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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
it is pure, unrestrained capitalism. What could possibly go wrong?
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.
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
You're arguing that borrowers should be able to get out of their obligations
ABSOLUTELY NOT
I'm arguing that lenders should be required to prove they are the correct and lawful party to be making payments to, and the correct and lawful parties when attempting to sue someone.
The way it stands right now with securitization and loans being sold to multiple parties in some cases, you have no way of knowing if the lender claiming you owe money is really owed money in the first place.
Part of that problem was the recording of one lender selling the loan to another lender. They sped things up and got very, very, very sloppy. It should have never been possible to sell the same note twice (worth hundreds of thousands of dollars in many cases).
Something like a minimum holding period in seconds or minutes, prohibition on naked shorts (you must borrow the security to short), and a small transaction fee to fund the enforcement mechanism would go a long way to bring sanity to the markets. Even in the commodity markets, some entity should estimate production of pork bellies or frozen concentrated orange juice or whatever and create "chips" that should be borrowed and returned to back the shorts. The shorted volume should not exceed estimated production by several times as it routinely happens now.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
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....
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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.
Lowers transaction costs? Which ones!?
Two years and two days ago I used this analogy to describe HFT
Lets say you're at the supermarket.
You reach out your hand to take [product] off the shelf,
by the time you reach out to take another [product], the shelf is empty!
A HFT saw your first signal and then swept the shelf clean,
bought all of [product], and is offering to sell [product] to you at a markup.
Oh, and the HFT has done the same thing at every other supermarket you would visit.
Has the market been made more efficient?
Or is the HFT behaving like an anti-social asshole?
I'd say the answer to both questions is "yes,"
but that the needs of society outweighs the needs of the market,
which is why we have farking regulations in the first place.
The fact that we're still talking about this years later is not a good thing.
The only thing HFTers do is to sneak in between a mismatched sell and buy order so that they can steal pennies.
The stock market got along fine without high frequency trading and there's absolutely no reason to hang onto it now,
except that it profits a bunch of 1%-ers on Wall Street and their lobbyists.
[Fuck Beta]
o0t!
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.
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.
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.
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
Because that extra $0.02 profit now disappeared into the pockets of the insanely rich, instead of the original seller. In other words, HFT only serves to make the rich richer and widen the gap between rich and poor.
You know what happens when that gap grows too big?
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
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.