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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.'"
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
You know, there's a reason why trading servers are still in the borough of Bank in London, on Manhattan island in New York, connected to newly laid fibre optic cable in Sydney etc. And it's not cheap real estate/labour costs. It's the speed of light. Seriously. Sub ms counts in this game.
Science advances one funeral at a time- Max Planck
"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.
Just as importantly, every single mortgage note should be hand transferred, recorded, and witnessed. If a mortgage holder cannot produce the note to a court, the mortgage is null and void, and a judgement entered by the court setting it in stone.
That should go a long way to preventing some of the fraud and outright theft that Wall Street has performed.
How many people have had their homes stolen, we may never know.
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.)
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
"The provide liquidity"
The market had adequate liquidity before high frequency trading, I challange you to find a reasonable arguemnt that it did not. The problem is the "more = better" argument being applied without any rational thought behind it. This is like using total calorie consumption in a country as a measure of health. In a place of absolute starvation it can be a worth-while absolute measurement: more calories is better. But once you hit a certain point you have to start paying more attention to distribution of calories, and then at another point more calories is damaging to health. We have long since hit the point where having more money flowing into the finantial sections of our econmy is just damaging, and that is totally ignoreing the evident distribution problem.
And high frequency trading does hurt you with you limit order: it makes it less likely that you are going to be able to make as much money out of your trades. They can try every combination up to $100 in microseconds to test the waters (without ever commiting to a trade) and so find the person willing to pay the least to buy that. Then they can figure out who is willing to pay a bit more, and in the blik of an eye become the middle-man, pocketing the difference. They have that unfair advantage over you, just because they are bigger and have more money. How is that ever going to benifit a just or equitable society? In a fair market your broker could have found the person willing to sell to you for $99. And before you argue that the high frequency trader is just replacing the broker, that broker should have been working for your best interests, if they are keeping the difference you can alwasy find a more moral broker.
If the "liquidity" provided by high frequency traders is valuable when performed on the order of milliseconds, then logically the extension is also valid: trading on the order of microseconds or even nanoseconds should be more valuable still.
And what makes you think that isn't true? At some point the cost of providing a certain level of speed in the market may outweigh the potential profit from doing so. But faster trading does provide liquidity to slower traders and it provides advantages to those faster traders in responding to news events and other changes in the market.
Here's a thing to think about though: the markets close every day for hours, and the economy doesn't suddenly collapse due to this suspension of "liquidity".
Why not trade once every thousand years, if speed of market doesn't matter?
As an aside, I think we'd just see a continuation of present market structure. Humans would still trade on their timescales and HFT would still trade on its timescales, no matter how illegal you tried to make it. The only effect of lag regulation would be to move HFT to locations where it would remain legal. Those would become the real markets. Imagine a world where the stock market is a small piece of the actual market. It's just a place where the chumps, who don't have HFT, have to trade at a loss. Meanwhile the real markets are competing networks maintained by various deep-pocketed organizations which trade whatever they want to trade at whatever speeds they want to trade at.
Oh I read the comment. I just felt you framed it in far too broad a time. By hand, I can reverse a trade in a minute, or even 2 or 3. That isn't HFT. HFT is more like 30,000 trades in a minute. There are instances when HFT has gone so fast that they have executed trades on quotes that didn't exist until the future: http://www.nanex.net/Research/fantaseconds/fantaseconds.html
Simple solution has already be proposed. Queue trade requests in such a way that a random delay is inserted. The delay will be negligible and go unnoticed for humans but it would definitely screw up milliseconds traders.
Everything I write is lies, read between the lines.
And we do have an idea of what's actually going on. Here's a detailed example of the recent Facebook IPO problems: http://www.nanex.net/aqck/3099.html.
But the money isn't speech. The ad, pamphlet, etc is. Citizens' United decided that corporations had a Constitutional right to free speech. If they did have such a right, then it wouldn't be fair to limit their expenditures. But the obvious problem with that ruling is that corporations don't - and shouldn't! - have a right to free speech.
Corporations have to be people so they can own things and we can sue them. That's a well-established legal fiction. But they don't inherently get any human rights because of that. I, and many-to-most other people, think that granting corporations human rights is a mistake. What's next - the right to bear arms?
I have developed a truly marvelous proof of this comment, which this signature is too narrow to contain.