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High-Frequency Traders Are the Ultimate Hackers, Says Mark Cuban
An anonymous reader writes "Billionaire Mark Cuban talks in an interview with the Wall Street Journal about how he thinks high-frequency trading can be quite damaging to stock markets. He goes so far as to call high-frequency traders the 'ultimate hackers.' He says, 'They're running software programs that have one goal, and that's to exploit the trading systems as early and often as possible. As someone who wrote software for eight years and who keeps up very closely with the technology world, that scared the hell out of me. The only certainty in the software world is that there is no such thing as bug-free software. When software programs are trying to outsmart other software programs and hack the world's trading platforms, that is a recipe for disaster. ... How many times an hour are there failures across individual equities around the world because of software running algorithms battling each other for supremacy to make a profitable trade? We have no idea. It's not a question of if or when we have meltdowns, it's just a question of how big and where. It's straight out of War Games. And that's before we even get to the possibility of nefarious or sovereign hackers getting involved.'"
I for one welcome our new software overlords.
This is insulting to hackers.
Mark is currently trending because of the way that he handled ESPN analyst Skip Bayless last week, on live tv. He completely owned.
http://www.youtube.com/watch?v=hv2jqFd2-qI
All trading should be required to be at the hand of a human. No trade should be able to be reversed (buy/sell) in under a minute (if not more).
"National Security is the chief cause of national insecurity." - Celine's First Law
it is pure, unrestrained capitalism. What could possibly go wrong?
Mark Cuban has been reading too many slashdot headlines.
The real question here is; just how far can we stretch the definition of the word "hacker."
Basically, he's saying that it's exactly the same thing to use a KeyGen as to write one.
MANY people have complained about program trading before with far better credentials than Mark, yet it's suddenly news because he whines about it? It took him 10+ years to figure this out, or did he take some serious losses and it just whining about losing (something else)?
"But we decide which is right, and which is an illusion"
People like to complain about algo trading and HFT without suggesting how they'd improve it.
Technology and money! Scary!
It is an open market. People use computers to participate now. There are very tricky engineering and social problems involved, but I really don't see anyone suggesting a better way to do things. If a bank needs to exchange dollars for Euros, what should they do? Call someone on the phone because they're afraid of competing in an electronic market?
The HFT programs would slow down a lot if it cost them, say, one cent per share traded. That would not be a burden to average investors, or even the super wealthy, but it dampens the enthusiasm for shifting millions of shares a day to skim tiny fractions.
that they do what is intended to do is pretty scary already.
HF traders in general aren't searching for 'glitches,' but mispricing opportunities. HF traders take the risk of warehousing their views on prices, while providing liquidity and the rest of the world takes full advantage. We often mud-wrestle for less than a penny per share, while being villified for being the downfall of modern economies. In truth, you should be pointing the stinky finger of blame at the institutions making the 'macro' decisions, those with the power to manipulate economies, governments and coporations on a larger scale...
Who wants to eat some astroturf?
There is an inherent risk in everything we do, if the risks are too high and you don't forsee being rewarded playing this game, just play a different game. How about the long game that actually provides value to companies that might produce value to society?
There isn't any fun quite like watching the world fall to ruin outsid your window while your nest egg is unaffected... until you have to bail them out.
just what it needs - a total meltdown of the system, so something else can happen.
It's anti-free market for sure. They're skimming off the system without contributing a damn thing and adding inefficiency and misinformation into the markets. It shouldn't be illegal, but congress should enact a transaction tax on trades that is just big enough to make HFT not worthwhile.
"If a bank needs to exchange dollars for Euros, what should they do? Call someone on the phone because they're afraid of competing in an electronic market?"
Getting a current exchange rate -- or making an exchange, for that matter -- are not the same things as HFT. Both are quite possible without any HFT at all.
"it is pure, unrestrained capitalism. What could possibly go wrong?"
It is nothing of the sort. Capitalism is a means of producing things. Wall Street produces nothing.
Wall Street isn't "capitalism". It's a government-endorsed casino. There's a pretty big difference.
It's commonly argued that HFT lowers transaction costs overall, presumably that's not such a simpl question, but ..
There are definitely rich people who make a lot less money now that HFT lowers *some* transaction costs. It's therefore worth picking apart the messenger's credentials a bit.
And the SEC, Obama, congress, etc. would actually regulate Wall St. if their lives depended upon it. Instead, they'd simply pass laws making HFT hard for smaller outfits, while granting Goldman-Sacks and Morgan-Stanly increased HFT.
The Christian religion has been and still is the principal enemy of moral progress in the world. -- Bertrand Russell
This just confirms my long-standing suspicion that Mark Cuban is a seriously smart dude.
I have a simple and easy solution.
Ban HFT and algorithmic trading.
problem solved.
If it were coming from anyone else, I might actually pay attention, but coming from Mark Cuban is like hearing Santa talk about Super Computers.
"My immediate reaction is "WTF? What kind of moron doesn't make things 64-bit safe to begin with?" Linus
They can wait about five seconds. Really. That's all it would take to eliminate this problem. A batching system with five-second intervals.
I chatted with some guys on an FPGA forum about this. They were convinced that HFT was good, as it increased the liquidity of the market.
I ran the line that it's bad, as it exploits that over the short term all players in the market do not have complete information on the state of the market, and is therefore a highly sophisticated form of insider trading.
In truth it it is just a mechanism to suck wealth away from those who actually create it (or invest in stocks of companies that create wealth), and does more harm than good.
Much like spam mail, HFT would cease to be an issue if a transaction came with even a tiny overhead. (And in both cases, I doubt it'll ever happen.)
The easiest fix would be to stop the roll-backs when they fuck up. Let a few of them go broke instead of "oh I didn't really mean that, can I have a do-over?" and the rest might have a bit more caution.
Or remove the ability to post a bid then remove it before it can be actioned. Make any bid stand for a minimum time before it can be withdrawn. 10 seconds would be long enough.
On the downside, if you fix it, you don't get all the fancy new superfast internet links.
I'm guessing that wasn't on their radar screen...
No it isn't...Once governments bail out the banks and prop up the system it isn't capitalism at work anymore.
...entities called "market makers" manipulated the market and made sure that they and their cronies made the lion's share of profits. The market is just different today. It is no better or worse than it has ever been. It is still possible for individual investors to make good money in the market but must educate themselves first. Most retail investors who lose money in the market buy when it is obvious the equity or market is topping, all the smart money has gotten out, and they think they can make a "quick buck." That has always been true and still is. A knowledgeable investor, using relatively inexpensive tools, can make >20% yr/yr, almost regardless of market conditions. Most people will not take the time to educate themselves and avoid emotional responses.
"Computers are useless. They can only give you answers."
-- Pablo Picasso
Comment removed based on user account deletion
Improve it by getting rid of it.
The idea of financing a company to share in their future success is fine and doing so is good in general and adds value to the economy. But you add no value to anything by investing in a company for a fraction of a second and then somehow making a profit off of that.
It is no better then theft.
Unless an investment is a long term investment it could not possibly help anyone. Put a minimum length on holding the shares. Be it a minute, an hour, a week, or a month at least it would be a step in the right direction.
Troll is not a replacement for I disagree.
How hard would it be to say:
Stocks/bonds/commodoties have an undodgable tax of 0.2%? This is collected out of the trade automatically and sent to DC in real time.
I'm not in a thinking mood whether this should be on sales or purchase. It would hurt high frequency traders because they'd be paying mad taxes, but people who invest like a sane man for long term the tax is negligable.
God spoke to me
HF traders take the risk of [gibberish elided] providing liquidity
Disingenuous. Saying HFT adds liquidity is like saying spitting in a thunderstorm is adding liquidity.
We often mud-wrestle for less than a penny per share
Narrowing spreads provides miniscule benefit to individual investors but at huge risk.
That's not astroturf you are offering to be eaten, it's pure shite and I for one won't swallow it for a moment
The companies that produce things raise money by selling shares of their company (stocks) or borrowing money (bonds) on Wall Street. So, no, Wall Street doesn't produce anything on its own, but it provides a service that enables others to. It certainly doesn't resemble a casino. In fact, I was outraged when I heard my son's class was using coin flips to determine the winners and losers in the class's "stock market". Investing is not gambling!
What a fool believes, he sees, no wise man has the power to reason away.
I agree...but their seem to be real downsides to having this purely financial component of the economy be so large relative to the part that is production and exchange of actual goods and services.
.: Semper Absurda
Since when did /.
get an erection whenever Mark Cuban says anything.
Yet another Mark Cuban non-story.
Also, do we really want lower transaction costs? They might shave pennies or even dollars off a stock market trade, but if the point of the stock market is investment in a company (rather that shifting wealth around) wouldn't we want incentive to stay vested in a company?
The trouble with HFTs is they siphon money w/o adding value. As near as I can tell they're the definition of an economic parasite. Again, I'm open to being proven otherwise, it's just I don't see what value they add. They don't hold onto the stock long enough for the real investors to use the capital they put into the market. They just seem to drive up the cost for real investors....
As for Obama, he's got his hands full with oil and commodity speculators....
Hi! I make Firefox Plug-ins. Check 'em out @ https://addons.mozilla.org/en-US/firefox/addon/youtube-mp3-podcaster/
Didn't he already suggest perhaps a penny per trade fee or half a penny, something like that as a way to curb HFT? In any case, either a money or time constraint added to the mix would probably put an end to it as it is today. But that would never happen because too many people make way too much money on this scam.
So many injustices..so little time..
I'm sorry but have you seen who's working at the Federal Reserve or the FDIC? Bankers and Wallstreet CEOs, that's who. The banks and the government are the same guys and the line between them is no more. Regulation? Hahahahahahahahh... what a quaint notion. We got here through Capitalism... because corporations want power and they can rig the government game in their favor. Its time for something completely different and I don't mean a penguin on the telly!
but isnt every algorithmic trading policy at risk when others react to what they see happening in the market ? Have you seen algos trying to outsmart other algos in a back and forth ?
Capitalism is about accumulating capital. You can produce things, rent things, trade stocks, whatever.
Capitalism is a method of allocating resources through the private sector and that's precisely what Wall Street does. If I give you money to start your business, did I produce something? How is that any different from a company like facebook (which I hate btw) going public and getting $16B to expand its business?
Capitalism is just one method of allocating resources. Another method of allocating resources is to have the gov't do it - i.e. communism.
Long term investing isn't gambling, but day-trading most certainly is. The number of factors that go into a stock price's short term movements are so numerous as to be incomprehensible. You'd have better luck predicting a coin toss based on starting velocity, wind speed, ambient humidity, etc., than you would predicting a stock's day-to-day movement based on all available data.
it is pure, unrestrained capitalism. What could possibly go wrong?
Well, if you look at the history of capitalism,
this will probably end with the USA invading another country over the price of bananas.
Monkey business I tell you, it's all monkey business.
[Fuck Beta]
o0t!
That's the whole point about it being stored in the courthouse, in the same county as the property, for the lifetime of the loan.
If it is required by law to be a physical document, and that all transactions must be witnessed by an officer of the court, it is pretty damn hard to counterfeit a transaction without the illicit cooperation of an officer of the court.
It is already a matter of public record the ownership history of a property. All I am asking is that it become a matter of public record the history of any past or present loans against the property as well.
If you did that it would make very hard for anybody, home owner and lenders alike, to lie.
Done "correctly," HFC is bad for society because, like insider trading done "correctly," it specifically screws the "have nots" to benefit the "haves."
Yes, the screwed-up trades are a problem, but those are the side-show. The real problem is that those with the ability to do HFC can use that ability to "jump ahead in line" and screw those who don't have this ability.
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
You're one naive retard.
That's how things are supposed to work. Reality is not the same.
"If a nation expects to be ignorant and free in a state of civilization, it expects what never was and never will be."
Nope, not working. I wish he wouldn't have used the term 'Hackers' however. The name just keeps getting denigrated more and more. What the Feds can do to fix this however, is spike the system like what was done before. And this time, make them pay for their mistakes.
HFT exists for nothing but to make money for a select, small fraction of traders. It has nothing whatever to do with adding value, providing liquidity, or identifying those corporations that are adding value to our world. It is a completely destructive mechanism, and should be eliminated by the simple expedient of placing a one-second delay in trade executions, the one-second delay being randomly specified as being as low as 0.5 seconds and as high as 1.5 seconds. We need to kill HFT - what we do understand of its consequences indicate that it is of no value to any but its practitioners, and we don't understand at all its negative consequences. See, for example, http://www.wired.com/wiredscience/2012/02/high-speed-trading/.
Day trading is not investing either.
What a fool believes, he sees, no wise man has the power to reason away.
Yup, and that is the system we had. Unfortunately, the companies thought that system moved too slow and had a high transaction cost. So they bullied the regulators to let them keep their own clearing house... which they didn't properly maintain. It's the dumbest concept ever, private companies self-regulate on who owns the land today and then tell the government at their leisure. Little wonder that we are now seeing the benefit of our great grandfather's line of thinking.
As Kenny Rogers said: "You got to know when to hold them, know when to fold them, know when to walk away, know when to run".
I bet other HF trader recounts the day as he just cleaned somebody out of $150M.
He nailed it with the question as to what the stock market is for! Personally I feel that the whole stock market has gone almost completely off the rails. It seems as if a small number of New York finance companies have got an extortion racket going where they have set themselves up as gate keepers who believe they are entitled to a piece of everyone else's pie.
As a developer I have a micro taste of these types at least once a week. Someone sees me making money and decides that they want a taste. They want me to "help" them with their big idea. I'm not sure the offer has even been as good as 50/50 even though the work would be 99/1 and skill 99.999/.001 they usually have to hold back their anger when I recommend a few good C++ books. I can't imagine being in a scenario where people like this could force themselves into my business. They would have no problem saying "You would be nothing without my help." and walking away with their "share".
My other favorite is when MBA types tell successful software companies to get more corporate types and that a board of directors would be a valuable addition. The question that they don't like is "Why are we making too many millions?"
Make all trades and trade-cancel orders "pending" and have the trades actually occur no more often than a few times a minute, in batches.
The idea is that once someone makes a bid to buy or sell, the pending queue and countdown clock before execution begins. As others bid to buy or sell, the execution clock is reset. To prevent gumming up the works, if more than, say, 15 seconds has elapsed since the pending queue was last empty or if the number of pending orders is "too big" to manage, new orders are pushed off until the next go-around. Those with orders in the queue will have an additional second or two to cancel a pending trade, and this "cancel clock" will be reset after each cancellation. It's expected that the stock exchange themselves will impose a very small cost on both placing an order and canceling an order.
Once the cancel clock expires, a computer takes all the orders, bundles them up in a fair way, and executes those trades that can be executed and divides the proceeds up in a fair manner. While different people might disagree on what is "fair," it's expected that a given stock exchange will work with its major traders and listed companies to determine what "fair" is on that exchange.
This pace is still too rapid for human beings to play, but at least it gives program-traders who can't afford to be less than a few fiber-miles away from the exchange an even playing field.
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
Cuban lost millions buying FB stock on opening day.
HFTs do NOT take advantage of software bugs in the exchanges. They just do whatever the exchanges allow them to. They have sophisticated algorithms that take advantage of tiny price discrepancies across all sorts of equities and derivatives. Make a tiny profit on one trade, and multiply that by millions of trades, and you have big profits. All legal, and no hacking involved.
>The companies that produce things raise money by selling shares of their company (stocks) or borrowing money (bonds) on Wall Street. So, no, Wall Street doesn't produce anything on its own, but it provides a service that enables others to.
Spoken like a true professional investor. With this statement, I agree. That's how it is *supposed* to work.
>It certainly doesn't resemble a casino.
Now hold on a minute. There is a lot more to Wall St. other than just stocks and bonds. There are also many instruments that affect stocks. Obfuscating real estate loans by packaging them into a lump and selling off portions that get a AAA rating that isn't based on the quality of those loans doesn't represent how it is supposed to work.
Furthermore, when professional money managers want to get in on this hot new trend and create derivatives from unrelated funds, this doesn't exactly resemble to how it's supposed to work either. When you think you are investing in tech funds and you end up having a 80% stake in real estate loans, that sounds a lot like a crap shoot you don't even know you are taking. You wanted to take risk in tech, you ended up taking risk in real estate.
Then, when a huge credit crunch happens, those companies that are doing great and have good ratios are suddenly collapsing, not because they weren't competitive, but because of the exuberance of professional money managers.
Add to that, *75%* of shares of public companies are now held by professional money managers, 25% is available to Joe Investor and is heavily influenced by what the money managers do.
You are also discounting irrationality of investors who earn their money on commission and don't lose money on net losses. Add onto that banks that can leverage FDIC insured deposits, not only is there no risk to the fund manager, there is no risk to the bank, the government will cover the losses.
Another troubling trend is high-frequency trading. No one really knows how that effects the overall market. BOA has been a high target for HF traders.
>I was outraged when I heard my son's class...
Drama.
http://online.wsj.com/article/SB124027114694536997.html
http://seekingalpha.com/article/132656-what-s-turning-the-stock-market-into-a-casino
http://en.wikipedia.org/wiki/High-frequency_trading
There are several good - and some not-so-good - suggestions to improve trading in these very /. comments.
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
Actually currency trading makes up a ton of the HFT. People just don't know about it. There are hundreds (thousands?) of machines around the world that do nothing but look for 1 USD => 0.65 GBP => 0.80 Euro => 1.001 USD. And all those machines will try to instantly trade in that clearing house making pennies till that fund holder is out of cash (seconds).
The benefit of all this is that the system will instantly correct that 0.001 diff to a zero and provide near instant liquidity for someone looking for a particular (openly traded) currency at a fraction of the cost it used to be in the past.
I am actually kind of surprised that supercomputer-speed trading of a larger number of stock shares are legal now, considering the fiasco in 1987 when programmed computerized trading in stocks caused that 25% one-day crash. I would not be surprised that such trades may be banned or very strict controls imposed in the near future, because I fear that if the European sovereign debt crisis runs out of control all this computerized flash trading could result in a Dow Jones Industrial Average crash of 1,500 points or more with disastrous consequences.
I guess their Phase Lock Loop failed.
"Billionaire Mark Cuban talks in an interview with the Wall Street Journal about how he thinks high-frequency trading can be quite damaging to stock markets. He goes so far as to call high-frequency traders the 'ultimate hackers.'"
... How many times an hour are there failures across individual equities around the world because of software running algorithms battling each other for supremacy to make a profitable trade?"
Not hackers, the people writing such HFT systems are more likely to be undergraduates from some School of Economics, writing the algorithms in Eclipse as that's the easiest IDE out there.
"When software programs are trying to outsmart other software programs and hack the world's trading platforms, that is a recipe for disaster.
Exactly, and as the number of such platforms increases the instability increases, creating huge positive feedback loops. I see it as once there are a critical mass of such systems they will become less usefull and there has been calls to ban HFT platforms outright.
"We have no idea. It's not a question of if or when we have meltdowns, it's just a question of how big and where".
You don't have to wait, it's already happened, see the Flash Crash of 2010, and how HFT Quote Stuffing Caused The Market Crash Of May 6.
AccountKiller
It's simpler than what is done now!
Instead of trading in real-time, they just have to do what the banks have always done: batch processing. Collect buy and sell orders for an hour, and then process them all together in a fair way at the end of the hour.
Do you want to buy a stock? Put a buy order in at 13:45. Does someone want to sell the stock? They put a sell order in at 13:56. At 14:00, you get your stock and they get your money. Or more accurately, the database system will start batch processing at 14:00, and give your stock at 14:03 or something. It doesn't actually matter all that much how fast it all happens.
If you wanted to invest in a company for the next three years, a one hour wait is nothing.
If you wanted to sell your shares in a company that you've held for three years, a one hour wait is nothing.
If you wanted to flip a stock as quickly as possible to make a fraction of a cent on a dollar, then a one hour wait is an eternity.
Buying and selling will still be possible, HFT trading will not.
No new taxes required. No new fees. LESS hardware. SIMPLER software. NO chance of runaway side-effects from software trading 10,000x as fast as a human being's reaction time.
This is a trivial problem to solve. The technology is not the problem, the politics is. A small number of powerful people are making a lot of money by stealing cents on the dollar from the common man. They will not give this up without a fight. They will lie, they will cheat, and I suspect even kill to hold on their income stream. They're certainly not above bribery and vote buying.
This is our inaugural confrontation with our new robot overlords; computers will continue to orchestrate and mold the world we live in. We should look at this story and appreciate it for what it is: complexity beyond our comprehension. We have fostered the development of a society that rewards the exploitation of matter. Therefore, if we are usurped in the process, we shouldn't be surprised. Most of you are too locked in a dichotomous fantasy to even realize this.
Similar patters happen in several stocks, typically crashing within 60 minutes of opening and surging between 11am and 2pm only to fall back to previous levels or lower at close. Hidden gains for daytraders at the casino...
Too bad the cost of entry is $25,000 due to those "pattern day trader" rules. I'd do algo trading myself.
Let's just re-parse that sentence:
Bottom-feeding scum are the ultimate hackers.
Therefore, a good hacker should aspire to become bottom-feeding scum?
This sounds like an insult to hackers everywhere.
"Nine times out of ten, starting a fire is not the best way to solve the problem." - my wife
The companies that produce things raise money by selling shares of their company (stocks) or borrowing money (bonds) on Wall Street. So, no, Wall Street doesn't produce anything on its own, but it provides a service that enables others to. It certainly doesn't resemble a casino.
This BS is +5 Insightful?
Wall Street today, especially the HFT programs, exactly resembles a casino! When you're making million dollar trades, not based on valuations, assets or long-term business strategic planning but based on automatic triggers in a market with irrational herd mentality it is EXACTLY like blowing a wad of cash on a "hot streak" at the craps table or roulette wheel. There are thousands of HFT programs interacting in an unpredictable manner with each other in the market. There is no possible way to track that volatility and rationally invest in the short-term in such a market.
In fact, I was outraged when I heard my son's class was using coin flips to determine the winners and losers in the class's "stock market". Investing is not gambling!
Why are you mad? Your son's class is smarter than you, apparently. Or did you not know that the hedge fund managers being paid millions in fees can outperform monkeys throwing darts at stocks only 61 out of 100 times when tested? (That was run by the Wall Street Journal, by the way.) Or that the professional managers outperformed the Dow Jones Average index only 51 out of 100 times? Short-term investing certainly is gambling!
Light a fire for a man and he'll be warm for a day. Light a man on fire and he'll be warm for the rest of his life.
CAPITAL-ism is a system for deciding what gets produced, based on the private ownership of capital, and private individuals and groups deciding what to do with their capital. Stock markets such as we have aren't absolutely critical to that, but they're pretty close. "Wall street," the investment of privately held capital, is the epitome of capitalism.
That's not to say that HFT is a necessary part of capitalism, but stock trading IS.
Organisations like the FSA exist to ensure that each transaction that occurs is audited to make sure that it has a financially sound objective, not just gaming the system for weaknesses. Market participants can fined very significantly for getting this wrong.
I find this assertion laughable, FSA clearly is more concerned with soy futures. Hold on, from you spelling of organization you must be referring to the ths FSA which is likely just as understaffed as its US equivalent and no doubt run by individuals hopping to get gigs in private industry. IAAMBA (I am a MBA) so I know pointed-headed-ness.
-Long time lurker first time coward.
"Or that the professional managers outperformed the Dow Jones Average index only 51 out of 100 times?"
Since the DJIA goes up over time, on average, matching it makes money, over the long term. If a trader, high frequency or otherwise, is making money on average, he is participating in something that is very much NOT like a casino.
It's anti-free market for sure. They're skimming off the system without contributing a damn thing and adding inefficiency and misinformation into the markets
How is that anti-free-market? I thought "free market" simply meant the government wasn't regulating it.
So start your own stock exchange using your rules and see how popular it is. You'll make billions, right?
Oh wait, you mean people who are customers for stock exchanges don't actually prefer a stock exchange like that? Hmmm... maybe you should ask yourself why...
How about stuff like limit orders, like knowing what price you can sell a stock at right now, instead of a guess about an hour from now?
The party of stupid and the party of evil get together and do something both stupid and evil, then call it bipartisan.
That's how the "powers that be" want it.
They want you to believe that it's random....
The market moves all have very clear purposeful behaviour IF you knew what to look for. However, the powers that be want you all to believe the economic news is real, and invest accordingly. They own the media AND the markets after all! However, the price chart doesn't lie!
The game is rigged, folks. It's just that nobody is going to tell you that and show you how.
They need people to clean the streets, drive the buses, practice medicine, build the cities, and work at the hotels.
get back to work!
"Actually currency trading makes up a ton of the HFT. "
You completely missed my point. Read the final sentence again, please. What I stated was that getting a current exchange rate need not require HFT. And further, it is, plain and simple, not good for the system to work such that the exchange rate fluctuates that rapidly.
That is exactly the kind of recipe for disaster that we are referring to. If people in government and finance fail to realize that, then we should replace them ASAP.
It's stupid to allow this.
Maybe corporations should begin to control their price on the stock exchange. If enough shareholder want to sell, they could vote to lower the price, and if they want to hold they cold vote to raise it. Then the corporation would set the exchange price from day to day (rather than ms to ms) and a lot less trading would happen in general.
An active measure like a ban results in expensive enforcement and prosecution. Transaction fees passively reduce the profits, which are usually from a huge volume on a tiny margin.
There are two rather different versions of the free market:
The one they assured us that we would get (that one requires minimal but good regulation) and
the one that occurs under no regulation.
The GP is referring to the former and what the US currently has is neither.
"Or that the professional managers outperformed the Dow Jones Average index only 51 out of 100 times?"
Since the DJIA goes up over time, on average, matching it makes money, over the long term. If a trader, high frequency or otherwise, is making money on average, he is participating in something that is very much NOT like a casino.
Fallacious logic. And the same logic that led mass hordes of people to think that investing in housing will ALWAYS make money on average. The OP supposes that actively investing is a skill set, and not based on random luck. Therefore, professional investors who have spent years training and being educated on investing should be able to consistently beat (A) monkeys throwing darts at stocks and (B) beat an index based on a LISTING of stocks, not on professional predictions of how well they're going to do in the future! They can only do (A) 61% of the time... and doesn't it worry you that they can't beat the monkeys 99% of the time? And they can't beat a LISTING of the biggest stocks more than 51% of the time!
So what happens when the index listings themselves come crashing down? I certainly hope you're not expecting those professional fund managers to exercise those wonderful "skill sets" and pull your retirement out of the fire...
Light a fire for a man and he'll be warm for a day. Light a man on fire and he'll be warm for the rest of his life.
That would be a direct tax, and require apportionment among the states.
You'd have better luck predicting a coin toss based on starting velocity, wind speed, ambient humidity, etc., than you would predicting a stock's day-to-day movement based on all available data.
How does efficient market theory explain all the millionaire and billionaire stock traders Manhattan and London? People who claim it's impossible to make money trading simply don't know how to trade. With the exception of Communism, Milton Friedman's BS theories on efficient unrestrained capitalism have done more to destroy the world economy than any other intellectual movement in modern history.
Stay skeptical, my friends.
"It certainly doesn't resemble a casino."
It most definitely does. But let me clarify a bit what I meant.
TRADITIONALLY, stock investment helped raise capital for large projects. (Which was also the reason for the formation of corporations: large projects could be funded that even rich individuals could not afford to undertake.)
But even given that, stock trading is still indeed gambling. There is no justification for calling it anything BUT. You put out your cash and hope it grows. But it may not. If you trade at random, given many transactions you should have about a 50/50 chance of staying even. BUT... just like a casino, there is a house advantage here too: there are usually percentages or fees charged for each transaction. So again, if you assume randomness, odds are you will actually end up in the red.
There is nothing about this scheme that differs from gambling. Not... one... single... thing.
And just as with gambling, corruption has been (is) rampant.
But even aside from that, what I was getting at is: the majority of wall street investment today is in one or another form of derivative. And a derivative is, quite literally, betting on other people's bets. Unlike regular stock investment, it produces nothing, and does not finance production. It simply finances the financiers.
You can argue with me all you like about that, but it doesn't change the facts. For the most part, Wall Street today has very little to do with actual capitalism. Instead it has to do with Corporatism and Governmentism (which, put together, were defined by Benito Mussolini as "fascism"). There is very little resemblance, even superficially, to actual "capitalism" to be had there.
"Capitalism is a method of allocating resources through the private sector and that's precisely what Wall Street does."
This is precisely where you are wrong.
That is what Wall Street was originally designed to do. That does not mean that's what it does now.
Wall Street today is little more than a Fed <-> Bank <-> Finance Company <-> Government circle jerk. While at the same time, "regular" investors get no love.
"Stock markets such as we have aren't absolutely critical to that, but they're pretty close."
Yes, but what you aren't taking into account is that Wall Street today isn't much about straight (or even legitimate) stock trading. Instead, it's money markets and derivatives, which don't fund capital projects. It all goes into fat cat pockets.
I wasn't deriding stock trading. I was blasting Wall Street. Two very different things.
Exchanges are for-profit institutions. They make money on transactions. Why would they want to give up HFT? They also make money with connectivity, co-location, and selling data. If anyone tried to stop it, they would move if offshore. Or so the logic goes.
Part 1 Part 2
"How does efficient market theory explain all the millionaire and billionaire stock traders Manhattan and London?"
It doesn't, of course. But... given hundreds of years of solid evidence, it should. So... what is the difference? How did those things happen?
A few were smart. A few got lucky. Many of them already HAD family money.
Most of the rest is due to market-fixing, cronyism, insider trading, etc.
When the free market is allowed to work, it works. But we have over 100 years now of government and insider interference in the free markers, to the extent that they can hardly be called free anymore.
Sorry, but you can't point to a system that has been almost hopelessly corrupted, and call that evidence that the system as designed doesn't work. That's a logical fallacy.
Today's Wall Street is very, very far from a "free market".
Stock exchanges could institute a limit on how often one may trade. Perhaps once per second, or even once per minute. Shouldn't affect human trades. May have to be legislated.
I have no doubt that the market is hopelessly corrupt. I used to be a trader and a stock broker and have seen the good, the bad, and the truly ugly. The entire financial system is built on convincing average people to give money to mutual funds with no questions asked. In 30 to 40 years, the money you were promised may or may not be there, but those who sold you the investments are long retired to their private islands. All the meanwhile, traders such as myself are siphoning money off every trade these mutal funds make. The only way we can fight the Wall Street's growing power is to vote with our pocketbooks. Invest in retirement yourself instead of giving it to money managers. If you don't understand the market, buy hard assets like art and real estate. If you don't understand that, then sock it in a CD.
Stay skeptical, my friends.
I take it you're not the "real" Vernor Vinge?
The companies that produce things raise money by selling shares of their company (stocks) or borrowing money (bonds) on Wall Street.
Sort of...
Very simply... the first time the stock sells, that money goes to the company. From then on, however, the shares go from trader to trader, with the money made and lost by the traders. (Oversimplified)
An analogy might be baseball trading cards: When the card sells in the store, that money goes to the card company. But from then on, the kids on the playground trade, and buy, and sell them based on desirability, rarity, etc.
When some card eventually sells for thousands of dollars, it doesn't benefit the card company.
Jane, I forgot to answer you question.
So you would rather live in the world of the robber barons, child labor, 14 hour work days, and unrestrained pollution? Or better yet, to 1929, when the goverment also ceded complete control of the economy to the private sector. You need to brush up on your Econ 101, missy.
Unrestrained capitalism is a force that favors monopoly as an outcome. No one wins except for the monopolist. Efficiency is the result of goverment actively regulating the economy to allow competition to flourish.
We've grown fat and lazy off TV and potato chips, and have stopped fighting for our democracy. The monopolists are close to complete control of our government, and I only pray it's not too late to fight back. I do agree with you, the government is
Stay skeptical, my friends.
I do agree with you, the government is stacking the chips against us. Friedman's school of thought has turned two generations of capitalists against healthy and necessary regulation that is needed for their own protection.
Stay skeptical, my friends.
"Unrestrained capitalism is a force that favors monopoly as an outcome. No one wins except for the monopolist. Efficiency is the result of goverment actively regulating the economy to allow competition to flourish."
Bullshit.
It has never worked that way. If you chart government interference in the economy against the purchasing power of the dollar, since the late 1600s, the correlation is indisputable. And since one has preceded the other, while this is not proof that government interference has been the cause of the bad economy (you won't find any post hoc, ergo propter hoc here), it *IS* proof that bad economy could not be the driving cause of government intervention.
I do, in fact, have the data I mentioned. Because I don't speak about these things just off-the-cuff; I do my research first.
The more government has tried to "regulate" the economy, the worse that economy has been. Invariably. Over more than 200 years.
"Friedman's school of thought has turned two generations of capitalists against healthy and necessary regulation that is needed for their own protection."
Everyday events put the lie to this assertion. There is more government regulation of markets right now than ever before in history, yet our economy is simultaneously in one of the worst positions it has ever been in history.
How do you reconcile this? Facts that are extremely easy to verify directly contradict what you say.
One argument used to justify HFT is that it provides liquidity to the market. However, not all liquidity is created equal.
HFT firms make money from bid-ask spreads just like market makers, except that they only "make a market" in a security for a fraction of a second rather than constantly. However, unlike real market makers, HFT firms can stop trading and exit the market at any time, and they typically do exactly that during times of market stress (i.e. panics and crashes). The overall effect is to increase liquidity when the market is booming and confidence is high -- inflating bubbles -- while decreasing liquidity precisely when it is needed most -- worsening panics. In good times, HFT firms allow your trades to clear in nanoseconds. When the market is crashing and the HFT firms exit, the trades that cleared in nanoseconds suddenly take seconds, minutes, hours and eventually cannot clear at all.
Conditional, procyclical liquidity is bad liquidity. HFT firms should not take credit for providing liquidity unless they are willing to commit to doing so under all market conditions. Otherwise they are part of the problem, not part of the solution. Liquidity is only valuable if it is there when you need it.
Capitalism describes private property rights. Production is output.
Having said that, I will amend it:
Even Adam Smith recognized that a reasonable body of antitrust laws would be necessary to keep capitalists playing within the system. Consider antitrust laws to be the "meta-rules" that keep people playing within the regular rules.
And it is also true, that when antitrust laws have been relaxed, monopolists have tended to take advantage. I do not dispute this.
But the vast majority of government regulation does not qualify as "antitrust" regulation. It is mostly interference that leads to inefficiency. Once again: antitrust regulation is now at a historic low, while other government intervention is at a historic high... and our economy currently sucks very hard.
I like this Stickerboy person. He has logic on his side.
It's a question of motivation, good code = more money. When per line = more money you hade bloatware... The ultimate hackers do it 'because they can' or 'they want to know'.
It's a good thing that competing exchanges are allowed. The rules set by various exchanges can vary and evolve (although they are constrained by SEC regulation).
If Cuban is right, he should take over an exchange or start one with more suitable rules (according to his evaluation). We'll see if market participants agree that this is an important issue and Cuban's set of rules is indeed better, and Cuban can take away market share from the marketplaces that use weak rules.
These comments are mine; I do not speak for my employer.
The trading rules was set on a time when the technology was not able to abuse the primary intend in a such big way. The rules needs to be adapted. A proposition is to use a quantum of time, for example a few minutes, between the calculation and publication of new quotation. The transaction queue must remain secret for everyone.
I don't expect that the states will be able to impose such rules, but new stock exchange place, with more fair rules, can start up and attract companies. Old one will then look like poisoned by fast trading parasites.
Depends on the millionaire:
Some get rich by good ole fashioned buy-and-hold strategies, which are entirely legitimate and good for the economy.
Some get rich through facilitating, for example noting that a stock is priced too low and buy it, then sell it when someone who actually wants it comes along. Again, this serves a valuable role in the economy, as it means that someone who wants to sell their stock now can do so, and doesn't need to wait to find a long term buyer.
Some get rich through dumb luck, which they mistake for their own skill. If enough people gamble, some are bound to win. No one likes to think that they got rich by dumb luck, so they tell themselves it was because they're just that awesome.
Some get rich by skimming the retirement accounts of regular folks. These are your mutual fund managers, for example, who provide no apparent benefit over randomly picking stocks from the index, and yet charge a nice hefty fee for their services.
And then, of course, some get rich through straight-up crime. Insider trading, for example.
I see no problem. The market is moving towards a situation where trades are handled by automatic systems. Those who can or will not adapt will loose, and the system will eventually stabilize again until new first movers in advantagous techniques emerges.
I cannot believe in what is current. Everything is ever changing. I will always adapt and prosper.
01 REDEFINE REALITY.
That *is* a bit of an oversimplification, because in most cases, the vast majority of the stock is retained by the company. So when the stock price rises, the value of the company does as well.
While contemporary economic theory has become a bit more sophisticated than old Keynesian theory (thank Grid), there is much to be said for the Keynesian idea that simply maximizing share value is equivalent to maximizing the value (and therefore buyout price) of the corporation itself.
So, no. Each time the stock sells, it produces a price signal in the marketplace. That influences what others will buy or sell for, and when you put them all together, a balance is reached. (This is essentially Adam Smith's definition of a free market.)
So if the initial public offering is a share for $10, and a few years later those shares go for $1000, then yes, "the company", that is to say the shareholders, profit indeed. Very, very much. Because "the company" owns most of that stock.
So your card analogy is false. Cards are not automatically attached to any value of the originator. They are sold as a commodity... a common, usually cheap item.
Stocks, on the other hand, are attached to the worth of the company, because the company retains the majority of the stock (if you didn't, you screwed up).
And a derivative is, quite literally, betting on other people's bets. Unlike regular stock investment, it produces nothing, and does not finance production. It simply finances the financiers.
There's so much rubbish being written on this thread but I thought I'd reply to this one.
Derivatives, HFT, the works all have legitimate, valuable reasons for existing. That they *can* be abused for gambling isn't a good reason for getting rid of them completely. Until you understand why they are *needed* saying it's all crap and should just be banned is idiotic.
Derivatives form an essential part of any large multi-national company that needs to hedge exposure to commodity or fx price movements. And once you've got people who want to hedge their exposure, it's *required* to find someone else who will take the opposite bet.
I'm going to receive EUR in six months time and I'm going to pay you in USD. Are you willing to gamble that I can actually afford to pay you when the bill becomes due? I want to find someone who will take that bet and I really don't care if it's one person taking a six month bet or 16 million people each taking a one second bet.
Someone *has* to take the bet - either that or we cannot do business.
Tim.
God said, "div D = rho, div B = 0, curl E = -@B/@t, curl H = J + @D/@t," and there was light.
Only non-programmers use the term "software programs".
Regulation isn't fungible. What units do you measure it in?
To say there's more or less is asinine.
I won't say it would have prevented the crisis (we can never know for sure) but if Glass Steagall had still been in place it probably couldn't have made it worse.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
But without some kind of secondary market, many would be deterred from investing in the first place. People like to know that they can cash out quickly and easily if they wish (or need) to.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Slow trades down to the human scale.
lets say trades have to be processed in "ticks"... and the ticks could be once a second or once a minute. But the idea is that trades are ONLY processed in the ticks. You can queue trades between ticks but the trades only happen in the ticks.
If you have a system that a milisecond faster then anyone else it won't really matter that way. The trade won't happen until the tick processes.
Once a second is still pretty fast. Once a minute is more reasonable. But because a tick is an arbitrary time span we can change it to be whatever you want. It can be once every ten seconds. Or once every five seconds.
What's important here is that it's slow enough that people can follow it.
I've decided to stop wasting my time responding to AC trolls/sockpuppets... so if you want a response from me... login.
I'd say it's an example of HFT going spectacularly well, if only this happened more often. Then again, we'd probably have to bail you scumbags out again, so maybe we'd better just forbid the whole thing.
east india company rule sure as fuck wasn't free market.
in the case of the stocks, it's the stock exchanges which are taking the role of the government. you think just anyone can get their trading machine on the same switch as the exchange operates on?? fuck no. it's as if ping times made you invincible in wow, blizzard gave preferential access to several of their cronies and it was played for real money!
world was created 5 seconds before this post as it is.
HFT provide more than liquidity, they provide instant pricing correction for overpriced and underpriced stocks. "Buy low, sell high" is not skimming, even if you only hold for a fraction of a second.
BTW, please do add a transaction tax on all US trades. This would certainly restore London as the world's premier financial centre and further minimise New York.
"There is nothing about this scheme that differs from gambling. Not... one... single... thing." ... and this is why you don't know what you're talking about.
Gambling, by definition, is seeking to profit from a random event that is generated SPECIFICALLY so people can bet on it. Why do horses run around a track? So people can bet on it. Why do people throw dice at a craps table? So people can bet on it. Why does the blackjack dealer distribute 2 cards to each player? So people can bet on it.
Compare that to a futures trader. The risk that the price of corn is going to go up or down has NOTHING to do with the fact there is a futures exchange. Because of the business they are in, farmers are shouldered with that risk, like it or not. It exists. The futures trader is willing to assume that pre-existing risk in the interest of making money, while the farmer is happy to have someone to take that risk off their hands. The risk has always been there, but a futures exchange allows people to transfer that risk.
You make a good point. The people manipulating the economy from the top down (the fed and their associates in the "private" sector) do orders of magnitude more damage to the economy that the people manipulating it from the bottom up. It's common sense: eggs, basket, disaster.
If capitalism is functioning correctly, costs are minimized via competition. Wall Street is composed strictly of "middle men". These institutions should be squeezed for profit like every other part of the economy. Instead, they have become the gate keepers, and now skim the bulk of the profits for themselves. The entire economic order has been altered so that Wall Street (and the other global banking institutions) make money without regard to results. Heads they win, tails we loose.
HFT is just one of the skimming methods. It starkly illustrates that the insiders have a strategic advantage and open competition is a myth. How can there be a level playing field when the privileged few who can install their HFT trading hardware right next to the NYSE machines have an intrinsic edge? Effectively, it is a casino and they are the house and everyone else is has a sucker bet. (Don't bother to respond that "anyone can make an investment that indirectly taps into this capability". You and I have to go though so many middle men that we see no meaningful profit.)
Bain Capital is another example. They structured their deals so the Bain insiders always came out ahead. By definition hedge funds use other peoples money. They are not taking the risk, the investors are. If hedge fund insiders come out ahead of investors, it is another case of insiders stripping assets from everyone else. Note that this is a completely separate issue from the impact of Bain on the companies that they acquired.
So suppose you go to Fidelity to invest, and they sell you one of their high end managed portfolios. It's composed of multiple funds also managed by Fidelity. Besides the fee to be in the portfolio (4% annually), each of the funds also charges a fee. The funds trade through the Fidelity brokerage, which also charges a fee. This is at least triple dipping. All the name brand investment firms are the same. If you have a 401K it is almost certain that you have been subjected to this scam.
Beyond this, the bailout from the 2008 crash rewarded the corrupt investment bankers that caused the problem in the first place. The general public in the US saw it's net worth reduced to mid 1990's levels while the stock market has gone up to record highs. This is, in effect, a transfer of wealth from the productive part of the economy to the corrupt insiders. There is class warfare in the US, and the ultra wealthy are winning.
There are two things to keep in mind:
The game is rigged.
All animals are equal, but some are more equal then others.
Why is Snark Required?
Considering that the purpose of the exercise is a "man in the middle attack" by definition (using information to buy the shares somebody wants first, bump up the price, and then sell it on to them before they can get it from the initial seller), I think the comparison with black hat crackers is accurate.
Wikipedia has an interesting article on this idea: https://en.wikipedia.org/wiki/Tobin_tax
This posting is provided 'AS IS' without warranty of any kind, implied or otherwise.
It is gambling if you go in without information.
People like to complain about algo trading and HFT without suggesting how they'd improve it.
Your tottaly right brother. I can't understand what are people complaining about. It is the same thing with stealing and murder. Why prosecute it when we can use technology to improve it?
For the 1% to be able to trade at a millisecond scale for practically no cost but the rest of us need to pay $10+ per transaction...
Long term investing isn't gambling, but day-trading most certainly is.
Why? You invest money with the hope that conditions are favorable and your investment will increase in value. Sounds like gambling to me regardless of the holding period.
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Forget the hacking component, high speed trading is legalized theft. Think about it, the essence of equitable trade is a wealth transfer in which both parties contribute something: I give you money, you give me a loaf of bread, and we both come out ahead. Or in the case of stock you give me partial ownership in a company.
Granted stock trading has always had a certain element of gambling to it, but when it's humans it's still a matter of "I think this company is under-valued and want to buy in before anyone else realizes it". Basically it's a form of risk-management. High speed trading is essentially a man-in-the-middle attack - whereas normally stockholder A would sell buyer B their stock when they felt the market was overpriced, now they sell to speed trader S at a slightly lower price, and person B buys at a slightly higher price. Both A and B, the people actually looking at the market and weighing risks and benefits, have lost some of the value of their trade. Meanwhile the speed trader has profited by that value difference without contributing anything whatsoever to the transaction. They're parasites upon the market, adding costs and instability and giving nothing back - the sooner we ban them the better.
To hear them talk you could build a mid-ocean trading center along the data-lines as just pull money out of the air, making money from nothing. Here's a hint - if it sounds too good to be true it probably is: It's not pulled out of the air, it's pulled out of the pockets of people that are actually doing the risk-management the market was created for.
--- Most topics have many sides worth arguing, allow me to take one opposite you.
I studied under Laura Tyson and professors who administered the S&L bailout in the 80s. Unlike you, I did do my research.
You failed to mention if you would like to go back to the robber barons days with no regulation. I'm sure you think your clean drinking water, 8 hour work days, safe work places, blue skies, Social Security and Medicare, and civil rights just magically appeared out of thin air?
The reason there are so many problems with government programs is because of rent seeking, people who seek unjustified profits through controlling government contracts and programs. You tea baggers and efficient market theorists do nothing but stand in the way of making reasonable fixes to our problems. When will you learn that government is a necessary evil? The sooner you stop frothing at the mouth and start being part of the solution, the sooner we can get this country back on track.
Stay skeptical, my friends.
Thank you for being open minded. It's a rare quality these days. The market is not efficient, never has been, never will be. As long as we can agree upon that point, there is hope for this country yet.
Stay skeptical, my friends.
One of the purposes of a "market" is to provide a mechanism for price discovery. The markets have instead morphed into a giant scam operation which has nothing to do with this.
There is rampant insider trading. For example, check out the purchase of 'short' positions on JPM the day before the announcement of their big loss. It's blatantly obvious that someone got the info in advance. The federal government has an army of regulators as well as the FBI, and they do nothing to stop this theft.
I've pulled all of my investment $$$ out of the markets, except the equity funds I've got in my 401K., and I'm on the verge of biting the bullet and pulling that out as well.
Sorry, but you can't point to a system that has been almost hopelessly corrupted, and call that evidence that the system as designed doesn't work. That's a logical fallacy.
The irony of a libertarian saying this... Any market success is evidence the market works and any failure is because the government interfered.
Wish I had mod points today. This post says everything you need to know about the stock market -- which is, if you're not the 1% you should GET OUT, lick your wounds and keep your money elsewhere.
If telephones are outlawed, then only outlaws will have telephones.
"Scalping miniscule price movements" thousands of times an hour, if not per minute. - this is essentially theft.
Let's take a drastically oversimplified example, just as a starting point: You want to sell a stock at $30 or more. I want to buy the same stock at $31 or less. In a fair market, our transactions meet and I buy your stock. Depending on how things are set up, the $1 difference in prices goes to one or the other of us, or maybe we split it. The basic goal of HFT and other such technologies is to insert themselves into the middle of other people's transactions. They buy your stock for $30 and sell it to me at $31. You get $30 for you stock, I pay $31, and they get $1 for free.
How is this not theft?
Enjoy life! This is not a dress rehearsal.
The SEC regulates "public" companies. The FSA regulates trading. Tax-break accounts (401Ks/IRAs) cause more investing than a free market (unbiased taxing) would otherwise have. 401Ks contribute to passive trading. All of these are government manipulations on the market. Just because you can't identify a regulation on a specific trade doesn't mean that it isn't directly or indirectly regulated already.
Welcome to the concept of an efficient market. I can't tell if you are trolling, or if this is just delicious irony.
From Wikipedia:
In finance, the efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient". In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.
EMH predicts your outcome for B exactly. The fact that they are 1% better than the index indicates that they either do have skill, or they have some insider knowledge...
Regarding A, Hedge Fund Managers (HFMs) are "only" 11% better than random selection, consider this:
Issue 1: if there was a clear and obvious investment option that would make money 100% of the time, who would take the other side of the trade, and why wouldn't everyone compete over it? If it was "knowable" that a given stock is 100% certain to raise in value more than all other stocks, who would sell it to you? In order for a trade to happen, the seller has to think "this is a good time to sell" and the buyer has to think "this is a good time to buy". They can't both be correct unless there is some exogenous pressure on one or both.
Issue 2: That 11% edge is HUGE. Roulette is considered to be the table game with the worst odds in the casino, and the house "only" has a 5.6% edge.
Citizens United v. FEC has nothing to do with corporate personhood. That concept has been around since the late 1800s.
"Congress shall make no law ... abridging the freedom of speech"
A law which prohibits an organization from running a TV ad about a politician is a clear violation. Remember, the SCOTUS doesn't "legislate" or weigh the predicted results of the decision. They interpret the Constitution, and they made the right decision.
Financial de-regulation is a red herring. The politicians want you to believe deregulation was the problem for a multitude of reasons. First, the people that did it are long gone so there's nobody to vote out. Second, it gives the appearance that no laws were broken, and third, the fix is easy. More regulation. It's BS.
Government has at least 4 agencies specifically to regulate the financial sector and the FBI to investigate. They have all the regulations and evidence they need. The problem is that the feds literally will NOT enforce the existing laws.
"Money is Not Speech"
You guys DEFINITELY need a better meme. That statement is completely meaningless. IMO, it gives the impression that only word-of-mouth is immune from government infringement.
Of-course it is a casino. The reason it is a casino though is 'free' money - fake cash (credit) handed out by the Fed to the preferred banks and non-existing interest rates. The real reason for existence of this phenomena is that Nixon defaulted on the dollar in 1971, and since then the money stopped meaning anything.
This default and growth of inflation (money printing) and the resulting growth of gov't and gov't power caused massive outflow of real savings and investments and thus productive capacity to other countries.
Left with only fake money that the world is still willing to take (I wonder for how much longer this will go on, can't be much longer now, the Fed is pretty much out of bullets to keep interest rates down except printing, and thus more and more inflation, which will further diminish desire of people to sell for US dollars), so left only with fake money and no production and a huge gov't apparatus, the sectors that became big are all sectors connected to the government - from banks to military to insurance to energy, and such.
The Wall Street it a giant casino, but it's only a casino because the money is fake and gov't guarantees losses.
You can't handle the truth.
We got here through Capitalism... because corporations want power and they can rig the government game in their favor.
- we got here through people always wanting to get something for nothing, and thus they kept electing guys who promised something for nothing. From Theodore Roosevelt and Hoover and FDR all the way to Obama, and everybody in between actually.
Free bread and circuses - people vote for politicians who promise this nonsense, that's how government grows, gets out of the bounds and limitations imposed by the law above gov't - Constitution, that's how gov't corrupts the entire system.
It shouldn't be a surprise that individuals fight back (and I mean businesses, they fight back), they come to politicians with money to buy that power. But politicians were and are stilling that power only so that they could sell it and it's the people who allowed the politicians to steal that power.
Once the power is stolen, it will be sold, there is nothing that can stop that.
You can't handle the truth.
OK a bit of a pet peeve here. WTF is wrong with the US. Why the Frell do they have have things like SCOTUS, and POTUS, etc... it is stupid. We get it. You live in or are talking about the US. I don't need a stupid short form for that. Also it is a stupid short form, as you take "O" from "of" for %^# sakes and "T" from "the". Call it the Supreme Court or the President for the love of all that is holy like every other country in the entire world.
I don't call it SCOC or PMOC if I live in Canada. Do you know why? Because I'm not an idiot, that's why!
Whew. OK rant done.
Well, if you look at the history of capitalism,
this will probably end with the USA invading another country over the price of bananas.
Why is this modded funny? It actually happened!
http://en.wikipedia.org/wiki/Banana_Wars
Using the roulette wheel analogy, I would say HFT is like all of us normal people having to place our bets before the wheel spins while the HFT guys (or at least whichever one has the the least latency/best algorithm) gets to place the bet just as the ball is about to stop moving.
In many physical problems (like the study of water waves) there are multiple length and time scales, each of which can be approximated separately. See
http://en.wikipedia.org/wiki/Method_of_multiple_scales
In equity trading there appears to be at least three time scales. Fundamental analysis functions over a period of months. Technical analysis (used by day traders) works over periods of minutes and seconds. And then there is high frequency trading (accounting for over 70% of equity trades in the US in 2010) which works on the millisecond or microsecond scale.
Some persons in this forum has suggested that the millisecond scale be eliminated.
http://en.wikipedia.org/wiki/Front_running
Front running has been illegal for a long time in the USA, but as long as the second trade is made after the initial trade (even a microsecond later) it is legal. My problem with HFT is that if a person does not have access to a millisecond trading, then for all practical purposes the second trade is front running.
The SEC needs to step in and regulate this inequity. Let the HFT bitch and moan. A one second one trade rule would eliminate an advantage of a nearby server.
You only need to beat 50-50 to make it profitable to trade as frequently as possible
Why not trade once every thousand years, if speed of market doesn't matter?
Because it matters to a human timescale. STM isn't like a medical procedure, where seconds or even milliseconds may count.
You're not going to beat out a competitor by getting your product out a few seconds earlier. Probably not a few minutes earlier either.
Hours? Maybe
Days? Getting more likely...
But milliseconds or microseconds?
Until we get a race of sentient androids purchasing their own stuff in bulk volumes... probably not.
What benefit does this kind of trading provide to society, or even to the companies whose stock is being traded?
Seems to me that this is the kind of thing that's run up the price of oil, food, and a lot of other things, which hit me, personally (I don't expect a good percentage of slashdotters consider their wallet, the Freeness of the Market overriding their own "enlightened self-interest").
A real tax on assets held under, say, a week would provide a *lot* of money to provide social programs needed by the folks who've been screwed by the traders who engage in this.
mark
The best solution is simply to base a capital gains tax on the length that a particular equity is held. Use the current threshold for short-term vs. long term rates as the starting point, and use a linear percentage reduction starting at 100% at zero time down to 15% when it transitions to a long-term holding. That will also rein in day-traders and ensure that trades reflect actual investment rather than just gambling.
"Derivatives, HFT, the works all have legitimate, valuable reasons for existing."
Craps tables have reasons for existing, too, as do back-alley dice games. They all have good reasons for existing.
But if you were a bank, in which many innocent people had deposited their money, should you be allowed to "invest" it in a back-alley dice game?
The fact that there may be reasons behind them does not mean they are appropriate investments by just anybody, nor does it mean they are good for the economy. Nor does it make them "capitalism".
Capitalism is the investment of capital for the purposes of profit. Cut the situational re-definitions.
Analogies don't equal equalities, they are merely somewhat analogous.
It is not fallacious logic.
1. It doesn't worry me that professionals don't do better than index funds or monkeys - it's why I don't pay a professional investor to invest for me. It's not worth it. However, putting my money in the stock market is NOT the same as paying roulette in Vegas. In the stock market I have an expected return greater than zero (formally, E(r) > 0, or the market goes up on average). At Vegas, the expected return is less than zero (E(r) 0 (to high probability over sufficiently long periods)
E(rVegas) 0 and E(rPro) > E(rVegas)
2. Asking what happens when the index listings themselves come crashing down doesn't mean more than asking what happens when you have a lucky streak in Vegas. The market as a whole drops sometimes. You will lose money if you buy then sell at those times. Sometimes you win money in Vegas too. It doesn't mean that the market is a casino anymore than it means Vegas is a sound investment strategy.
Professional investors appear to be leeches - they demand high salaries but don't add any value, except perhaps for insulating individuals from making emotional trades, which is certainly not worth what they're paid. That DOESN'T mean that the stock market is a casino.
"Gambling, by definition, is seeking to profit from a random event that is generated SPECIFICALLY so people can bet on it."
Okay, but so what? The reasons behind it don't change the way it works, one little bit.
"The risk that the price of corn is going to go up or down has NOTHING to do with the fact there is a futures exchange."
Bullshit. Of course it does. IT'S A GAMBLE. Some people will win, and in a commodities market that means some people will lose. You are making a bet. Plain and simple.
"The futures trader is willing to assume that pre-existing risk in the interest of making money, while the farmer is happy to have someone to take that risk off their hands."
Of course. But again: the reasons behind it don't change the fact that it's essentially gambling on the part of the investors.
"The risk has always been there, but a futures exchange allows people to transfer that risk."
Yep. By letting others bet on it.
Quite clearly king's unilaterally making shit happen doesn't count as regulation and purchasing power per unit of currenc trumps every other measure of efficiency.
Analogies don't equal equalities, they are merely somewhat analogous.
Meh. Slashdot ate my math. Good thing I didn't paste MathML.
"Unlike you, I did do my research."
Haha. You didn't do it very well.
"You failed to mention if you would like to go back to the robber barons days with no regulation. "
actually done your research, you would know that the days of the "robber barons" were among the biggest economic booms in all of history. Further, the so-called Robber Barons themselves, while admittedly growing rich, stimulated the economy so much in the process we have seldom seen the equal. (Source: "The Politically Incorrect Guide to American History", by Thomas E. Woods. Woods is a noted Harvard-educated historian, and unlike you, he gets his facts straight.)
More twisted history:
"You tea baggers and efficient market theorists do nothing but stand in the way of making reasonable fixes to our problems."
Fact: the more "fixes" that have been imposed by government, the worse the economy has been invariably. There is a very clear, easily visible when charted, NEGATIVE correlation.
And you sit there and tell me you "did your research". Hah. What a joke.
I do see your point, but I still disagree. The money market is the epitome of capitalism. Essentially, the money market is a way to move capital, very very quickly, with a minimum of impediments. People who make money off the money market are profiting purely from their ownership (or borrowing, or managing for someone else) of capital. Do I think it's a good thing? No. But then I've studied what unfettered capitalism actually means.
The situation actually has interesting parallels to the problem of absentee landlords - both occurred when too much of the capital was concentrated in the hands of a very few, those few were very isolated from actual production (and the people doing it), and were instead concentrating on growing capital purely through controlling capital.
Which of you monkeys modded up this clown representing a radically anarchist system as "gov't do it"? You wouldn't mod him up if he said something like "gov't spying on everyone and no free elections - i.e. democracy" just because the DDR claimed to be a democracy, would you? Guess what, even though, for example, the Soviet Union was ruled by a Communist Party, it didn't even try to claim to be communistic. It was a bastard child of socialism and a country sized corporation, basically like any other country trying to do things at the top level has gone. The lesson is country sized corporations are too big to manage, the lesson, however applies to any corporation, not just governments that are effectively boards of directors.
Further, if I were you, I wouldn't go around bragging that you studied with Laura Tyson.
She was influential in supporting GATT, which since its implementation has arguably had the opposite effect of what she predicted.
She was a board member of Kodak, which folded quite famously due to its market blunders. She has been on the board of Morgan Stanley (hardly a recommendation these days), and a member of the CFR (never a recommendation on the best of days).
In short, precisely the same kind of consistently wrong -- and likely corrupt -- person as those others who have been behind the economic MESS we have been in.
And you cite her as a mentor. Hahahahahahaha!
One reason for lesser capital gains taxes is investing supposedly creates jobs. By that line, we start lower capital gains taxation when the money has stayed in that business for a full year - reasoning that a year is certainly time enough to create a significant job. Making this a more explicit principle of gains taxation would mean several changes:
1. The money would have to be invested in businesses that create jobs in this country (the USA in my case - non US slashdot readers may want to compare what I'm describing with the way their markets and tax systems work), and probably we would have to set a threshold, such as 50% of the jobs, or 50% of the payroll, or something like that.
2. You couldn't get the better capital gains rate for a mutual fund unless it had kept its investment portfolio so it overall met the same rule as though it was an individual stock. Yes, that could get very complex, with a muni for example, investing more in a company that has 80% US employment just to get some flexability in selling off some other low performing but profitable stocks earlier - but note that particular complexity is something that might be good in itself. We don't really want investors to be looking for ccompanies with 50% of their employees in the US, but ignoring ones with 60%, 70% or more because it more than meets the minimum required, not if more than meeting the minimum is beneficial to the rest of the country.
2a. You probably can write the rules so individual investors can get the same ability to count some investments in offsetting others as for mutual funds and institutions, but I'm leaving that as an exercise for the reader.
3. Since you dont pay gains taxes on an actual loss, this doesn't stop investors from selling off losses without a waiting period. By itself, such a system doesn't change the laws about claiming losses to offset profits on your taxes either. That might be a good thing, in that we aren't tweaking both ends of a feedback loop at the same time.
4. Obviously, microtrading would be the exact opposite of this system, and likely the first thing banned. However, if you cannot get the better capital gains rate on hyperfast transactions in such a system, most, if not all, of the allure is gone, so maybe the law doesn't have to specifically ban anything. People might still use HST in selected circumstances to deal with such issues as needing to free up funds for a more profitable investment they anticipate, for example - it's just they would generally be beaten in the market by the people who rely on holding on for the long term, unless their market projection was very, very good.
5. There's a lot more involved in crafting such a system for the real world, such as how business bankruptcy and recovery of assets by shareholders affects such a system.
Who is John Cabal?
Well I do not think it is fare to say that investing in a company creates jobs in general. It could, but participially, if that company is set on staying in the US then there is a good chance that the money would be used statically more often to increase automation and fire workers then to hire new ones.
Troll is not a replacement for I disagree.
I do believe Taleb calls such things Black Swan Events. Whenever people start saying something will always to continue to happen and they begin to invest like it will always continue to happen, it will stop happening. Usually these events are spectacular.
> It's not a question of if or when we have meltdowns, it's just a question of how big and where.
What do you think is happening in Europe at the moment?
HFT is extracting money from the economic markets faster
than the Government are pouring our tax-money into it
I call that a meltdown in progress...
And by the way (you didn't answer, but I think I know the answer):
In the barely possible but highly unlikely event you are the "real" Vernor Vinge: I loved "A Fire Upon The Deep". Very unique premise.
Didn't care much for the prequel, though.
Gambling, by definition, is seeking to profit from a random event that is generated SPECIFICALLY so people can bet on it. Why do horses run around a track? So people can bet on it. Why do people throw dice at a craps table? So people can bet on it. Why does the blackjack dealer distribute 2 cards to each player? So people can bet on it.
So you are trying to tell us that betting on a boxing match or the world series is not gambling because the event was going to happen anyway? You sound like you are in denial about what you do!
-- ssoorrrryy,, dduupplleexx sswwiittcchh oonn.. -Quote found on actual fortune cookie.
I recommend everyone watch this TED talk about how the current stock market works. People don't even know what's going on in the market anymore, it's a completely uncontrolled environment.
Speaking off the cuff, with no research on hand.
However...I must admit that when someone says "oh, we're bad now, but if we hadn't done X, we'd be much much worse", my first reaction is to judge that statement with about five tons of salt.
The nastiest part of high speed trading is when you execute an order with your broker on the web, the server for which is located, say, in Minneapolis. Your broker's computer then knows what trade you executed, but its high speed trading system can get an order in ahead of yours, manipulating the price at which your trade is executed, usually to the benefit of the brokerage.
It may only change the execution price on your trade by a fraction of a penny, but those fractions of a penny that the broker is making off of advance knowledge of your trade add up over time.
http://www.nanex.net/aqck/3099.html
Nasdaq was totally F*d when Facebook opened, and yes it is thought that tons of HFTs pouring in caused this. What effects not being able to sell or buy correctly on opening day had on the stock are unknowable. It might have tanked faster, or it may have went up, but when the market acts spooky traders get spooked.
Now, personally, I do believe the facebook stock was a turd ready to tank and any position long held long enough would lose money, but there were serious execution problems on opening that could have very well caused his losses.
Jane,
I'm not the real Vinge. I'm just a fan like you. Vinge wouldn't be on here with his real name.
It's clear you are not able to accept the fact that much of the quality of life you have right now is due to some level of government 'interference' in the free market. You offer no alternatives to the current system either. I'd say this debate is concluded.
"It's clear you are not able to accept the fact that much of the quality of life you have right now is due to some level of government 'interference' in the free market. "
Yes, you are quite correct. I admit that I have trouble swallowing bullshit that is provably contradicted by the actual historical record.
"You offer no alternatives to the current system either."
The discussion wasn't about alternatives. I certainly do have them, as do many economists who haven't been taken in by Keynes and Government money-mongering.
I agree. This debate is concluded. I offered a source for evidence of my claims, you have not.
Don't worry, wall street makes outlandish profits from art, real estate, and CDs too.
Man, you really need that seminar!
True, and I've yet to meet the libertarian willing to recognize that the entire concept of incorporation, and thus limiting the amount of personal financial responsibility when conducting business, is a sweeping form of government regulation in and of itself, much less the political bullshit of recognizing corporations as people.
So make the batch time quanta smaller - from a couple of seconds to a few times per second, or whatever is technically feasible. The net effect still ends up being the same, and investors can still react quickly to news and other factors that may legitimately influence prices. The idea is to attempt to put the entire market on a level playing field, where no one participant has information ahead of time that isn't available to everyone.
Please stand clear of the doors, por favor mantenganse alejado de las puertas
You simply restated your opinion without providing any backing and ignored my example. So are you saying that facebook raising $16B in their IPO via Wall Street is not an example of capitalism?
No, I disagree. Prior to HFT, rich people, countries, and those with connections made out best. Historically if a big bank or big business wanted to change their currency holding to alter their risk exposure, they had to partner up with foreign entities or branches. And the liquidity was limited cause there were so few buyers and sellers.
For small businesses, banks, and regular people this translated to very high costs in currency transactions. Simply put, the big guys were taking higher risks that massive fluctuations could occur. They hedged this risk with inefficient methods of keeping vast amounts of foreign currencies, limiting the percentage of currency transfers, or bullying their partners to pay in specific currencies. And that wasn't even taking into consideration of what politicians felt like doing Monday morning.
With HFTs, the information of every movement of currency is instantly instilled into the various clearing houses and the global exchange rate is reflective of the new information. Additionally, they could predict the decision making of politicians and compensate for it. Basically spreading the Monday's massive price differential over a period of 1-6 months. What results is less price variation over time compared to the past. Yes, it fluctuates a LOT, but do we care how much it does when its within a 0.01% range? So the regular Joes can send something as little as $1000 over to many countries with NO transaction costs and a 0.05% variance from the current exchange rate. This was NOT possible in the old days. This only happens cause of the level of liquidity and price stabilization in the global markets. You STILL see this when you go to foreign Airports and see the currency exchange counters. Match it up to your iPhone brokerage App and see the spread those counters need to keep the risk down cause they handle slow moving physical cash that they must hedge on the back end. Compare them to counters from the old days which had even larger spreads.
Take Greece, we worry about it and get prepared for either path they take. We couldn't do this 50 years ago. We had to wait till Monday 9am to find out what to do and if it was the drachma, hope we got to the bank windows by 1pm else they ran out of Euros. Only the politicians and those connected spent Friday setting their affairs straight. With HFTs, it is still bad but it evens the playing field between the rich and poor. Every transaction is treated equally and accumulates in setting the exchange rates globally for the two currencies. You already know what is going to happen Monday based on the politicians "secret" preparations for Friday on Thursday!
I think we should question any activity/profession that doesn't add any real value. The purpose of stock is to raise capital for a company. People used to buy stock because they would share in that companies profits (dividends). The whole secondary market trading stocks doesn't really any real value does it? The fact that a stock is so easily traded artificially inflates its value as it becomes more disconnected from the companies actual profits and more influenced by news, buzz and trends.
And then if we are talking about professions that don't add value... nah don't get me started on lawyers.
HFTers should compete with HFTers.
Investors should compete with Investors.
Casteism
What clean drinking water - the one with hydrocracking fluid seasoning? It's processed anyway, and not well enough apparently. Best use a personal reverse osmosis machine. Just add electricity. 8 hour work days? By the letter of the law, yes - but I can still get fired for not taking unpaid overtime, and if I take it up in the courts, I'll be at bigger loss still. Overpopulation, overambition undermine labour value - demand/supply, remember? Legislated, or not, the only way you are getting real 8 h. days is if most workers are offering their labour in that form. Same goes for workplace safety. And blue skies. Social security? How about I open a plain old investment account - and you can keep that toxic nanny state tit? Medicare? Doesn't that program hold the world record in inefficiency?
I know tobacco is bad for you, so I smoke weed with crack.
Oh - agreed! (I did say it was oversimplified...)
I'm sure kids would not buy as many baseball cards if they could not trade them with their friends later.
I just wanted to point out that (other than it's own stock that a company holds) the sale of stock only benefits the company on the original sale.
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