always dealing with fuzzy pricing when we make "market" orders, and speculating that our price will be met in a reasonable time when we make "limit" orders. We can never look at the book and say, "give me 200 of that 1000-share offer at the asking price". But we cede our rights to know the facts when we sign up with a broker instead of becoming licensed to trade directly in the market; in return, we get some measure of protection from the regulations we place on brokerages, but that of course is an imprecise system in itself.
and the whole system as well?
Or simply seal all bids until the end, or only allow one bid... Then no one knows what anyone else has bid and you don't get into lame "over spending" bidding wars.
The problem with sniping is that people rarely have a hard maximum -- and even rarer that they stick to it. Plus, seeing other people bidding on an item spurs others to bid on it. I've seen items not sell repeatedly (relisted 5+ times, at the same price) yet get plenty of traffic; as soon as one person places a $0.99 bid, the bidding war is on. (nobody is interested until someone else is.)
Correction:"the guy who buys water bottles in one spot and tries to sell them dearer in the same spot"
The guy who moves them around performs some kind of service.
It just means that the person selling gets a worse price that they would have otherwise(though possibly sooner) and the person buying gets a worse price.
The Slashdot method: "You must wait a little bit before using this resource; please try again later." They never tell you how long you must wait...
For justice, we must go to Don Corleone
The problem with automated sniping, and these algorithmic trades, is that there's no real evaluation going on... If ten people are bidding for my item, I expect the price to go up until people drop out. If there is a sniper, they usually win the item. Now imagine that there are only three people bidding, and they're all snipers. Whoever has the best sniping tool wins the item. That's lame.
I heard a number that may or may not be true... That historically, the entirety of capital in the stock market turned over at about 30%/year. These days, it appears that the number is 320%/year. Sure, liquidity is a generally a good thing, but I think we're well past the point of diminishing returns; we might even benefit from some 'stickiness' to the market.
Also, I just really don't like the idea that someone using a sniping tool or a 'wired-in' computer has a competitive advantage that's not available to regular traders. That's just not ethical. It's one thing to sell trading tools that make the job easier, but the idea that some database can unload tens of billions of dollars in the time it takes for my monitor to refresh is insanity, and it's setting us up for some really bad times.
"Sometimes, I think Trent just needs a cup of hot chocolate and a blankie." -Tori Amos on Nine Inch Nails
That makes a hell of a lot more sense than any of the other explanations that have been posted. "Never attribute to malice what can properly be attributed to incompetence" -- ideas like shadowy international organizations communicating coded messages through stock trades or self-aware machine intelligences a la Skynet forming on the exchanges are certainly entertaining, but they're not needed to explain this phenomenon.
What is needed, of course, is an explanation of why We The People put up with this crap, when traders and their bots are playing Life not with blobs on a screen, but with our whole economy.
The correlation between ignorance of statistics and using "correlation is not causation" as an argument is close to 1.
In the absence of sensible regulation there are many abuses of the "free market" that effectively destroy it and turn it into a rigged game to benefit the already rich and powerful. Monopolies. Cartels. Price fixing. Trading on one's own account ahead of a customer.
These special access high-speed connections to the stock market exchange are market fixing tools, pure and simple. They allow the trading firms to skim the market for their own profit, thus defrauding every market participant in the world who lacks these powerful and privileged tools.
Requiring all buys to be held for a "long" time (a minute?, an hour?) would kill a lot of these shenanigans. Also requiring the link to go through a regulated buffer that introduces a random delay of a second or so would also take the wind out of their sales (pun intended). Or maybe we just impose a fee on each transaction so that they aren't free. Sub-millisecond trading loses a lot of luster if you automatically incur a charge equal to 0.1% (or something) of the stock's value.
Starships were meant to fly, Hands up and touch the sky - Nicky Minaj
Buggy trading software. Since the transactions never complete nobody has noticed (or at least bothered to fix it).
Warning: this article may contain humor, sarcasm, parody, and perhaps even irony. Read at your own risk.
Sniping is not a problem, it is a solution. You have to be a fairly naive eBay bidder to reveal your bid limit before bidding is essentially over. If you place a plain bid, you are vulnerable to 1) bidding wars from weak-willed folks (i.e. human beings) who don't set a personal bidding limit and 2) those who will "data mine" by incrementally upping their bid until they beat the top bidder, while at the same time trying to limit their upside risk. From a bidder's perspective, a snipe is ideal: it encourages you to do your research and set a firm bid limit up-front. I find this to be a vastly more relaxing way of bidding, since I've done my homework beforehand and avoid the temptation of stupid bidding wars. Likewise, it doesn't expose your bid (or even your intention to bid) until the last moment.
Frankly, I think sniping should be the standard bid mechanism for eBay auctions. I suspect that they'd never do it because it would reduce revenue by some amount.
Stocks are a massive game of hot potato. Whoever is holding the stock with the game is over gets burned.
When is the game over? Do you mean when a company declares bankruptcy? (the game is over for that stock) Or when the market falls? (it goes up and down constantly) Or is the entire stock market going to crash and burn? (end of American society as we know it)
I agree that the goal of the stock market is not to maintain wealth--if you just want to maintain, you can't beat inflation-protected Treasuries. The stock market is a way to grow wealth, and the winning strategy is not a secret: dollar cost averaging and low-load index funds. It's not a get-rich-quick scheme, but it will grow wealth if given enough time.
If you're wheeling and dealing individual stocks, yeah, it's more like gambling. But that is only one way to play the stock market.
Build a man a fire, he's warm for one night. Set him on fire, and he's warm for the rest of his life.
If I were to speculate (and of course I am speculating), it might be programmers testing new trading schemes or routines -- using values that can't possibly generate a viable trade --- or possibly left over debug routines still running on the computers doing the trading. Or maybe the matrix has another glitch in it...
The NSA: The only part of the US government that actually listens.
I could argue that the person doing day trading also performs the service of moving around a good that some people need to buy and some others need to sell (even if minutes/hours later).
And you would have a bad argument. Day traders, by and far, make random actions on the stock market in an effort to milk the system for money. They don't really provide a service. They are not beneficial to society on the whole.
More so with these bots and the people running these bots.
This is getting to be such a mess that the future of stock markets may be something like an auction in each stock every 15 minutes or so.
Some very low traffic markets work that way, as infrequently as daily. The debacle in electricity markets indicates that can help. Electricity markets are now mostly "day ahead". But for a few years, California had an "auction every 30 minutes" system. That was too fast; it could be gamed so much that there were blackouts. Moving to a daily system damped out the transients. The stock market doesn't need as much damping, because it has inventory, but it needs some.
Can such fast no-trading be used by people as a communication channel?
I've never really understood the complaints about eBay sniping. Set your maximum bid at the actual maximum that you want to pay. Whether someone snipes or not, if your bid is the highest you will win. If it's not, you won't.
You are right in principle, but...let's say I see something now and decide I'll pay $50 max for it. If it sells for $50.01, well damn, I would have paid $50.01. I might not have paid $60, but one cent more?
It's really hard to find the exact to-the-penny point where your "no, I won't pay that" mode is tripped. Virtually everyone will pay a few cents more than their maximum bid - and hence, snipers flourish and cause angst. It's not a case of paying 20% more - that's obvious - it's a case of paying .001% more. Most people can't focus their "maximum that you want to pay" that finely.
Advice: on VPS providers
They should also use the other Slashdot method to limit trading: "Don't use so many NUMBERS, it's like YELLING!"
I've never really understood the complaints about eBay sniping.
I suggest you spend more time considering the issue.
Set your maximum bid at the actual maximum that you want to pay. Whether someone snipes or not, if your bid is the highest you will win. If it's not, you won't.
But this a suboptimal strategy that will result in you paying more for the item than you could otherwise get away with. There is a psychological and competitive aspect to bidding, that induces people to up their bids. By bidding your maximum and then leaving the following will often occur: (Say you bid $100.00)
Here's typical scenario... ... yeah, what's another $5, and bid again. ooops outbid by you to $56. Again... what's another couple bucks... oops outbid again at $57. They give up and wander away. You win the auction, at $57.
Another Regular Person X bids against you, $50, and sees that you've outbid them at $51. They think to themselves, $52
But if you had sniped, Person X would have bid $50, saw they were top bidder and walked away. You come in and snipe $100 at the last second and you walk away with a winning bid of $51. Not sniping cost you an additional 12%. That basically amounts to a stupid tax on your proposed bidding strategy.
Meanwhile from the sellers perspective, they hate sniping because they "lose" money. The auctions end before the true 'maximum' bid is allowed to be discovered. That 12% you would have saved by sniping is 12% the seller would have gotten.
So regular buyers and regular sellers both are irked by sniping, while the only people who benefit are snipers. The entire point of an auction system is to place goods into the hands of the person willing to pay the highest amount. In economic theory an auction is a 'perfect market' where demand and supply meet exactly. Sniping distorts it by enabling auctions to end before the true price is properly set.
I'd think that the simplest solution would just be to extend the auction slightly every time there is a new high bid. Add 5 or 10 minutes every time the bid increases, and sniping would be totally ineffective.
I also suggested this to ebay 10 years ago, as a simple fix. Technically, I'd say 5 or 10 minutes isn't enough. In practice the auction should probably be extended an extra day so that all interested parties have time to check and revise their bids. (If an auction ends at 3am, having a window of opportunity to revise my bid until 3:10am isn't really enough. You need enough time for participating parties to receive their email notifications that they've been outbid, and to come back and update if they wish.)
Some people have argued that this would extend an auction indefinitely, but I disagree. I would however, bump up the bid increments to help prevent auctions from being drawn out. If a Pez dispenser is going to sell for $1.10, dragging it out another day so someone else can bid $1.20 is just stupid.
Now some sellers value having a fixed closing for auctions for whatever reason and for them... implement a silent auction where all bids are held in secret until the end.
I've personally run into this before where a seller set up a shill account to run up bids near the close of the auction to force up the final bid. I reported it as fraud and had the account in question shut down. That's one case and I've heard of it happening to other people as well.
Max bid only works if you're willing to risks of paying out the nose for something or you only have a casual interest in getting the item to begin with. The other side is, if you absolutely need to get the item but want to pay the least amount for it, sniping is about the only way to accomplish it.
mods expose a metric ton of data not available with pristine game client (to the point the game is pretty much unplayable without them), if you really want you can know exactly how long the auction is going to last. Besides people say that 5 mins is added each time someone bids up.
You're confused about what a right is in the united states: http://en.wikipedia.org/wiki/United_States_Bill_of_Rights I don't see anything about high frequency trading in there.
You might want to read that article again before calling anyone else confused, and pay some attention to the 9th amendment: "The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people." In other words, you can't simply deny something is a right by saying "I don't see anything about [it] in there". That's not at all to say that HFT should be construed as a right, but your logic in reply to the GP is faulty.
Momentarily, the need for the construction of new light will no longer exist.
The solution is simple -- just tax each trade say one dollar per trade. It's not enough to bother the legitimate trades as all of them are for substantially more than a dollar each, usually thousands of dollars each. This would prohibit using the trading system to make a DOS attack on a competitor. Unless you are prepared to pay the tax.
"Unknown entities for unknown reasons are sending thousands of orders a second through the electronic stock exchanges with no intent to actually trade"
Don't know if I should laugh or cry when reading this sentence...
First of all, the 'unknown reasons'.
I have no experience at all with the stockmarket but I'll take a shot at it...
My best guess is that that unknown someone wants to make money, and shitloads of it. Or opposed to that, the unknown someone doesn't want someone else to make money.
I'm just guessing here ofcourse, maybee the unknown someone has nothing better to do with that ultrafast trading bot that just happened to land in his hands.
But what really disturbs me is the 'Unknown entities' part.
How can that be? How can someone make thousands upon thousands of transactions and remain unknown?
To my understanding everything and everyone on the stockmarket is logged and checked. The stockmarkets are the worlds economic fuel and yet we let unidentified robots play with it without so much of a check or regulation?
Insane...
Can someone here shed a light on this?
Life starts at the end of your comfort zone.
What I'm curious to know is how many congressmen and congress women are profiting from this sort of thing. Let them partake in the benefits of this sort of trading and they'll be disinclined to raise a stink about it. As far as anyone is concerned they're merely invested in the stock market like the rest of us.
I don't foresee anything ever being done about this, they barely did anything at all about the financial bubble from a few years ago.
They arent really interesting in trading if they are canceling most of their orders immediately after placing them. They are doing something else.
Yeah, that's great until the sellers 'friend' decides to make several bids on the assumption that your price will not be at max right away.
The Kruger Dunning explains most post on
"There is algorithmic terrorism and then there is reverse engineering, which is probably just part of good business practice," Bates said. ..
can we please stop the 'terrorist' thing? please?
IANAL but a general concept is that whatever is not harmful, the law shall not forbid.
And this will be the implement of destruction, with it our God The Market will fall.
For best results, avoid doing stupid things.
The competitors' algorithms have to take these into account, while your algorithm can be designed to ignore them.
So what if everyone does this? Seems to me the net effect would be to introduce a delay into all electronic trading?
The time advantage is relative, so even if everyone is already delayed a bit, it would be to your benefit to try to delay your competitor even more. Thus the incentives would create longer and longer delays over time...which is exactly what most people want to happen to automated trading.
Build a man a fire, he's warm for one night. Set him on fire, and he's warm for the rest of his life.
You don't have to make it a random time. My understanding (I'm not a financial genius, but this is according to what I've read) is that some of these high-frequency cheats can be defeated just by setting discrete units of time, so that the issue can't come down to who has the fastest computer and the most direct line. Make it so all trades are executed on the minute mark. So all the trades that you request between 12:00 and 12:01 execute at 12:01, and all the requested trades between 12:01 and 12:02 execute at 12:02. Nobody can see the pending trades until they execute.
The unit of time doesn't have to be a minute-- it could be every second, and it would still defeat some of these things that are happening because people are competing over microseconds. I don't actually know if that works, though, or whether that introduces other problems.
I have a simpler solution to this: tax transactions. Seriously, the London Stock Exchange does it. You don't even have to tax excessively, simply tax each transaction a fixed amount (say $.25) or a very small % (like 0.005%). Why should high frequency trading even be allowed? This tax would also kill automated frontrunning. If churn is the problem, there are ways to slow things down.
Make sure everyone's vote counts: Verified Voting
It occurred to me when looking at the charts that the stock market quote system is the perfect way to send encoded transmissions- the sender/offering entity is almost impossible to trace back and the receiver can remain entirely anonymous since almost anyone can look at stock pricing charts. Next, the patterns can be nearly impossible to detect, especially if several sources are linked together to make one transmission system, since the system is filled with lots and lots of what amounts to 'random noise' in the millions of non-encoding quotes/trades out there.
A sender would also have a significant amount of bandwidth given the number of different ticker symbols, the frequency of quotes, the rate of change between quotes, the direction of quotes, etc.
Normally, a casual observer wouldn't even notice the signals present at all. In this case, a potentially unrelated event (the flash crash) caused more scrutiny, but, supposing this are encoding signals we're witnessing, we still don't know what they mean or to whom they were sent.
-Ryan
AUWYHSTOT (Acronyms are Useless When You Have to Spell Them Out Too)
If you want the item, the solution is to bid what you feel the item is worth, rather than to bid a number that is what you'd like to pay.
If you see something and bid $10 on it, knowing that it normally goes for $20, then if someone snipes that, you've failed at bidding. If you bid $20 on an item you feel is worth $20 (and the current bid is $10), you can still get it for cheap (if no one else wants it), but if someone tries to snipe it, they will end up paying more than you feel the item is worth.
In practice, you'd need to inflate your max bid if you /want/ this item, and are willing to outbid someone else who values the item similarly to you.
If these quotes are sent to one market and then forwarded to other markets, it tells the creator of these quotes information about the latency between all the markets.
There is a requirement to execute at the national best bid or ask.
http://en.wikipedia.org/wiki/National_best_bid_and_offer
If you see an order to buy on market A and you are SUPER fast, you can buy the shares at a good price on Market B and then in an instant turn around and sell them for profit.
Problem is, I don't know if these off market quotes are forwarded to all the places for execution.
I don't see why this is a big deal, though. If you bid $50.00 and it sells to someone else for $50.01, all that happened is that you failed to buy something. For you, that's a neutral outcome, not a bad one. The sniper bought the item they wanted and the seller got a fair price. Everyone either won or broke even. No harm happened to anyone. What's the problem?
"Believe me!" -- Donald Trump
An identical story linking to the source of the analysis (Nanex) was posted in June: http://news.slashdot.org/story/10/06/24/1519257/Flash-Crash-Analysis-of-May-6-Stock-Market-Plunge?from=rss . This article is just based on picking bits and pieces from the Nanex analysis and linking back to it...
The market has for the past century been government sanctioned gambling. There has been no real business conducted "on the market", and we all end up having to pay off these problem gamblers. These gambling/market robots are just another part of the game so that "the house always wins". The house are the well known and dodgy investment banks, and of course government eager to take their cut^H^H^Htax.
No problem. It's a real problem for fuzzy logic. People have a misconception that its less accurate and random. As a result it has never (imho) gained the popularity that it deserves.
So put that in your pipe and grep it
It doesn't even need to be random. Enforce all trades to exist for more than 2 ticks (say 1 second) then no trader will have the 'high frequency' advantage.
Doesn't help with ebay tho
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Learn how the judicial review process works. Congress can declare anything they want to be illegal, and pass a law saying so. And then the courts can strike down those laws when someone challenges them, and affirm that there *is* a right that is being abridged by that law.
The "legality" of something is not a perfect indicator of whether or not that thing is a "right". It used to be "the law" that a black person couldn't marry a white person. Or sit in the same area. Because that law got passed, are you saying that there was no abridgement of the rights of black people? Or would you instead draw the obvious conclusion that the legislature sometimes (maybe even OFTEN times) gets it wrong, and that's part of why the courts are there, to uphold our rights when the government infringes on them?
Now, is "high frequency trading" a right? You'd have to actually define what you mean by "high frequency trading" to be able to say. Not all "high frequency trading" is a bad thing, so the question is, where do you draw the line? Remember, even "free speech" has limits to it that have been upheld in the courts.
> The problem with automated sniping, and these algorithmic trades, is that there's no real evaluation going on... If ten people are bidding for my item, I expect the
> price to go up until people drop out. If there is a sniper, they usually win the item. Now imagine that there are only three people bidding, and they're all snipers.
> Whoever has the best sniping tool wins the item. That's lame.
That's an incorrect assessment. You could have the lamest sniping tool in the world, and you'll still win if you set the maximum price you're prepared to pay higher than the other 2 snipers (assuming your sniping tool actually works). The person who offers the highest amount of money before the auction ends is the winner. That's it.
I don't see how much more simply this situation can be explained. It's exactly what you'd want to happen in an auction. Perhaps you're sad that people aren't being drawn into an emotional `i must win` battle near closing time which will push the amount of money you'd receive as a seller up? You're welcome to set a reserve. Sometimes people suggest stuff like extending an auction by 5 minutes if someone bids in the last 5 mins, but I fail to see what this would achieve, other than to drag out an auction even longer than the, say, 1 week the seller sets it at. It inconveniences the seller, who just wants the auction over, and does nothing to help potential buyers, who continue to be free to set their maximum price right at the start.
The President made an interesting observation in an LA-Times interview. It's a shame that so much brain power is spent on "gaming" financial transactions instead of inventing products of the future.
Table-ized A.I.
Sniping is stupid because it wastes my time. Say I want to buy a single widget. I find it on eBay and place a bid. I wait 2 weeks for the auction to end. It looks like I'm going to win the bid, then I'm sniped at the last minute. Now I go find another widget. I place a bid on that one, wait 2 weeks, and I'm sniped again. I place a bid on a third widget, wait 2 weeks, and this time I manage to win the widget. Total time to acquire said item: 6 weeks and 3 search sessions on eBay.
The way it would work without sniping is: I find a widget and bid on it. I'm instantly outbid because the people interested in it have properly placed a maximum bid. So I go find a different widget. Place a bid, and am instantly outbid. So I find a third widget. This time my bid is the max, and two weeks later I have my widget. Total time to acquire said item: 2 weeks and 1 search session on eBay.
Unless you're willing to bid on multiple widgets when you only want one (and risk winning more than one auction), sniping wastes the time of every bidder who doesn't win. The whole point of the Internet is to speed up communication and interaction between people. Sniping slows it down. The only reasons eBay allows it is because it creates uncertainty, thus encouraging people to bid higher than they really want to (translating into higher prices and more profit for eBay). And it forces people to come back to their site over and over again at a different date.
Sure there will be some robot bidders but also in all that noise, in that huge volume of data, with world wide access, just how difficult could it be to place therein a modulated communications channel. Now I am not saying that any of those signals currently are, but it is an interesting thought to me on yet another way to send a disguised message.
Orationem pulchram non habens, scribo ista linea in lingua Latina
... isn't that the mysterious bidders are "testing" the market to see if anyone is selling or buying at outrageous prices. the problem is that the bids being placed are not placed in good faith -- this is against the law in the USA.
the crazy, high-frequency bids are placed and then cancelled at high speed. they act as place holders waiting in line for the price to move in their favoured direction. however, since the vast majority of the time the bids are cancelled, they never execute. this results in the mirage of liquidity and the inevitable "Flash Crash" where sellers come in and all the buyers instantly disappear.
check out my comic: Essential Tremors
Or use a Dutch auction; start with the highest price that the seller expects to receive, then the price is periodically lowered until someone goes for it, at which point the item is sold.
I snipe, and I always set it to my max bid, and I'm always happy when I lose (I usually do), because I set the amount I did because that's what I think the item is worth.
If somebody gets upset because they don't understand proxy bidding, I might suggest that they try going out and buying a lottery ticket instead. That system seems to be designed for them.
If you extend the auction, sniping software will be re-optimized accordingly. You set your max bid, and the sniping software will wait until 2 minutes before the end and bid 1 increment higher max. Then it will wait a day or whatever until it is 2 minutes before the end, and again up the bid unless you're past the max. The buyer doing the sniping doesn't care if the auction runs 3 months, since they're doing this on 300 other items in parallel and one of them will eventually win, at which point they abandon all the others. At no point do they hold more than one winning bid, so they have no real risk. The only person who loses out is the seller, and anybody who actually wanted to win an auction in a timely manner...
Or, you could employ a smarter strategy. Find 35 of those widgets you want, and tell your software to snipe all of them, winning only one (or however many you want). The software will bid on one item at a time in the last 5 mins until you get one.
If you bid on items anyway in the order their auctions end, you don't waste all that much time even if you don't snipe. When that item goes over your max bid, then you bid on an item ending in a day - not in a week. If auctions are a week apart, then you're going to end up waiting a week with any bidding strategy.
The only reasons eBay allows it is because it creates uncertainty, thus encouraging people to bid higher than they really want to (translating into higher prices and more profit for eBay).
No, it encourages them to bid what they REALLY want, not what they think they want.
Face it, you're not going to really get an $800 brand new digital camera for $200, no matter how many auctions you bid on, or what strategy you employ. Sniping might get it for $790 instead of $800, but it is rare for there to be genuine bargains on an auction. Sure, you can get items that aren't in mint condition for less than mint-condition prices, but that isn't a bargain.
Now, if people really did put in their max prices all the time, sniping would end pretty quickly (for the most part). It would add no advantage. However, most people don't actually bid their match, which means sniping involves less competition with other buyers, which means there will always be incentive to do it.
So if you went to the grocery store and as you were about to check out, some guy jumped between you and the register and emptied your cart without you or the cashier asking them to do that, you'd pay him for it?
That's what these HFTs do.
No, the solution to ebay sniping is extending the Auction to expire 10mins after the last bid.
Gray Auction use this method, it more simulates a real auction, and works well.
46137
What's the matter with you people? Back in the day, Slashdotters would have figured this out immediately.
It's the *terrorists* using the bid data as an out-of-band *communication protocol* for transmitting *encrypted messages*! Remember? Like they were doing with steganography in eBay auction photos? The brilliance is they are using our own tools against us!
Bear with me a moment, pour yourself a large frosty mug o' xenophobia, and think about all those *overseas programmers* in the financial industry. Why, if we don't stop them, they'll probably code up some *derivative bots* that will f-up the mortgage industry!
Eloi, Eloi, lema sabachtani?
www.fogbound.net
Finally adjudicated? As in bankruptcy?
WTF are you babbling on about?
The * is worth whatever someone will pay for it.
That's right blair1q Enron really was worth all that money way back when (even though it was all fraud).
The money made was green and spent just the same (as long as you were not part of the fraud).
Stocks must be liquid for markets to work at all efficiently.
It's much harder to raise capital for a private corporation vs a public one.
There are several reasons for this but stock liquidity is definitely a feature for all investors (including but not limited to those that get in on IPOs).
It should be noted that most holders of IPO stock were previously holders of private stock (Founders, Angels, Vulture Capitalists etc), not Wall street insiders.
It should also be noted that IPO are 'Initial Public Offerings' not 'Only Public Offerings', companies raise capital with new stock offerings all the time.
I will agree with you that speculators are just gamblers who lower the signal to noise ratio in prices.
I'd tax any market gains from positions held less then a year the same a gambling winnings.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
I snipe, and I always set it to my max bid, and I'm always happy when I lose (I usually do), because I set the amount I did because that's what I think the item is worth.
Well DUH!
The only people who benefit from a sniping system are people who snipe. Regular people and sellers each get screwed. You benefit.
If somebody gets upset because they don't understand proxy bidding, I might suggest that they try going out and buying a lottery ticket instead. That system seems to be designed for them.
LMAO. Its you that are playing the 'lottery' by sniping, where you hope to snag an item for a given amount, and have the auction close before the other participants can reconsider or react to your bid. In a normal auction everyone knows exactly what the price is, and everyone has an opportunity to react to each bid.
The buyer doing the sniping doesn't care if the auction runs 3 months, since they're doing this on 300 other items in parallel and one of them will eventually win, at which point they abandon all the others.
If you extend the auction, sniping software will be re-optimized accordingly. You set your max bid, and the sniping software will wait until 2 minutes before the end and bid 1 increment higher max.
1) And what exactly would that accomplish, -except- drag out the auction longer, and give more people a chance to get in on it, driving the price up higher? The sooner the auction ends the lower the price will be, so better to bid your max early, and let it close quickly.
2) I specifically proposed upping the bid increments to ensure auctions would not run for a protracted length of time.
3) The premise that the sniper doesn't care because he's bidding on hundreds of them doesn't apply to pretty much anything I've ever used ebay for. From models, classic lego, books, etc there is usually between 0 and 2 of the items at any given time. And anything one can buy when there are hundreds available on ebay? I usually just 'buy it now'... or even more likely... 'buy it elsewhere'.
The only person who loses out is the seller, and anybody who actually wanted to win an auction in a timely manner...
The seller gets the maximum amount that anyone was willing to spend. They don't lose out.
And suitable bid increments ensure that the auction won't run all that long.
... that is, if people are doing this kind of thing to gum up the works for their competition, one answer is to assess a very small fee per trade, less than a penny. This would be completely negligible to a normal investor, but could be quite expensive to those trying to saturate the system for the benefit of their trading algorithm. Market-makers like Goldman Sachs would also wind up paying significant amounts, but given their privileged position which basically gives them a license to print money it's only fair. The fees collected could go into an insurance fund to help cover the next financial meltdown, and if it slows down trading a bit, that may well be a good thing. Complex nonlinear systems have a tendency to go unstable, and damping is one way of decreasing this possibility.
If I cut in front of you in line and buy the last of an item you intended to purchase, I am only causing you a neutral outcome. But it is still rude. Notice that people care somewhat less when they are sniped by a bidder who did at one time themselves have a winning bid, than when sniped by a bidder who showed no interest before the closing moments. This is because we use the number of bids and distinct bidders to gauge interest in an item when determining our own max bids. It's not logical (mostly because of sniping) but if I see bidding has slowed on an item with numerous bidders unwilling to go markedly higher than the current amount I can assume that the final price will be within that same ballpark. When there are fewer bidders taking turns having the highest bid, it is likely that one will wait until the very end to actually input their highest bid, which will generally be significantly more than their previous highest bid.
The most you would have paid will always be more than the most you were willing to pay. Don't know why but it is. Could be that given a second chance to pay more we again wouldn't. But because we believe that we actually would have paid more when assuming that it would have changed the outcome favorably we then regret not going with the higher amount before.
Its you that are playing the 'lottery' by sniping, where you hope to snag an item for a given amount, and have the auction close before the other participants can reconsider or react to your bid.
I don't quite see how that is playing the lottery.
Playing the lottery is investing money in something that statistically is guaranteed to lose me money, but there is a very small chance of a big payout.
Sniping is using a tactic that at worst results in me paying what I'd otherwise have been willing to pay, and is likely to result in me paying less.
The lottery is a tax on people who are bad at math. Sniping is a tax on people who are bad at proxy bidding... :)
The intent is to game the system by creating bogus artificial demand-or lack of demand-in large enough quantities to influence trades below. Therefore,because they can do it at such a huge volume, and they know in advance what they are doing, they can use the split they have created to leverage that into a sort of arbitrage all day long. I am *guessing* right now they have to use a partner trader/bot to do the actual "real" trades following the bot shilling. Like secret partners in a poker game.
My opinion, crooked leeches, parasites, this sort of trading should be outright banned. I'd also like to see sales tax put on trades, we simply don't need this high speed trading at all, and that would be the simplest solution to this whole mess.
Would it reduce churn and volatility? Yes it would, not eliminate it, but slow it down enough to make it so actual human beings had to stop and think on what they want to do, and it would force a return to investing in a company, rather than this casino action we have now.
also see this, it's just a high tech variation: http://en.wikipedia.org/wiki/Front_running
Yeah, that might help.
Then why did you not set it at $50.01 then?
I don't quite see how that is playing the lottery.
Sniping has an element of blind luck.
Playing the lottery is investing money in something that statistically is guaranteed to lose me money, but there is a very small chance of a big payout.
Playing the lottery is buying the thrill of anticipation. I think we can both agree its not 'investing money'. :)
Sniping is using a tactic that at worst results in me paying what I'd otherwise have been willing to pay, and is likely to result in me paying less.
From your perspective sure. From the sellers perspective it is a tactic that generally results in them making less on what they are selling than what they'd have gotten in an auction where all the participants are able to bid competitively; openly knowing and having the opportunity to bid against the highest bid before the auction ends.
The lottery is a tax on people who are bad at math. Sniping is a tax on people who are bad at proxy bidding... :)
It really has nothing whatsoever to do with proxy bidding and everything to do with auctions that accept bids up to a known specific time. In particular another way to "fix" ebay's sniping issue is to have the auction end at a completely random time on the day that it ends instead of having a timer that counts down the seconds. clearly the best strategy will be to bid at the last second of the day before it ends, and hope it ends "soon"... but that's not really much of a strategy.
I would still argue that they're bidding improperly. They're offering what they want and not what they'll take.
50.01? The sniper may have had his bid set for $90, but the next highest bid was your $50. You just don't know. The fact is that you both determine the maximum amount you are willing to pay in advance, and the highest bidder wins. What you are whining about it that you don't get a chance to outbid the sniper.... guess what the sniper doesn't get that chance either. The benefit of sniping is that by bidding at the last second, you can some times bypass the bidding war that drives the price up. Yeah, that can suck for the seller.
A more fair solution would be to allow a SINGLE bid and no revisions. All the benefits of sniping (no need to be present for the end of the auction), and provides an incentive to bid a fair price which helps the seller. Essentially a sealed bid auction.
I've never really understood the complaints about eBay sniping. Set your maximum bid at the actual maximum that you want to pay. Whether someone snipes or not, if your bid is the highest you will win. If it's not, you won't.
You are right in principle, but...let's say I see something now and decide I'll pay $50 max for it. If it sells for $50.01, well damn, I would have paid $50.01. I might not have paid $60, but one cent more?
It's really hard to find the exact to-the-penny point where your "no, I won't pay that" mode is tripped. Virtually everyone will pay a few cents more than their maximum bid - and hence, snipers flourish and cause angst. It's not a case of paying 20% more - that's obvious - it's a case of paying .001% more. Most people can't focus their "maximum that you want to pay" that finely.
Whenever I bid on ebay, I choose my maximum bid, then add a couple of dollars and a random amount of cents to avoid this. Eg if I would pay about $50, I put a bid for say $53.72. Most people bid whole numbers or the next minimum increment above, so by adding a small "snipe margin" you avoid being irritated. If the final price is higher than this, well the price is higher than you wanted to pay anyway so no problem.
Sometimes people suggest stuff like extending an auction by 5 minutes if someone bids in the last 5 mins, but I fail to see what this would achieve
On a site like ebay where the site automatically increases the price up to a bidders entered maximum it is very easy to a competing bidder to get drawn into an emotional battle where they keep thinking "just a little more" until they end up paying significantly more than they originally intended.
It's in the sellers interest to encourage such emotional battles and it's in a rational bidders interest to discourage them. The current ebay setup allows rational bidders to discourage such behaviour by not bidding until the last minuite. An auto extending format would not allow this.
note: i'm known as plugwash most places but i screwd up registering that here somehow in the past and now can't register
IMHO the reason why eBay has NOT implemented the various anti-sniping features as auction options, as the parents have mentioned (i.e. time extend with higher bid increments), is due primarily to two factors: First, eBay earns more money if the auction closes with a successful sale and allowing auctions to drag out, even though eBay would earn a few more cents or even dollars, is not as profitable as closing more auctions quickly in the same period of time. After all, there are only so many similar items that can successfully compete for attention at any given time. No point in crowding out the good candidates with lots of older junk. Second, there are many more buyers on eBay than sellers and because snipping benefits buyers at the expense of sellers it makes more of their customers happier when they don't limit the practice. There could be other reasons too that I haven't thought of, but as both parents have said: eBay has had a long time to do something about sniping and they haven't. It's hard to accept that nothing has happened due to lack of technical competence or misunderstanding on eBay's part.
It's only a problem if the item is generally unavailable, and you not having it is standing in the way of an important goal.
Example: you are bidding on a replacement part for an expensive (and no longer supported) piece of machinery which you use to earn a living.
---
"I can't complain, but sometimes still do..." Joe Walsh
You're confused about what is a right. Stop re-reading the first five (they're important, but there are five more after that) ammendments in the bill of rights. When you get to number ten, it'll start to become more clear.
Of course, that doesn't mean that the government is authorized to maintain the markets, either...
Can you be Even More Awesome?!
These HFT trades are communicating something. We don't know what. It could be collusion among HFT traders. It could be communicating insider trading information. There's enough information in the signals that it could be VO-HFT, which makes sense, knowing that traders have their phone, email and IM communication recorded to assure the SEC that there's nothing illegal going on. The SEC needs to make this HFT sideband stop ASAP. LSMFT.
This is starting to remind me of Charles Stross' Accelerando, and that worries me. XD
Don't just stand there, get that other dog!
This remind me of those 90's IRC "war". Where lag was exploited to drop competing bot and every net split was a oportunity....except with real money involved. That casino you call stock market is always full of suprise.
All they have to do is model the stock market after Swoopo. You can place an order to buy 10,000 shares of Exxon at 0.01, but it'll cost you 60c. But hey, Exxon for 0.01 is a great deal if you can get it.
Clearly this is how Al-Qaeda cells communicate. I say DHS should cease all other activities immediately and devote their full attention to rooting out the terrorists in the financial markets.
This actually sounds like a really, really good idea.
Then the price you are willing to pay should reflect your need. It's not easy but you really have to think in terms of how much that part is worth to you, not how much you're willing to pay.
I only see it as being bad for the seller. I've been contacted after a few auctions by people who had bid in the days before and told that they would have bid more if they'd known they were going to be outbid in the last seconds.
Now, if they really wanted the item, they should have put a higher limit originally - their loss. But I could have made more money had sniping not been possible.
In fairness, the fix is trivial. Auctions have an initial end time. From then, every bid extends the end time by 5 minutes, up to a maximum of 1 hour. Sniping dies instantly unless I'm missing something obvious.
As someone who works out the max price they're willing to pay, subtracts shipping and sticks that number into the Place Bid box I've noticed that the likelihood of my max being outbid decreases the closer I place it to the end time. What I tend to do because I'm never usually in a hurry, is bid up to the same maximum on a series of the exact same product over several weeks until I finally win one!
Sealed bids would make this problem go away, but overinflated prices due to people getting carried away are in ebaypal's interest as they take a percentage chunk, so it's never going to happen unfortunately.
If you don't risk failure you don't risk success.
Sure, there is a somewhat fuzzy edge between what you consider a fair price and the price at which you're not interested. Also, humans are not particularly rational beings. Combine the two and auctions can easily lead to someone paying over the odds.
You decided that $50 was your top price, but see that someone has bid $50.01. That's not worth losing over; you bid $50.05 (or whatever eBays minimum increment is); your competitor ups hers. This keeps on going for a few rounds (after all if it's worth $50 it's probably worth 20-30c more). But by now you've become emotionally involved: you've invested effort in making these bids, if you back down you'll have the negative feeling of having lost, rather than the neutral feeling of some item costing more than you wanted to pay. Before you started out you might have thought it was worth $50 but not $52. With little time to respond, and in the competitive auction environment, you don't make the same judgements and keep bidding one of you finally wins at $61. It then turns out you could have bought the item from another fixed priced seller for $55.
You see this a lot on eBay; it's good for the seller, but not for buyers. So much more rational to take advantage of eBay's Vickrey auction style proxy bidding. Bid your maximum and if you win you only pay for one increment above the 2nd choice person. Don't choose a round number, if the item is worth about $50 but not $52, pick a random number somewhere in between, say $50.73. If you win, great, if not you don't feel too bad about it -- it's not like the 50 vs 50.01, you've already given yourself a little margin.
In theory this is a good strategy but it doesn't take account of the pool of irrational eBayers, and the outright cheats. If you leave your best bid up a long while before the end, a couple of bad things might happen:
1) shill bidders (the seller, or someone in league with them using another account) may come and bid up the auction so you pay more than you otherwise would. They may even bid past your limit thus finding out your maximum, then cancel the bid and bid to just below your maximum. EBay don't allow it, but it happens where they don't spot it.
2) Someone may come and think it's worth $45, bid that and see it doesn't win. Reason as you did, and bid a little more, then a little more again. Now they're the one's getting emotionally involved and keep bidding thinking "just one more and I might be in the lead", eventually bidding themselves up past you even if they wouldn't have considered the item worth it.
Best to avoid this entirely, bid what you think's a fair price close to the end of auction. If others have done the same, and bid their maximum (you know, just like eBay suggest in to) then they won't be unhappy.
Hence snipping. Perfectly rational, and only a disadvantage to buyers who, for some reason, like to bid up incrementally instead of using the eBay proxy bid system.
I really can't see why buyers complain so much about it. Of course it's not in seller's interest, they benefit when people get carried away bidding.
That activity is from systems that hunt for other peoples' stop orders.
TFA is in The Atlantic - of course they present it as a conspiracy.
These low latency connections are insider trading. Plain and simple.
Cheap storage VM.
The simple, well understood, and often implemented solution, especially in reverse auction software, is to extend the time of the auction for every bid that happens in the (say) last 5 minutes, by 5 minutes. Sniping over. Auction goes on a little bit longer... so you start with a smaller time.
While the article speaks of the equities markets, there are oddities in the options market too which can be quite useful if you know how to exploit them. If you have a option series which is not super active (ie, not INTC or MSFT, etc) the spreads are generally speaking large - perhaps up to 0.50 or more depending on the strike price. Because the volumes are low one is many times forced to chose between dealing now or hoping somebody hits your bid or takes your offer. Typically you would at least try to show an improved bid or offer. However, about oh.. 5 or 6 years ago a new phenom began to emerge. Example. Quote is 2.50-2.90 you are a buyer and improve to 2.60 for say 5 or 10 contracts. Instantly, one of two things will happen. Your price will be joined by another options exchange for 20 or more contracts and/or "someone" will be 2.65 in front of you for a similar amount (or 10-20 lots). This is clearly very frustrating as your bid will be viewed as inferior. However, once one realizes what is going on you do have a chance to exploit it - but only if you have more than one trading account. See the powers that be (SEC, etc) do not want you, the day trader or investor, to be both sides of the market simultaneously. They don't care that you could, if you have proper positions or margin, take a 2.50/3.00 quote and make it 2.70/2.80. No, they only want you on one side at most and prefer that you be a price taker. But if you have two accounts here is what you do. As above, you are a buyer but do not wish to pay 2.90 but don't want to wait all day as you think the stock or market will move shortly. In account A, you offer 5 lots at 2.80. Ideally, one of the autobots will then offer at 2.75. Through your other account (B) you then take this offer at 2.75 and immediately cancel your own offer in account A. Of course, you could try to walk the price down another 0.05 - you might be joined by a different exchange and could direct your order be filled on that exchange before you cancel your offer. Selling obviously works the reverse.
Technically, what I have describe might run afoul of the "rules" and thus I do not advise you do this, etc, etc, etc. But it does describe fairly well another element of BS in the markets which has been created by autopilot algorithms and why they do not, in general, serve the investor or smaller traders well.
It certainly would tend to discourage a lot of middlemen and make direct purchases more popular. FedEx and so on would gain a lot of "share". and yes, anything to restrict market velocity back downjh so it reflects true investing and not microsecond arbitrage speculation.
I've been so disgusted with the crookedness in the stock market, that after researching the great depression back when I was a young teen, plus talking to my immediate older generations who lived through it, I made a vow to never buy a single share. Never have either.
My "stock" all has four legs and goes moo and tastes great off the grill. I only invest in useful tangibles, that's it. Nor will I buy a bond, all that is, is telling my neighbor and younger folks that I think it is cool to put them into debt to me so I could could "make more money", and tells my elected goofs that it is OK to run in the red perpetually. Screw that.. I think that is simply despicable, so I don't do that either, and I would much rather a "pay only if you can afford it right now" styled government.
And I refuse to do any bank loan either, I do not support the "trickle down" economic theory of fractional reserve banking combined with fiat currencies, I think that is a much bigger conjob than the stock market.
First, eBay earns more money if the auction closes with a successful sale and allowing auctions to drag out, even though eBay would earn a few more cents or even dollars, is not as profitable as closing more auctions quickly in the same period of time.
Structure the auction lengths to be a bit shorter by default, with higher bid increments and the auctions will turn over at the same rate.
After all, there are only so many similar items that can successfully compete for attention at any given time. No point in crowding out the good candidates with lots of older junk.
Au contraire. My proposal would have the effect of slightly prolonging active auctions of the 'interesting stuff', while the endless stream of junk that gets no bids at all would actually end sooner. This would have the net effect of increasing the amount of interesting stuff available at any given time.
. Second, there are many more buyers on eBay than sellers and because snipping benefits buyers at the expense of sellers it makes more of their customers happier when they don't limit the practice.
This argument is flawed. An auction being decided by stream of bids in the last 5 seconds is the norm, and sophisticated ebay users have adapted. But for every user that 'adapts' I'm confident several more just leave in frustration or disgust. Conversely, existing ebay users would be unlikely to stop using ebay if sniping were eliminated.
There could be other reasons too that I haven't thought of, but as both parents have said: eBay has had a long time to do something about sniping and they haven't. It's hard to accept that nothing has happened due to lack of technical competence or misunderstanding on eBay's part.
Is it really that hard to accept? I personally find it pretty easy. Especially given the number of outrageously dumb things they HAVE implemented over the years.
Unlike Reuters "fat finger" trader theory, the folks at NANEX (who provide the data feed for the exchanges) actually looked at the data.
Their original report is quite fascinating to read.
http://www.nanex.net/FlashCrash/FlashCrashAnalysis.html
Before you make snap judgements ... take a look at the root cause.
Really hard to say, although your scenario is entirely possible, and maybe it has a combination effect! My first reaction though was a variation on front running. Remember earlier this year when some guy quit at goldman sachs, walked away with some trading software program, and it got let out that "in the wrong hands, this software could be used to manipulate the market"? Well, that means in the originator's hands it could be used to manipulate the market as well. That story got buried. So that is what I think is going on, a variation of front running or shilling, creating artificial demands so they can jump on the small price fluctuations in real time right after they create these small market swings with the phony orders. Or they dump what they have right after demand goes up a scosh, demand they created, sort of a combo front running and pump and dump.
Either way, it sure looks mega crooked to me, and funny they can't identify who is doing these orders....
I see something now and decide I'll pay $50 max for it. If it sells for $50.01, well damn, I would have paid $50.01. I might not have paid $60
Then set it above $50.01, but below $60! God, what is wrong with you people?
Typical eBay whiner.
It is not clear to me that it doesn't hurt anyone. Let me explain how HFT works (as far as I've understood it, anyway):
Let's say that Alice and Bob want to buy and sell something. Alice is willing to buy at $25, and Bob is willing to sell at $23. In a normal trading market (and repeated as an average over many trades), Alice would be probing a bit and Bob would be probing a bit and it would end up at $24, giving Bob $1 over his minimum and earning a trade $1 below her maximum.
In a market with a HFT Eve, Eve "listens in" at communication between Alice and Bob (because the communication happens over the market), and end up tricking Alice into buying at $26 and Bob into selling at $24 - resulting in $2 that would normally would have been split between Alice and Bob being siphoned off to Eve. Eve has profited at the expense of Alice and Bob.
Assuming that the HFTs don't provide a service of any value (which you seemed to posit previously) it clearly seems to hurt people. To the tune of $20 +- 5 billion per year (according to the profit estimates for low latency trading).
And possibly it hurts even more than that profit. Normally, the marker re-arrange profits to go to the people that are best at investing and providing meaningful liquidity. This makes for efficient distribution of resources, where we as a society invest effort in what is able to provide value (profit) in the future. By siphoning off resources from that process, it seems likely that the process becomes less effective - removing additional value in addition to the $20 +- billion per year they're siphoning off directly.
I'll say that I don't understand all the ins and outs of how liquidity influence the financial markets, and when it creates meaningful value and not. So it is possible that HFT's form of liquidity provide some kind of value, which might in that case offset some or all of the damage they are doing. I don't see how, though.
Doubting the existence of evolution is like doubting the existence of China: It just shows that you're uninformed.
Extremists just ignore whatever parts are convenient - so usary and bacon from the old book are OK now but all the stuff about charity, judgement (cast the first stone), creation taking a long time so the world not being 6000 years old (Paul) and generally being a good person from the second book are not.
Why is he being tagged INSIGHTFUL?
>For you, that's a neutral outcome, not a bad one.
Financially it was a neutral outcome. You're right about that. But it is also a BAD outcome - you WANTED something just enough to bid on it, and you didn't get it by a few cents. I would call that bad. Have you ever been on the receiving end of a sniper? Didn't think so.
>The sniper bought the item they wanted...
at the first bidder's expense. The first bidder took the RISK of being outbid by setting the initial bidding price. The sniper just had to wait it out and offer a FEW CENTS more, with NO RISK of being counterbid on an underpriced item.
>...and the seller got a fair price.
Nice of you decide what a "fair price" is. I think the seller would have liked to be on the receiving end of a bidding war. Isn't that what an auction is all about? The sniper also agreed that the current bid price was too low, otherwise why would he have sniped? The sniper COULD have bid higher hours before the end of auction, but this would have involved RISK of being outbid.
>Everyone either won or broke even.
Not true - only one person won, the sniper. The seller left some money on the table by selling low to the sniper.
>No harm happened to anyone.
Again, not true. The seller didn't get the best price and the original bidder didn't get an opportunity to offer a better price. The sniper wins by technicality.
E-bay's way of doing an auction is not quite like the meat-space auction. In meat-space, there is no time-cutoff for the auction, only price. The auction continues until no counterbids are offered, and the last bid wins. This, however, requires a mediator to announce the end of the auction to all bidders; "going once, going twice...sold". I'm certain that the cut-off time method was chosen at E-bay because it is cheaper and easier to implement, but not necessarily fairer.