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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
I have a feeling many-a-armchair liberal will try to convince me so.
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
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.
"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'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...
...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
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/
Dis7ribution. As as those non gay, gone Romeo and to say there have faster chip today. It's about others what to Way. It used to be Lesson and
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..
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 ?
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.
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/.
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.
They are also IV drug users and pedophiles. Please hate them more.
Seven puppies were harmed during the making of this post.
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
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.
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.
"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.
That would be a direct tax, and require apportionment among the states.
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
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.
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.
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.
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.
Only non-programmers use the term "software programs".
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.
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.
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...
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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.
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.
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.
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.
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.
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.
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.
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.
> 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...
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.
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.
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
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
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