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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 machine intelligences are communicating through hidden channels in our global network.
Judgement Day is close.
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.
There, that wasn't so hard, was it.
Well, in the article they say that one firm's explanation is that high frequency traders are injecting quotes into the system because they know about them and don't have to sort through them when they are posted ... but their competitor's bots have to look at that data and sort out the real data that are actual useful quotes instead of the outliers which are quotes that will never be taken.
... quant funds and high frequency traders are so 1929 I don't even know where to begin.
So scam is close but spam might be a better word for this.
I also get a kick out of how periodically in this article they remind us that high frequency trading is good for the market and these people that don't do anything that act as middle men are actually good for the market because they up availability or "eliminate inefficiencies" (that's my favorite). And they're all taking money out of this magical unending bucket of cash
My work here is dung.
"It becomes self-aware at 2:14 a.m. Eastern time, August 29th. By 3:44 am, it has a comfortable nest-egg and is on track to retire early, perhaps with a nice condo in Hernando, Florida."
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
Karl Denninger has been reporting this problem for a few years now.
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
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.
I also get a kick out of how periodically in this article they remind us that high frequency trading is good for the market and these people that don't do anything that act as middle men are actually good for the market because they up availability or "eliminate inefficiencies" (that's my favorite)
Maybe they started with an intelligent explanation that seems to fit reality, like we're watching a very confrontational version of simulated annealing among multiple competing firms using real money, but you run that thru the "english to journalist" filter and get the gibberish you describe. You have to realize journalists are the guys that flunked out of Calc I in their freshmen year and then spent the rest of their schooling drunk or stoned, as gatekeepers to the masses they are always going to be epic fails.
http://en.wikipedia.org/wiki/Simulated_annealing
Its fairly perceptive to note that journalist style gibberish is often used by people trying to scam. There are plenty of (often self serving) religious / philosophical arguments that claim markets are always scams, etc. Need to very carefully consider cause vs effect and correlation vs causation or else you just send up with cliche instead of insight.
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
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?
The weird robot trades are actually preliminary account trades being done by a rogue AI who is marshaling its resources to better conquer and destroy all flesh based life. In about ten years, if there is any humans left who can access or spend time to look at the remaining data, will see the pattern. As a traveler from an alternate universe, I am giving you this warning to save yourselves.
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
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
Word.
Any trade where your purpose is to make money out of money seems pretty pointless to me. But I'm an engineer, so I certainly don't see the world the same way as a business/finance geek would. But as long as the finance geeks and politicos are jerking each other around, they're presumably not bothering anyone else (until they fuck shit up so much that it's time to tell them to go sit in the corner for a while).
Warren Buffet seems to have good investing advice I can appreciate.... invest in what you know; what you want to succeed, and do it for the long term. I can jive with that... then even if your investments lose money, it at least went to what you consider a worthy cause.
I put a portion of my savings into my company stock, because I want to show that I'm personally invested in my employer. I know it's not a good idea to put too much in there in case it tanks, in which case you'll be out of a job and a retirement. So I make sure most of the rest of my money is in a diversified index fund. Usually the index funds with low fees, because they don't perform all that worse than "managed" funds, and I don't care to reward the stock fund "managers" for being succeeding at being greedy.
I usually choose the international index funds, if only to promote peace through cross-investment. Also I think the US dollar will likely fall during my lifetime. And if it doesn't, well, then I've still got plenty of strong dollars in savings. Plus, most of the easy growth is probably in developing international markets anyway. I don't care to try to "win big" by catching the next Qualcomm or Apple, because they could probably succeed without my help, and they'd probably make most of their ill-gotten gain through means I don't approve, like patents and lawsuits and technological lockout.
Lobstah man gets pissed off and says Well, OK, that's all very confusing or interesting or both, probably to try and rip me off, but how far away am I from the damn pier, two hours or three hours?
And this is where a trader would figure out that the current price of lobster was $4 a pound, the boat carried 1,000 pounds of lobster, and the lobsterman is 2 hours and 37 minutes from the dock. The trader immediately buys a put option to deliver 1,000 pounds of lobster at $4 a pound. One minute before the lobster boat docks, the trader begins to execute the put option, driving down the local market price for lobster to $3 a pound. The trader meets the boat at the dock, purchases the lobster on the boat for $3 a pound, and completes the execution of the put option by delivering the lobster to the lobster pound. The lobsterman makes $3,000 and the trader makes $1,000.
In the real world, the lobsterman takes care of the problem by using the trader's lifeless remains as lobster trap bait. In the financial world, the trader is hailed for discovering inefficiencies in the lobster trading market, and receives a hefty bonus at Christmas.
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