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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.'"
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?
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.
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.
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?
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.
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
"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
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.
Comment removed based on user account deletion
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 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
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!
This is totally correct. Most people now just locate whole junks of their algo platform in the same data center as the exchange (co-location). Once it's there, I've seen people questioning and arguing about minutiae such as which switch its connected to or length of ethernet/fibre cable vs competitors. Tiny fractions of a millisecond are very significant in this game. Then there's the kernel optimizations, assembly in-lining, FPGAs etc.
I think (probably unpopularly) that it's a bit unfair to brand these guys as 'hackers' implying that it's some sort of dirty word. Smart engineers will always find a way to make something faster, better, stronger. To think that people in finance would accept that things "have got fast enough now and we should just stop" is a bit naive. Why should finance technology be any different from any other kind of technology?
Also, bugs ARE of course there and is basic fact of having an imperfect model. These are pretty much immediately exploited in quite a Darwinian way by other market participants. This is why one model makes more money than an other. I'm not sure why the article's author thinks this is some kind of blinding revelation. Even in extreme examples such as during the flash crash, for every stupid model making disastrous trades, there was someone on the other side of each trade making a massive profit. Survival of the fittest, welcome to capitalism.
One final though is that people can't just 'hack' the exchange. 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.
This article is really just uneducated scare-mongering.
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.
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."
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.
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.
Why should finance technology be any different from any other kind of technology?
No one is against technology. But when computers start trading at a pace that a normal person can't comprehend, that's when I say a line has been crossed. where exactly that line is, no one knows. It'd be nice if a regulatory agency could say that traders need to hold on to a purchased item for at least, e.g. a minute, before selling it off. A minute is probably enough time for a person to give that decision a thought.
I think Mr. Cuban has a point.
The markets were originally meant to support businesses by allowing folks to invest so that companies could raise capital. Investors could then get returns in the form of dividends etc. Obviously, trading in stocks is an excellent way for folks to make money and this is fully supported by the market paradigm.
The problem with programmed trading at these levels is that it prioritizes arbitrage over the health of the companies the market is supposed to serve. It's a perfect example of the pendulum too far at one end.
Cheers,
Bruce.
Quo vadis?
I get that if an arbitrageur who performs the classic arbitrage of buying a stock on one exchange and selling it on another where it's trading at a higher price is effectively connecting willing buyers and sellers who would agree on a price if they all had access to a common exchange. I also get that arbitrages on derivatives make the prices of related securities more internally consistent (not necessarily better, just more consistent).
What function does HFT serve in the market? The common answer I've heard is that they provide liquidity, that is, that they provide counter parties for trades that other people were looking to make, but if they exit that position within milliseconds by making the reverse trade to someone else, that means they only acted as a middleman between two willing parties that would have found each other in a short time anyway. I don't see how you can provide liquidity without having an openended commitment to sitting on an open long or short position the way a traditional marketmaker does. So how does this HFT provide liquidity that wasn't already there, and if it isn't providing that, what useful function is it serving?
Look the purpose of the stock market is to facilitate the trading of securities. The societal good of that is that it frees up and allocates money to companies that are producing more value , or doing it more efficiently. This is a way to reward smart companies and incentivize new technologies.
This shit has nothing to do with any of that. They're gaming the system for a purpose to which it was never meant to be put and further, they're endangering everyone else while they're at it. Those are just the facts.. none of that was my opinion.
This is where Citizen United matters a lot . Romney is promising to re-Bushify the stock market if he gets elected. That means Wall Street is going Romney. That means huge sums of money are being poured into his campaign and if he wins , the market stands a good chance of cratering the economy again.
Greed has located a positive feedback loop and is exploiting it in a predictably greedy fashion.
The thing is, this is obviously reckless and has nothing to do with free markets. It's as if we threw away any concept of a social good except the servicing of the impulses of richest greediest people our society can produce.
Greed is an innate flaw in human thinking under most circumstances. It's not some magic rocket fuel that impels society towards greater wealth and innovation. That's a bullshit narrative told to you by drug addicts who don't want to be separated from their drug . And nothing more.
The thing is, the fanaticism on the right is also in a positive feedback loop with the right wing noise machine. Even though their economic deregulatory policies cratered the economy, they are taught how to deny that fact by the right wing noise machine. This clears them to vote more of the same into office.
We've effectively turned our economy over to people with a a group of compulsive gamblers and risk junkies. This is a completely different thing than supporting risk taking entrepreneurs.
Look societies live, grow and die. They die because they become captive to an entrenched minority who games the social cultural political system and secures for itself some positive feedback loop that reinforces their power and permits them to write the rules of society to their personal, narrow advantage. Thenceforward, at every decision point, their local, short terms needs are serviced first and in our case, almost exclusively.
We may be living in a dying society that will catastrophically implode . Our refusal to address global warming in more of the same dynamic with the oil and coal companies finding a positive feedback loop in their campaign contributions and right wing noise machine.
Citizen's United matters more than you think. SCOTUS overturned a hundred years of hard won lessons about politics and money and democracy this week in their Montana decision , which is nothing more than en extension of their Citizen's United decision. This from a political wing which claims to abhor the ideologically driven, no-nothing meddling of Big Government into the policies of the States and of business and other boots-on-the-ground forms of hard won, real world knowledge.
Money isn't speech and corporations aren't people. These are two more -in-your-face patent absurdities that future generations, if there are any, will laugh out loud at in middle school classes and serve as the Cliff Notes on Why America Collapsed 101.
You have to understand that rational thinking and reasoning about even the basic, obvious facts of the world does NOT come naturally to people. As proof of this I offer a recent story about an ongoing cause for mass murder in Africa- Penis Shrinkage Through Sorcery.
I 'll link to the Reuters story because otherwise you might suppose I am accidentally reporting satire.
http://www.reuters.com/article/2008/04/23/us-witchcraft-idUSN2319603620080423
Long story short, m
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.
All that effort for so little value to society...
"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.
Mr. Cuban has a point indeed.
It's exactly the same point that has been given by anybody remotely knowledgeable about software development ever since this high frequency trading started.
It's probably a similar point given by any economists who understands the concept of "long term".
Let's hope stock exchanges listen to a billionaire.
Slashdot social media options: AIM, ICQ, Yahoo, Jabber and Mobile Text. Why no MySpace?
"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.
Which is why I've always considered high-frequency trading to essentially be a timing attack on stock market servers.
"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.
The problem with programmed trading at these levels is that it prioritizes arbitrage over the health of the companies the market is supposed to serve.
Exploiting actual arbitrage opportunities would contribute to the health of the market itself, surely! But what makes you think that is what trading bots are doing? Aren't they simply scalping miniscule price movements at extremely high frequency?
I think that Cuban is wrong when he dismisses arguments that high frequency traders are providing markets with liquidity, clearly they are. And I think that software bugs in trading programs would sound primarily in reduced profits for their operators. However, I think he is correct to be concerned. As trading is increasingly conducted on the basis of tiny price movements without any regard to the underlying equities, and that at higher frequency and quantity, markets are being exposed to mass phenomena and feedbacks which have the potential to dislodge the performance of equities from the underlying performance of the actual companies, perhaps to disastrous consequences.
Better to be despised for too anxious apprehensions, than ruined by too confident a security. --Edmund Burke
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.
Smart engineers will always find a way to make something faster, better, stronger. To think that people in finance would accept that things "have got fast enough now and we should just stop" is a bit naive. Why should finance technology be any different from any other kind of technology?
But if that something is (more or less) "gaming the system", it's usually not leading to something desireable.
bickerdyke
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.
It's exactly the same point that has been given by anybody remotely knowledgeable about linear systems ever since this high frequency trading started.
FTFY.
"Greed is an innate flaw in human thinking under most circumstances. It's not some magic rocket fuel that impels society towards greater wealth and innovation. That's a bullshit narrative told to you by drug addicts who don't want to be separated from their drug . And nothing more."
Bingo. Greed is manifestation of survival instinct, hyperbolised by emotions and feelings and "know how" around in your society. How it come that most greedy people are from societies who are created by people most in need? Because they are *afraid* to go where they once were. Hunger and feeling of being poor and misarble is something what kicks survival instinct into berzerk mode. US was created by poor but determined people to live better. Determination isn't bad in it's case, but overlooking wider implications of despair and our instincts, thinking that only they matter, is problem. Problem is that people who learn to live this way usually also fuel their positive loop that they can't be wrong with fully trusting their survival instinct.
user@ubuntubox:~$ stfu This server is going down for shutdown NOW!
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.
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.
Wouldn't a HFT box work around the previous three suggestions by buying put/call orders?
I think that Cuban is wrong when he dismisses arguments that high frequency traders are providing markets with liquidity, clearly they are. And I think that software bugs in trading programs would sound primarily in reduced profits for their operators.
*Cough* - Remember the flash crash? If anything, it showed that HFT is the market. Trading volumes have grown exponentially since derivatives and HFT went mainstream. It's not going to end well.
Plus, how HFT screws casual traders is absolutely abject. Joe wants to sell X for $9.99, Jack wants to buy it at $10.01. Instead of letting Joe and Jack do their trade normally, allowing Joe to pocket an extra $0.02, the algo (which is located at the market maker's premesis, to get the info in advance) discovers Joe's price by issuing tiny trades, and buys at $10 from Joe. It then immediately sells to Jack at $10.01, discovering his price in the same manner. People should be running around with pitchforks over this.
actually, hft colo systems are NOT in manhattan. there are no exchange datacenters on the island because the real estate is too valuable. they're all in jersey. directedge is in "ny4", which is actually in secaucus (the stinkiest part of) nj. nyse is in mahwah nj. i believe bats is in weehawken nj (nj3 datacenter). nasdaq is in carteret nj.
so actually, colo isn't all that expensive because the exchanges are all in previously undeveloped swamp land. the problem, of course, is deciding which ONE exchange you're going to colo with, because they're all a few miles apart.
Wave upon wave of demented avengers March cheerfully out of obscurity into the dream
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?
This article is really just uneducated scare-mongering.
Stock markets are for investment, not speculation.
Sub-ms speeds for trades implies algorithms are doing the trading, not humans, as humans obviously can't keep up at that speed - they set the algorithms in motion, but cannot control them except by unrolling deals (which happens a scary amount on our current exchanges after flash crashes etc). So the only people benefiting from this market 'liquidity' are speculators trying to take a share of each transaction by ending up in the middle, or manipulate the market to their advantage (being on the right side of a flash crash in the example you cite). Theres nothing wrong with middlemen when they are tightly regulated, but at this speed of transactions they are providing negative worth to the other market participants, and limits should be set on their behaviour, just as we have limits on insider dealing and other abuses of the market mechanisms which would be vastly profitable for the participants (but not for the companies being traded).
If you accept that markets are for investment in companies, it follows we should limit HFT and other abuses of the market - instead of technical limits I would simply impose a tax on each transaction - that would soon remove those market participants who are only there to skim off tiny percentages on tiny deals performed millions of times per second, while not introducing the distortions and workarounds which would be inevitable with some sort of hard limit to transactions or clever system to limit frequency. It would also let us remove some of the obscene wealth generated by the participants in financial markets and use it to support other parts of our civilisation.
HFT is faster, but it is not better or stronger except in some crude darwinian sense of nature red in tooth and claw - that's not something I agree our markets should try to emulate. HFT and algorithmic trading are potentially very dangerous and abstract the products traded until what is being traded hardly matters, which is entirely the wrong direction for our markets. We need more regulation in place to stop this sort of control of the market by a few major players who play everyone else for suckers, just as we should have had regulations on CDOs, CDSs, and the incredibly corrupt ratings agencies who are at the heart of our financial breakdown. We've had far too little regulation of the financial markets for far too long.
My biggest problem with HFT is when the algos screw up AND the exchange rolls back/cancels the trades (presumably if the party that screwed up is favoured by the exchange).
It's easy to make money if your biggest trading mistakes were rolled back.
Trades should only be rolled back if the casino aka exchange screws up, not if the players screw up.
Live by the sword, die by the sword.
There was also a time when HFTs engaged in what was practically front-running (even if legally not considered front-running)- they got a 30 milliseconds headstart to peek at what everyone else was about to do. I suspect in a casino that would be considered cheating.
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.
An hour might be a tad overkill. I'm thinking that 1-5 minutes is reasonably human-scale.
Someone mentioned not letting machines do the bidding. I disagree. I don't have a problem with that, but, I do believe that the trades should be human-scale.
www.wavefront-av.com
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.
The previous way of doing things involved a specialist taking a minimum of 12 cents on every share traded. That was sooooo much better!
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.
"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.
Actually the Flash Crash was even worse.
After HFTs lost a lot of money, they manage to get all the transactions reverse.
So this is not a market at all. If they win they keep the money, if they loose they also keep the money.
This is plain and simple stealing.
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.
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.
I don't think anyone is saying that speech is limited to what comes out of your vocal chords, or that only individuals have the right to free speech. A political group (political party, PTA, group of concerned neighbors) have a right to speak with one voice. But, I don't believe that a "Corporate Entity" should have the same rights as these sorts of political groups. A corporation has as it's sole motivating factor profit. It's voice in the political system will only pursue governmental action that promotes its own interest ie profit. Profit motive can and does often lead to actions that are detrimental to the society as a whole. Examples of this are everywhere toxic dumps, lead paint in toys, slave labor in the east, promoting monopoly power and on and on. We cannot allow corporations political speech and expect that everything will work out. Government should be the instrument of the People. It should restrain the actions of corporate entities not be their tool.
No sigs in BETA. Beta SUCKS.
Wildly inaccurate. The typical spread (prior to decimalization) for actively traded issues was more like 6.25cents (a sixteenth), which was the difference between the bid and ask prices. A market-maker (or specialist) would typically kick back some of the spread to both market participants in the form of "price improvement", so the actual spread pocketed by the market-maker was probably more like 3-4cents.
For this, the market-maker assumed risk by committing capital to maintain a position in a security, and also was responsible for "maintaining an orderly market" in the securities in which it made markets. (In practice, NYSE specialists were much more accountable than NASDAQ market-makers).
In retrospect, this appears to have been a small price to pay.
Gaming the system isn't a problem as long as there is a way for other people in the economy to set up competing systems and set their own rules, try and do that today.
Uh, no. Gaming the system is an English language phrase which denotes a negative consequence has in fact been reached through devious means .
What your're saying is they are not gaming the system, they're playing by the rules and it's not a real problem.
Always say what you mean.
With over hundred thousand regulations in banking, finance and investment industries, with things like the Federal reserve with its fake money spigot, fake interest rates, fake insurance by gov't (like FDIC, FHA, SS, Medicare, etc.),
Oh yes as opposed to REAL money and REAL interest rates and REAL insurance.
All these things are fictions in their very nature, as is money itself. "fake money" is money that people don't agree to treat as money. All others are REAL including that which issues from the Fed.
Here is the problem with your thinking: you think greed is bad, inherently terrible and humans are irrational, but then immediately you want to give more power to the government
Here is the problem with your thinking. You don't realize that people behave differently depending on what context they're put in. If you're a CEO then that's one context and you make decisions based on one set of values as we've been discussing here. If you're a lawmaker or a judge or a congressperson, then you make decisions based on other definitions of value. We only have humans to work with, so the challenge is to create and then make structural those contingencies which tend to cause humans to behave in pro-social ways.
We're all bad under some set of contingencies - rewards and punishments- and all good under other sets of contingencies, where "all" really means the vast vast majority of us.
The people who are now operating outside of those would be contingencies and are currently being incentivized by things those contingencies would forbid FIGHT LIKE CRAZY to stop those contingencies from being put in place. They're like junkies or crack heads who want to keep feeling good in just the way they've become addicted to, no matter the consequences for everyone else.
The agenda is always the same- learn - through various means experience, and science being the best ones , how to construct contingencies in society so that pro-social ends are achieved by the everyday economic and social activity of humans. Then make those contingencies structural by passing laws. There is no other way to organize society.
So people are irrational and greedy, but government will be rational and selfless for the benefit of all?
It works that way MORE when there's democratic government and LESS when there is not democractic government, that's what we can say.
I don't think so, I disagree with you, history disagrees with you, there is no example in history where the government with power was not abusing it,
Strictly speaking, there is no population of individuals who has not abused another population to the limits of what they think they can get away with with or without government. As we organize more closely and democratic governments and the democracy they make possible take hold. there is LESS violence, LESS war and LESS human conflict and MORE progress . Non democratic governance schemes based on irrational beleif systems- Communism, Bolshvism, North Korea etc etc cannot be compared to democracies. The forgoing in fact are what human life devolves into when there is no strong democratic government. When there is, you get Finland.
Stop reading Rousseau- we now know he was just wrong.
I don't trust government, I don't trust people, I don't trust people in government. I much rather see the same people that I