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How To Profit From Planetary-Scale Computing
An anonymous reader writes "MIT physicist Alex Wissner-Gross and mathematician Cameron Freer have devised a technique for exploiting geographic location in high-frequency trading, reports FastCompany. From the article: 'We view this work as one of the first serious, credible justifications for covering the planet's surface with computers. [...] We've perhaps identified a new type of natural resources that sovereignties might take advantage of.' Physicist and hedge-fund manager Jean-Philippe Bouchaud says, 'This shows that the technological arms race to extract every penny from high-frequency mechanical arbitrage will soon reach its ultimate limits.'"
You're thinking too two-dimensionally. Think carefully: what location minimizes the average distance to every spot on the Earth's surface? I'll tell you right now it's not in Siberia! But you should probably spend some extra money on the air conditioning system for your server farm if you want to set up shop there.
God dammit! I'm pissed off again.. I'm pissed off because everyone wants to 'study' HFT or 'discuss' HFT.. and no one seems to understand the big picture! HFT is ruining the fucking stock market. HFT is destroying the opportunities for the middle class.. destroying their retirements.. and ruining the confidence in the market. HFT is making the criminally rich even richer! Everyone likes to talk about HFT and bitch about it - and the people that benefit most from total stupidity that is HFT are the ones that get to enact the policy through lobbying and backroom revolving-door politics.
HFT does one thing... It exploits the gaps in bid and ask price during execution to make money off the actual market orders. But, if the market is no longer correctly offering 'market' prices because of instantly-changing outside influences, how the fuck is it still a market and not a scam? The only people saying HFT is a good thing are the people benefiting from HFT.
There's tons of easy ways to fix the problems created by HFT exploiting.. Here's a few ideas:
1. random delay.. Issue an 'instantaneous' delay in ALL trade execution from all firms. In essence.. make the delay long enough to completely ruin HFT but short enough that no human executing a trade would ever be affected.
2. trading tax.. Tax all trades by a negligible amount. Firms that actually invest will not be affected.
IMO, this article is yet another example of solutions for a problem by exacerbating the problem.. So, fuck you, MIT physicist Alex Wissner-Gross and mathematician Cameron Freer.
--- We need more Ron Paul!
How about this as a backup...
Investment doesn't, in and of itself, create wealth. Investment is putting money in the hands of people who CAN create wealth, but don't have enough money to do so on their own. The idea is that the investers should be rewarded for taking the financial gamble, and the people they invested in should be rewarded for having created something valuable.
High Frequency Trading screws them both.
High Frequency Trading is anathema to the very concept of investment - and the stock market.
We'd all be better off if the HFT people simply went to the races, instead.
The living have better things to do than to continue hating the dead.
what's the betting that our elected representatives can?
Don't worry, they have lobbyists to help them.
These guys go too far. One of these days we'll have botnets doing trading with funds from sniffed credit/debit info. They could even pay back what they took... then profits get dumped anonymously to campaign funds. Botnets do get free-speech rights don't they?? (they may have an opinion on capital gains taxes, or want to own broadcast stations)
If it makes anyone feel better, call that pile of computers a bank and lend it some "government" money
Trading in those strange mortgage death futures is too risky, botnet futures are the new thing.
Cylons and Skynet Terminators will have their own electronic religion making them tax exempt.
That people are doing this is a sign of a broken fiancial system (as if fiat currency based on debt didn't already establish that). They are not producing anything. They are buying low and selling high units of wealth that others have produced. They are not creating wealth, they are redistributing it.
This is the kind of shit that has madmen and economists thinking you can forever grow an economy in a finite world with finite resources. It's also the kind of shit that encourages people to view stocks as a way to gamble and not as investments. You know how you can avoid ever having a huge national housing market crash? Easy. Limit the purchasing of non-commercial residential homes to people who actually intend to live in them. Do that and DON'T make "securities" out of them. Then you can't have a bubble in the first place -- no bubble, no burst.
Anyone else find that line in the summary amusing:
Yeah, computers and networks are a "natural resource". In fact I have a few growing in my backyard. I just have to water them from time to time. Really, WTF?
Yes it IS a sin.
It's a SIN because the heads of NYSE and NASDAQ continue to spread this lie that HFT shops contribute liquidity to the system. THEY DO ANYTHING BUT!
Have you seen the offices these HFT shops rent out in New Jersey and CT? They're cheap Class B space, warehouse loft and other low-rent space. They don't have the capital it takes to be a market maker. They just have capital---and they aren't going to sit in the market when it is hurting and make trades no sane person would make to keep liquidity flowing.
That is the job of a REAL market-maker. A market-maker will step in and be the counterparty to keep the issues they are responsible on the exchange moving.
What the fuck do you think happened on the May 6 flash crash? Almost all the HFT shops ran to their server rooms and SIGSEGV their software and pulled out to avoid taking more pain. The bids all dried up on the NYSE which is why the first crazy market order for $0.01 a share came to the exchanges, NASDAQ cleared it so for a while, several stocks were at zero print... like Accenture.
When you have the most top companies on your exchange printing zero in the flash of an eye... YOUR MARKET IS BROKEN. How is this even debatable?
Why would I want to put the kids college fund money in this fucking disaster?
HFT sucks.
Another lie the chairs of NASDAQ and NYSE love to tell the world is that HFT speeds up price discovery.
How is this even POSSIBLY true??? They are algos. Those algos don't have any clue what the future performance of a company is. The algos are not going to tell you how successful AAPL's iPhone 5 will be, or when the next class action lawsuit is coming.
And algos break ALL THE TIME. It has been happening more often these days because stocks are breaking 120DMA more often, and most of these algos are doing nothing but backtracing trends on top of their arbitrage schemes. When a big investor comes in the room, they jump on him like nervous poodles.
That's why the May 6 event was such an eye opener. Waddle and Reed didn't cause the flash crash. They executed a normal transaction that wasn't even a Big Fish transaction, and all the algos went haywire.
So much for the quants and their MIT-smartness.
"I don't get why we can't even just have one-day ticks."
I used to think the same, but now I feel some things are still untied.
"Every day an order book accumulates, and at 5PM the exchange executes everything at the price that generates the most volume."
It still would make it worth waiting to 4PM to order in case there are interesting late news. And then waiting till 4:50, 4:59, 4:59:59...
"Within a price orders are executed in random order."
Then I'd make sure not to issue a 10 million dollars order but 10 million orders for one dollar (or a cent, or a millicent or whatever is the lowest order).
"the insiders don't have nearly the same advantage (getting news 15 minutes early can make a HUGE difference today)"
But insiders still could take advantage of news produced at 4:59 that, depending on the system other couldn't take advantage of.
"You could even make the trade settlement time midnight or something like that so that it is well after the business day so that last-minute news has more time to get around."
You know the world is round and economy is global, don't you?
Uh, no. The goal of all trade is to allocate capital to the institutions most likely to create value. HFTs don't give a shit who creates value. They don't allocate capital based on which companies are useful. They are a transactional cost paid by everyone else. They are best approximated not as a trade, but as a tax, albeit one that does absolutely nothing for the public good. The value removed from the markets by HFT is value extraction, not creation. This is a fundamental difference from everyone else playing.
You know how you can avoid ever having a huge national housing market crash? Easy. Limit the purchasing of non-commercial residential homes to people who actually intend to live in them. Do that and DON'T make "securities" out of them. Then you can't have a bubble in the first place -- no bubble, no burst.
What do you do with all the people renting investment properties now because they are not in a position to buy a home? If it wasn't for people investing in property there would be no rental market. I agree with you in principle but adjusting one thing has an effect on others. Solving the next problem then becomes the issue.
A) Require 1/2 hour averaging for all trades.
B) Tax all automated computer trades at 1%.
Result - trading moves to another exchange where this is not required. Your solutions depend on international cooperation between government and exchanges, all of which compete with each other. Good freaking luck getting policies like that instituted.
Umm, you can. Sure, there are far too many people getting paid well for completely non-productive work, but if I spend two weeks creating a compiler that makes me and my team twice as efficient I have not detracted from anyone else, but have grown the productive capacity of the world by a small amount. Economics is not a zero sum game.
Additionally, those "finite resources" you mention include the 120-odd petawatts of solar energy slamming into the Earth, and the massive tidal energies caused by the Moon's influence. Whilst both those are technically finite, they are not so in the context of this conversation. Any of that energy used for productive use is completely additive, taking away nothing.
I know I'm focusing on just one small aspect of your post, but this idea that economics is zero-sum and that there isn't real productive growth going on needs to be stomped.