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This Is What Wall Street's Terrifying Robot Invasion Looks Like
pigrabbitbear writes "Given the the endless mind-whirling acronyms, derivatives and structures of the financial markets, we're rarely served with a visualization that so elegantly illustrates the arrival of Wall Street's latest innovation. This is what High Frequency Trading — the official monicker of Wall Street's robot army — looks like, when specially programmed computers make massive bets at lightning speed. Created by Nanex, the GIF charts the rise of HFT trading volumes across all U.S. stock exchanges between 2007 and 2012. The initial murmur, the brewing storm, the final detonation: Not just unsettling, it's terrifying."
It's only terrifying if you are some kind of luddite.
Everything is getting faster, with greater degree of computer involvement. Deal with it mentally or sell everything you own and go live in a cabin in the woods somewhere.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
...why high speed trading is a good idea for anyone? It seems like the equivalent of slash-and-burn agriculture where you're destroying a resource (in this case basically sanity) in exchange for a one-time benefit of briefly being faster than your competitors.
So can someone explain how the world is a better place than if, say, you could only issue one trade per second?
G.
As one of the articles explains, HFT algorithms trade almost exclusively based on other trades. Guess what behavior is almost guaranteed to cause a bubble?
<xml><I><am><so><damn>Web 2.0</damn></so></am></I></xml>
Human behavior.
No where does the author define the units at play, EXPLICITLY.
So, I'm guessing that it's the volume (number of) shares traded on a specific day, on a minute basis throughout the entire business day. Multiple data are included, representing the various trading markets in the US.
That makes:
x: time (from 8 am to 4 pm, eastern time)
y: shares traded at time x (multiplier? could be x10^1, x10^7, or who knows)
chart title: the specific day depicted
PS: I don't reply to ACs.
Bubbles exist when the market becomes disconnected from the true value (if there is such a thing!) of the asset...
I don't know much about HFT, but I am pretty sure that the HFT algos no nothing about the true value of the asset, and they are just gaming the markets.
When most of the trades in the market are traders trying to out-gaming each other, that can't be healthy.
Automated trading is a Bad Thing.
It is a joke to call it Market. It's no more than a Vegas Slot machine.
When Fascism comes to America, it will call itself Anti-Fascism, and tell you to give up your guns.
This kind of finance is the real terrorism : they're at war against the people.
It makes me sick.
Yeah, capitalism will .. survive for sure, because you need shotgun and canned food to survive the post broker war era ;)
Wall Street is really pushing the envelope on high performance computing and programming. It's hard to not be impressed by the hardware and performance.
Owning stock in a company actually mean owning as share in the Goods the company was going to sell?
Seems almost alien in today's world of baffling bulls**t which is what we get out of Wall Street. Makes Calculus look like finger painting.
A feeling of having made the same mistake before: Deja Foobar
Back in the day - 1980s early 90s - when you wanted to buy a stock, you ballparked the transaction costs at a quarter one way. In other words, add $0.25 per share to the asked price if you were buying or subtract $0.25 from the bid price if you were selling. That's $25 for one hundred shares and most retail brokers charged more. I remember buying 50 shares of IBM and paying over $60 in dealer spreads, exxchange fees and broker commissions.
Today, I can buy those sames shares with a transaction cost of $0.05 per share dealer spread plus $7.
That reduction in dealer spread is because of HST. Now, that $20 or so is much better in MY pocket than in some overpaid salesman who just filled out a ticket back in the day. Yes, part of the lower cost has been changes in the law and because of the internet. But the DEALER SPREAD - thank HST.
Volatility? Is up -BUT because of all those computers fighting, the NET volatility is less - if that makes anysense. Second by second, things are all over the place, but minute by minte - day by day, things are a bit more stable. I remember the days of a stock up a few bucks and then down a few bucks just because of news - and there wasn't a computer there to counter act that because its model said the price movement was bullshit.
Although, when those computers flake out, the shit hits the fan but I don't give a shit. I'm a value Benjamin Graham type of investor.
tl;dr - for value "hold'em for while" retail investors, things have gotten a bit cheaper for us.
I think it had more to do with the government guaranteeing normal loans (subsidized by low FED interest rates), government subsidized loans and government entities buying sub-prime loans. If you were a bank, why wouldn't you make bad loans to sell to Franny and Freddy.
Linked articles don't make a good case for "terrifying". The bank collapse was caused by the bubble burst, not the other way around. And it wasn't brought on by electronic trading.
Pardon me for being so blunt here, but pull your head out of your ass.
The collapse was caused by a severe lack of deregulation, brought on by greedy assholes who didn't give a shit about anyone else but themselves.
Now go ahead and tell me how we're not staring at the same damn thing.
Oh, and then tell me again how there was so much done with the collapse before to actually deter or even stop those greedy assholes from doing it again.
Yeah, I'd say "terrifying" is a damn good word here.
HFT means high-frequency, not long term. Bubbles take years to develop, no microseconds.
Wrong.
http://www.thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-money
A special program about the housing crisis produced in a special collaboration with NPR News. We explain it all to you. What does the housing crisis have to do with the turmoil on Wall Street? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s?
Knight Capital, a conservative market-maker, is going bankrupt because it's automated trading algorithms ran for 30 minutes in a poor configuration (losing money on each trade). How much did they lose? About $440 million dollars. In 30 minutes. Because someone didn't make it to the STOP command in time.
Not a bubble, just a way to destroy an organization in an automated fashion very quickly.
There's an interesting parallel between the bots and scripts people use to play TradeWars 2002 and the bots and scripts people use to trade on the stock market. It seems to me that the TW2002 arms race may serve as a model for understanding the fundamental problem and what Wall Street or government regulators might be able to do about it.
You don't see anything slightly unusual about basing the financial underpinnings of our economy on computer programs that interact with each other and dictate the value of companies not based on actual profits, revenues, results, business methodology, strategic planning, or company history, but rather base the primary value of the company solely on the current trend of their stock, driving company value up and down in an attempt to exploit nanosecond timing to skim fractions of pennies off actual sales & purchases?
We've seen several examples of bugs in these programs that translate into financial ruin for not only the people running the bots, but random companies as well until the trades get reversed. How much faith do you have that out of hundreds of these bots, none have any bugs that pose a greater risk? (Knowing that all programs have bugs, and we've seen this exact kind of problem already happen due to bugs)
I guess I'm a luddite for wanting a financial system that pretends to be based on reality.
Is they bring near unlimited liquidity to the market. They also don't move valuation, and they only compete against themselves to make the market more liquid thus reducing the actual profits they are "siphoning off the top". It's a race to the bottom alright, the bottom of HFT profits. Or do you'll believe that if they achieve another few order of magnitude of frequency, suddenly they'll drain the entire market of all it's value in a single day?
This is what you get when the uninformed do journalism.
This article has only HFT volumes to go by, and yet draws some dark conclusions about the future.
It's all nonsense. I've been in HFT since before the beginning of the animation. I can say that the trades are mostly very simple. They are written with great care and attention to risk. HFT shops have no unfair advantage - like any trading company they put up risk and capital in order to attempt to make a profit. And when things go wrong they can lose bug and fast. The reason for growth in HFT is partly due to how easy it really is.
More and more trading companies are trying to enter the game.
HFT is like Target. They cut margins to next to nothing and make it up with volume.
Knight is really a good example. They had the worst case scenario: heir robots were buying and selling on bad information and their risk systems didn't detect it. Bad for Knight. But did it crash the whole market? Did it have the same effect as the mortgage CDO fiasco? Not at all. HFT shops aren't leveraged. If they put up $1 they could lose $1. And often they do.
Asimov's vision of the world economy being controlled by machines has become reality.
Unfortunately for us, the machines we actually put in place bear little resemblance to those he described. Instead of being programmed with the 3 laws, and therefore a help to mankind by eliminating poverty and famine, we have programmed them to enrich the few at the expense of the many.
Such a system can not, and will not, be sustainable - as History so abundantly proves.
Just wait till two or three of these HFT machines goes wacko together and wipes out the entire market. These machines operate without human intervention. They buy and sell completely without human input. Now if 2-3 or more of these machines start operating in a repeating cycle with each other they could damage so many stocks simultaneously that in theory they could crash the entire market.
If the knight trades had been a little closer to sensible they could have triggered other HFT systems into buy and selling cycles. These things are dangerous IMO and they need some strict regulation such that they can't make trades worth more than the value of the assets in the company. Essentially margin rules that regular humans must abide. Even then I would still be concerned about the "perfect storm" problem where multiple HFT systems begin playing off each other and ride the market into a crash.
It's like sitting in front of the fireplace... Would have been nice to have a brandy though.
Also, such bugs can distort the market price and trigger the stop-loss of other traders, thus creating a chain reaction.
Now THAT would be some fun trolling.
Bubbles exist when the market becomes disconnected from the true value (if there is such a thing!) of the asset...
I don't know much about HFT, but I am pretty sure that the HFT algos no nothing about the true value of the asset, and they are just gaming the markets.
When most of the trades in the market are traders trying to out-gaming each other, that can't be healthy.
No, or rather that is how minor bubbles occur. Large bubbles are caused by an excess of investment dollars chasing too few good investment opportunities (aka, consumption) more or less by definition. People may have been attracted to do more investing by whatever reason, but truest value of a good or service is inherently ultimately based on consumption, not speculation.
The most important thing you needed to understand about investment dollars is they *MUST* be invested in something. If they just sit around, under a mattress for example, then they lose value and you come out even worse. Even gold is no true protection against a bubble, you just get a gold bubble. More or less this is one of the key reasons all the banks got carried along with their own "scams", they really are unable to just opt out. There certainly are some investors who are better than other, or at least better understand a particular situation, but as an overall effect a bubble is a correction of investment capital to match existing demand for goods and services. That is how everyone can lose money in the same game.
To be sure, you can have too little investment capital, we just don’t have that problem right now.
The greatest danger of HFT is probably to the types of investors that are compelled to act in a predictable manner for whatever reason, large mutual funds or retirement funds are excellent examples. But overall the creation and collapsing of bubbles rapidly is probably a benefit to the economy in that more quickly adjusts investment capital.
If I take droppings from a bunch of individual chickens, put them together, cook them a little, and then sell them as "Chicken derived high-fiber compound", I can't very well lie to you and tell you that I'm not selling you shit.
-- Let us endeavor so to live that when we pass even the undertaker shall be sorry. -- M. Twain
You are missing a vital piece of information. You explain what a bubble is but not why it forms. The reason for most large bubbles is when currency is inflated and rates are set below a market rate by a central bank. This new money has to go somewhere and wherever it goes it causes a misallocation of resources. This can happen without a central bank but without an endless source of new money those bubbles tend to be small and burst quickly.
Also there is no such thing as the true value of anything. Value is completely subjective. Everyone values things differently. In fact that is the only reason anyone trades. I value the gallon of milk more than the price while the store values the money more than the milk. Nobody goes around trading things of equal value.
I love Jesus, except for his foreign policy.
If I take droppings from a bunch of individual chickens, put them together, cook them a little, and then sell them as "Chicken derived high-fiber compound", I can't very well lie to you and tell you that I'm not selling you shit.
See hotdog.
For around seven years I programmed a derivative trading system. Unfortunately our company went out of business due to lack of capital and possibly because our large competitors were cheating (not obeying firewalls between trading for customers and trading for themselves).
I view high-frequency trading (HFT) as great for society. Here is why: What HFT gives you is the fairest and most accurate (best) price for something. When there are many, many trades, the price gap between the individual trades becomes so low that there is no chance that you'll pay too little or too much for something or that you'll wait too long for your trade to happen. I'm talking about people who just want to buy something, not HFT traders.
You're hungry and you want to cook yourself dinner. Your dinner is made up of commodities that are traded, except perhaps for the parts that you bought at the local farmers market. But you and the farmer used gas and a vehicle of some sort to make the transaction. If you rode your bike, your bike is lubed with oil and made of steel, etc. With HFT in play, everything that went into the transaction was bought and sold at the fairest price possible. Nobody got gyped because of low market volumes that day, and nobody had to pay a gigantic fee to a broker because the cost per transaction is now tiny.
Of course you have issues like the flash crash. The best way to look at the flash crash is like this. Shares of John Gotts (JG) are worth $40, based upon fundamentals (intrinsic worth) and an idea about the future. Somebody sold a gigantic number of shares of JG for $20. Excellent computer algorithms put in buy orders for JG at $15 and possibly foolish computer algorithms found a way to sell shares of JG at that price, foolish if they bought the shares for more than $15 or smart if they bought the shares for less. The spiral kept going downwards due to both foolishness and intelligence. You can see that there were many, many winners. Every algorithm that bought shares for JG at less than $40 had the potential for a huge windfall. There are no rules against creating an intelligent HFT to look for mini-flash crashes and make a killing as a result. Fortunately or unfortunately, many of the trades that did happen were unwound by the exchange.
Finally, what I need to stress here is that computers aren't trading with other computers. Teams of programmers working with traders are writing code that does their bidding. The computer is the trader's tool, not the trader itself.
The collapse was caused by a severe lack of deregulation, brought on by greedy assholes who didn't give a shit about anyone else but themselves.
Is it a typo or intentional? If intentional, do you care to explain how less regulation encourages "the greedy assholes to give a shit"?
Questions raise, answers kill. Raise questions to stay alive.
basing the financial underpinnings of our economy
how exactly is the value of a collection of stocks the underpinning of the economy? Exactly as you said, companies have revenues profits etc. Those overall determine the value of a company. If an algorithm goes crazy and suddenly sells a 20.02 price stock for 0.002002 well some other computer or some person will realize that's an opportunity and buy it up. Whether or not the stock trades 100 times going from 19.02 to 20.02 or once doesn't actually change anything underpinning the economy.
You're also making the mistake of assuming that
not based on ...
You have some insight into this that the people who write the algorithms are missing because they're completely soul crushingly braindead and couldn't possibly even have read a basic business or econ 101 textbook to grasp simple concepts in stock pricing. They can, and do. And there are lots of ways to build HFT stock pricing assessments. Including sometimes shutting themselves off if something is happening that it can't interpret.
You're right that
bugs in these programs
are bad. But I hate to break it to you, people make mistakes too. Whether or not computers make *more* mistakes on average (or as is relevant more valuable mistakes as a whole) remains to be seen. Mistakes are also why you should have things like insurance.
From this, I would draw the opposite conclusion: we should oppose proposals for a financial transaction tax at all costs! If high-frequency trading is the disease, then a tax on transactions is not the cure. It would make government addicted to the new revenue and therefore dependent on the high-frequency traders, thus ensuring that those leaches will never go away.
A better solution, I think, would be to require stock exchanges to operate on a once-per-second clock. Any trade orders that arrive within each timeslice would be executed in a random order, so as to defeat any advantage the high-frequency traders would get by being fast.
To repeat my comments from just a few days ago , the fine article states on page 4:
Many HFTs will make near-simultaneous trades on different exchanges and profit because of the delay in one of the exchanges. An example will help me explain: let’s use the NASDAQ and EDGE exchanges, and say that ABC stock is trading at $1.00. The HFT will send a bunch of quotes (offers) to NASDAQ and EDGE, trying to sell ABC stock at $1.01. Once the NASDAQ order is accepted, the HFT can simultaneously cancel the $1.01 sell order on the EDGE exchange and replace it with a buy order at the original price of $1.00. EDGE immediately accepts that $1.00 order, because its system has not caught up to the new price of $1.01, and the HFT’s net position becomes zero. This is possible because of latency, which is jargon for delay in the system. The net result is, the HFT captures a $0.01 arbitrage. By scalping this tiny amount from many trades, the profits add up quickly
Let's repeat: the HFTs are putting orders on the system for which they have no intention of fulfilling. This is a violation of SEC rules, yet the SEC does nothing. There was an AC responder to my post who made a blanket denial cancellations were happening. Care to respond?
Gah, sorry missed a / on one of my quite tags and accidentally hit submit rather than continue editing.
And that is why the use of computers is better, because it enables the transparency you crave.
Could you define "transparency" for us? Because you don't seem to mean it the same way as the rest of the world.
HFT may indeed have created something resembling "transparency", but only insofar as it has made the entire market no more meaningful than a biased random number generator. What does it mean to conservatively invest in a company with strong financials and good growth potential, when entire sectors rise and fall with near-perfect correlation? Or more to the point, why do we even have a stock market?
If it makes me a Luddite that I believe "investing" should have at least something to do with lending someone with an idea money in exchange for a cut of the profits, then I'll accept that crown proudly. When "investing" means trying to game the underlying system, do we really wonder why the economy sucks?
We desperately need to implement at least one one of two really, really simple solutions - A transaction tax, and an end to intraday trading. Either of these would kill HFT overnight, and good riddance!
Hear hear!
Which President are you referring to? Disclaimer: I'm not taking any sides between Democrats and Republicans. They both screw us and give to their preferred 1%'s.
All of the damage was set in motion long before our current President took office.
What caused the housing bubble was no more than insatiable greed for ever growing profits from someplace.
It was not enough that you could sell a mortgage to another company within a couple of weeks at most with some properly filed paper work. We needed it faster.
It was too hard to go to court and actually fight with home owners when disputes arose over mortgages. No. No. No. We needed deeds of trust and laws to bypass due process and just kick people out of their homes without any way to defend themselves.
It was not enough to make origination fees off normal home buyers and package up their loans in huge instruments and sell them. We needed new loans that made speculative investors take interest and start buying more houses than ever before.
If was not enough to make huge amounts of money off the speculative investors. We needed to fuel the ever growing beast as fast as fucking possible for as long as fucking possible .
What did we get? Poor unsophisticated people with bad credit, low income, and no chance in hell of paying off a mortgage that was going to have monthly payments increase 50%-100% within 24-36 months.
All of those speculative investors that had short term goals for properties within the next 3-5 years? They're screwed proper.
All of those average home owners who were lured in by cheap home equity loans with people whispering in their ears that there was no bubble? Totally fucked.
Guess what?
YOU CAN'T BLAME THIS ON JUST *ONE* PRESIDENT.
Nice try though.
Cheaper for who, and more expensive for who?
There's no real contradiction between the claims. It's cheaper for the trading houses. It's more expensive for those who aren't doing high speed trades.
I've also heard it claimed that the mechanisms used in high speed trading would be illegal if done by people instead of by computers. I'm not really into stock frauds, so I couldn't evaluate the claims. Something about "forward pruning"? The impression I got was that it involved making bids that you didn't intend to execute, so that you clogged up the system until it got to the price where you were willing to buy, but I'm not at all sure I understood this correctly.
I think we've pushed this "anyone can grow up to be president" thing too far.
It's hardly "terrifying" when I have no idea what either of those unlabelled axes are supposed to represent.
Just showing something getting bigger over time is not really useful information.
It looks like there are a few HFT types on this thread. For mere mortals with no access to this stuff, what aspects of the equities markets are left uncovered and exploitable as traders move towards these new algorithmic tools? What kinds of lucrative medium term trades are made available (if any) by this that were previously big centers of attention but no longer?
Bubbles take years to develop, no microseconds.
Not anymore. Thanks to the magic of computers, self-reinforcing feedback between a sufficiently large number of "traders" means the price can skyrocket or crash in a matter of minutes.
Not anymore, with Economics 2.0 right around the corner. Charlie Stross's Accelerando seems increasingly prescient:
"...add a delay factor for propagation across the system, call it six light-hours across, um, and I'd say ..." she looks at Sirhan. "Oh dear."
"What?"
The orang-utan explains: "Economics 2.0 is more efficient than any human-designed resource allocation schema. Expect a market bubble and crash within twelve hours."
There is also a common procedure in which they make a bunch of bids but do not execute in order to find out out another persons price.
Could be a great way to destroy a vast majorty of the corrupt capitalist system, and reset some clocks
If you don't want to face the risks of trading, you shouldn't trade. Period. What is wrong on your picture is that the trades were reversed. They shouldn't.
Stock fluctuations don't bring financial ruin to random companies, just for ompanies trading stocks or derivatives.
Now, about the actual topic. HFT is not a problem. High frequency cancelation of orders is. That's why everybody that researches HFT concludes it is not a problem, yet anybody can look at the market and see something is wrong.
Rethinking email
Also there is no such thing as the true value of anything. Value is completely subjective.
Don't act obtuse. Whether or not we can concretely call company X "better" than company Y, we can say that company X has no debt, a low P/E, and a high profit margin, while company Y owes its ass to the banks and loses money quarter after quarter. HFT completely ignores that in favor of "Company Q, with a correlation of 0.9 to company Y, just went up a penny, so buy buy buy Y!".
Lots of replies to your post! The bank collapse could have been contained had government enforced existing laws. There is/was a massive amount of fraud in the bubble, which the FBI was aware of at the time, as well as others who paid attention.. At the least, fraudulent loan applications could have been pursued. At a better level, bank/finance firms clearly misrepresented to investors about the underwriting standards when they sold the bundled products. We also have fraudulently signed and notarized documents on titles. So, lots of low hanging fruit in the real estate bubble.
The Federal Reserve has injected massive amounts of money into the system to try to contain the crash, and bubbles still persist. In the stock market, only chumps are getting prosecuted. The major players (Goldman Sachs and other HFT firms) are untouched.
The fine article states (on page 7): "The thing is, the SEC already has rules against placing orders not intended to be filled. Obviously, it doesn’t enforce them very well."
http://www.hsdl.org/?view&did=456724 is a nice PDF from where on page 126 we read:
"The FBI significantly reduced its investigative efforts for fraudulent activity involving financial institutions (such as banks). Principally, the FBI scaled back its handling of lower dollar cases [SENSITIVE INFORMATION REDACTED]. We agree that the FBI must prioritize its investigations and first address the most egregious criminal activities. However, discussions with USAOs and analysis of USAO data revealed that no other federal agency has replaced the reduced FBI effort in this crime area. Therefore, an investigative gap exists for financial institution fraud (FIF), [SENSITIVE INFORMATION REDACTED]."
This is also found at http://www.justice.gov/oig/reports/FBI/a0537/chapter13.htm
Michael Burry made billions (with a b) betting on the downfall of the CDO's. After writing an op-ed in the New York Times asking why the government (including the Federal Reserve) didn't see the same things he did, he was audited by the IRS. So, again we're looking at a massive financial system where the rules are not being enforced.
Bubbles just take years because your trade has hight friction. HTF is the tech that opens the opportunity of microssecond long bubbles (and panics) for us.
Not a completely bad thing.
Rethinking email
HFT spikes at artificial market opens/closes, so why would killing intraday trading kill HFT?
There is a transaction fee. When doing HFT the gap is greater than the transaction fee. People dont get it. This was never about YOU it was always about THEM. YOU cannot trade on the stock exchange, you cannot. You never will. What you can do is get them to trade for you. Anytime YOU think YOU are trading stocks, you aren't. They are trading stocks for you. You have to be among THEM to even be ALLOWED to trade.
Time delay would do it.
The corewars have!
All your cent belong to us.
Some are saying HFT issues only affect HFT traders. However, when your FDIC insured deposits are being played on this table instead of being loaned out, the losses can easily impact the population at large, and the diversion of money is allegedly hurting the economy these days. Keep the banks in banking. Keep the brokers brokering. Stop letting them leverage other peoples assets. Then by all means allow HFT to continue on its merry way with their own money.
What does it mean to conservatively invest in a company with strong financials and good growth potential, when entire sectors rise and fall with near-perfect correlation? Or more to the point, why do we even have a stock market?
That has little to do with HFT, and a lot to do with the fact that the price of just about everything intangible is driven first by fashion, and only a distant second by any underlying value. It's always been that way, but effective global communication has unified financial fashion sense, to where on any given day everyone seems to rush into or out of cash. All of that is noise though, it's only day-by-day that things are strongly coupled. Over the course of years you see prices diverge sharply between good comanies and shitty companies (ignoring bailouts for the moment for the sake of my blood pressure).
When "investing" means trying to game the underlying system, do we really wonder why the economy sucks?
Markets in the modern sense were invented in the 16th century, and speculating has dominated "investing" for the entire 4-500 years. It's not a problem per se, as long as we have regualtions to limit margins and counterparty risk. It has no real effect on the economy. (Bubbles suck, but require non-speculative investors to get foolishly drawn in to get big enough to matter).
We desperately need to implement at least one one of two really, really simple solutions - A transaction tax, and an end to intraday trading. Either of these would kill HFT overnight, and good riddance!
Spoken like someone who doesn't understand why market makers are so valuable. Thinly traded markets blow goats. The cost to low-volume individual traders like me is very high when large bid-ask gaps appear. Narrowing the bid-ask gap is win-win: the casual buyer, the casual seller, and the market maker all come out ahead!
Socialism: a lie told by totalitarians and believed by fools.
http://www.zerohedge.com/news/interview-high-frequency-trader
This comment by m_m offers a good perspective:
"Let me posit that HFT has driven a lot of people out of business: the specialists, execution brokers and day-traders who used to collect the large rents built into the system in the days of old. HFT and algo-trading practitioners are rent-seekers too, but their rents are far smaller. And the vast majority of the whining you hear is from exactly the people that HFT has displaced. I have read or heard nothing about how medium-to-long-term investors are being disadvantaged by HFT; to the contrary, their costs have gone down substantially. As for destabilizing the system, sure, a lot can be done to improve the market structure and micro-structure. But we have just come through one of the most volatile and unstable periods ever; did you really expect this or any market structure to survive through this without showing the occasional crack? And what you got, even then, was the Flash Crash and some instances of erroneous behavior, the most egregious of which was Knight. In the days of specialist-and-broker intermediation, we got Black Monday without any macro stress of remotely comparable scale; we got lots of (human) fat finger errors all the time, too. So, are you saying that it is morally and socially acceptable for one group of error-prone humans to extract large rents from the system, and it is not morally or socially acceptable for another group of (differently) error-prone humans to extract much smaller rents?"
If you think HFT is bad, then you must think $0.99 individual tracks, MP3 players, and digital distribution are also bad since the RIAA no longer dictates how you buy and what you do with the content. It's really not that much different.
Imagine how much harder physics would be if electrons had feelings! -Feynman, maybe
The stock market IS based on reality. You are buying and selling shares of a company. HFT might cause temporary swings in what those shares are trading for, but it does nothing, that's right, absolutely nothing, to the value of the underlying company.
Let's look at it another way. Say we have a market that buys and sells a commodity like crude oil. You buy a few hundred barrels of oil and hold on to them. Then some HFT algorithms go to work in the oil markets. Now you are seeing much wider swings in the price of oil. Does this actually alter the value of a barrel of oil? Can you suddenly do less with a barrel or more if the price goes up or down? What you are buying has an inherent value.If trading algos cause the price to swing one way or another, you have just found opportunities to buy or sell something at a price that is much better for you.
It's people that don't take the time to understand how financial markets work and blindly throw their money at something they assume will just go up and up that get superstitious about HFT.
Knight Capital, a conservative market-maker, is going bankrupt because it's automated trading algorithms ran for 30 minutes in a poor configuration (losing money on each trade). How much did they lose? About $440 million dollars. In 30 minutes. Because someone didn't make it to the STOP command in time.
Not a bubble, just a way to destroy an organization in an automated fashion very quickly.
And as long as they don't get a fucking bailout, justice is served. Or could you seriously argue that Knight didn't deserve it's fate? Companies whi exist only to trade stocks can easily be destroyed by problems with HFT. Companies that actually produce goods and services aren't materially affected if their stock price goes off the rails for 30 minutes. I don't see any kind of problem here.
Socialism: a lie told by totalitarians and believed by fools.
The only value of X is what you can sell X for. The price of most stocks is driven short term almost entirely by fashion. HFT simply capitalizes on the realization that the herd usually stampedes in the same direction. Long term it's irrelevent.
Socialism: a lie told by totalitarians and believed by fools.
The problem is not so much the high frequency aspect, it is the fact that they are FRONTRUNNING
Ah nice, and unless it's already invented, I now see a market for 'high frequency insurance trading'...repeat as necessary until such time that the loop is so massive that it shuts down.."Would you like to play a nice game of chess?"
HFT exists soley to exploit arbitrage. There is no benifit to this, these trades would happen a split second later anyway. HFT is just jumping in the middle of them to take its cut without contributing anything. So instead of trying to come up with ways to discourage this activity such as a trasaction tax, maybe it would be better to just have the exchange resolve these arbitrage situations automatically either to the benifit of the bid or ask or splitting the difference.
I got bored reading the article, but didn't see anything there about HFT.
Here's a question for you though - What changed in the late '90's that brought about all the banks trading the derivatives mentioned in the article you linked? (Hint - social engineering by a President trying to encourage home ownership by people who banks didn't want to lend money to)
$440 million changed pockets. The money didn't just go away. Sucks for Knight though.
True story.
Jim Angel, the guy that has written several pro-HFT articles. His University, Georgetown, decided last year to cancel receiving TAQ data (that's the "more information")..
because it is too expensive..
because there is too much of it.
Ask the SEC why it took them 5 months to process data for just one measly day -- May 6, 2010
At least once a month, we have more garbage information than the day of the flash crash
And lastly,
Could you please tell me then *which* quotes I *do* need to see by hand then?. Or do I need a quant with a ph D?
You really don't know what you are talking about.
Rather than executing trades at a million per second it would be better to execute bankers at a few dozen per day.
similar to the french revolution
after a year or two of that, re open the markets with manual trades only, pen and paper and voice communication, no automated signalling or actions of any kind
Snowden and Manning are heroes.
You are of course right. Lemme see
Bell goes.
All trades are placed in a 1 minute queue.
At the end of that minute, a new queue is formed, and all the trades for the first minute are confirmed.
HFT disappears as you can only do business once every minute, and you don't get to see what your competitors have done for that minute.
The downside of this is that the financial sector will insist on more transparency... but not too much... Wait, we didn't mean you could look at our dirty laundry...
A sig is placed here
To display how futile
English Haiku is
We've seen several examples of bugs in these programs that translate into financial ruin for not only the people running the bots, but random companies as well until the trades get reversed.
How does it ruin random companies? If some HFT's glitchy algorithm leads to their shares being undervalued, that's great! The company can buy their shares back, and sell them again for more capitalisation when the price recovers. HFT only leads to temporary glitches (and then, only when done badly), which other people can profit by correcting.
I'm not arguing they get what they deserved. They should be left to fail; an example to those who wish to follow in their place.
My point was that automated market decisions can be dangerous, and can cascade quickly in a complex system.
Now, about the actual topic. HFT is not a problem. High frequency cancelation of orders is. That's why everybody that researches HFT concludes it is not a problem, yet anybody can look at the market and see something is wrong.
How about an explanation on how HFT is invulnerable to destructive interference? Then follow up with how it is impossible for HFT to create, even accidentally, stock market chaos? And frankly, your" Just don't trade" silliness, is just stupid. I have funds in the stock market, and a lot of people do. Just handing out crap like that is just saying "I know more than you, but can't be bothered to tell you, so if you don't believe me, then go away." Sorry, that is bullshit, and here I am giving you the chance to alleviate people's concerns. Just answer those questions and the world will be back in your thrall.
The shepherds did so well protecting the flock that the sheep no longer believed that wolves existed.
If I take droppings from a bunch of individual chickens, put them together, cook them a little, and then sell them as "Chicken derived high-fiber compound", I can't very well lie to you and tell you that I'm not selling you shit.
See chicken dog.
FTFY
With the loans they were giving packages of shit loans AAA ratings. That's clearly fraud, and yet afaik, nobody has been charged with fraud. In fact, afaik, there's nothing that prevents the same thing from happening again.
-- Let us endeavor so to live that when we pass even the undertaker shall be sorry. -- M. Twain
Or, you know, maybe it's people who want price to actually reflect value instead of taking wild swings? If I buy a barrel of oil, I want it to be because I believe that a new technology has been implemented to make it more valuable than it used to be. Buying it simply to wait for the HFT-fueled upswing serves no purpose other than to destabilize the market for the sake of speculators. It's a negative damping effect, and those never end well.
Everything is better with chainsaws.
Markets are correlated with or without HFT. Destroying HFT would not change than, only increase inefficiency.
Stocks aren't priced in a bubble. Companies have an effect on each others prices. HFT makes the price discovery process quicker, and for less profit. You are also wrong about HFT gaming the system. HFT plays an important role in the market place. Without it prices would swing more violently, risk would be less manageable,the cost of trading would skyrocket. Portfolios would cost more to rebalance, so they would be less profitable. Growth would decline or reverse.
Also, you are wrong about a transaction tax. A tax on each transaction would result in wider spreads increasing the cost to the investor, not the market maker. This is because the spreads are as tight as they are only because there is a low cost to market makers.
Removing intraday trading would be insane. A replacement system would be even more complex - with more inefficiency and more opportunity to game the system. Today people can offset risk as it arises. If you can only trade once a day you have to give risk a higher cost resulting in higher cost to investing and slower growth.
You can get insurance for anything. Whether or not you are smart enough to get enough insurance is another matter entirely.
Even the whole Facebook NASDAQ thing and there's an insurance fund to cover those problems, which were technical but not HFT. Now the insurance fund isn't big enough for that sort of problem, and I'm not sure how exactly it's supposed to work given that, but people who have small losses like that would have been dealt with already.
If this were World of Warcraft, then HFT would be mining/farmer bots and they would get banned by Blizzard...
I never thought there would be a day when I'd find more common sense in the rules of an online game than in those of our governments/economies, but there you have it...
There really is a queue at the exchange. What's important is the time to get into the queue. That would still be the case even if the queue weren't processed until the end of a delay.
BTW, they are orders. The trades are the result not the input.
Well you could still look at the underlying loans and see how they aren't triple A. They already gave crazy disclaimers about how dangerous it was to invest in them. The rating agencies are monopolies and blessed by the government, there's no free market in ratings agencies. A year ago S&P actually did something sensible and downgraded the US bond rating and immediately got investigated for fraud for rating those derivatives too high. But it's much worse now, all those people doing those crazy things got trillions in bailouts, and now the US government is guaranteeing an even larger percentage of mortgages.
The government need not intervene in that way. Rather, the SEC should stop looking at tranny porn and investigate the links between the HFT bucket shops and the exchanges (ie do their fucking jobs and enforce existing laws and regulations). Many are on the up and up, but some are linked in such that they can frontrun orders, stealing from human traders (ie they see someone place an order for a stock, and they rush in and buy before the order can be placed, raising the price by a few cents, then sell it to the buyer at a higher price). This phenomenon is a major reason that retail has almost totally exited the markets.
It's not the involvement of computers that is at issue. It's the use of computers in privileged positions to screw you out of few dollars on each transaction and in ways that destabilize markets. I don't trust a market trade order any more. The price can go up or down in the blink of an eye and you can end up selling for much less than the stock was worth an instant before your sale was executed and less than it is reported to be a milliseconds later. They're making every market they touch a sucker's game.
Except when it causes a flash crash to zero, or a flash smash to 500,000. Then trades have to be canceled, and the market crumbles a little more as more people leave, disgusted.
Of course, if all these bucket shops were made to honor their bad trades when their algos go rogue, they would mostly go out of business and we wouldn't have to worry about it. Presumably, those that were left would actually do what they are supposed to do and provide liquidity, rather than frontrunning and manipulating prices on the microsecond scale.
To quote Dave Barry, on the Great Depression as seen from the 1980s:
The stock market of the 1920s was very different from the stock market of today. back then, the market was infested by greed-crazed slimeballs, get-rich-quick speculators with the ethical standards of tapeworms, who shrieked "buy" and "sell" orders into the telephone with no concern whatsoever for the nation's long-term financial well-being. whereas today they use computers.
"Nine times out of ten, starting a fire is not the best way to solve the problem." - my wife
Except that those trades get canceled, making people lose faith in the markets.
The programs don't have to have bugs to vise huge losses. They just have to interact in an unexpected way with other HFT programs.
When a dictator takes over your nation and takes most your money, that is a zero sum game. Same amount of money except shifted ownership. Long term, that zero sum game becomes apparent to the masses as the fraud that it is. What we have here is the wealthy sucking money out from the economy at the expense of everybody else; it should be obvious but there are still a lot of people drinking the cool aid.
WE PAY TAX ON OUR TRANSACTIONS. A business pays tax on ALL its transactions needed to make a profit. Yet these financial services and stock traders do not pay tax on their transactions in their market.... because the bankers have all the power.
The purpose for this "market" is not to be a distributed casino it is to openly raise capital for businesses under a unified set of regulations to make it easier, but NOT too easy where we end up not only losing the reason for it's existence but it can HARM business and society. The market is a place to buy into the future of businesses not to gamble off some "system." This has been underway for some time; it will continue to get worse just how far depends on how susceptible people are to modern propaganda.
Democracy Now! - uncensored, anti-establishment news
Quoting without intention to trade the quote is illegal.
This applies equally to HFT.
That has already happened a couple of times. First the "Flash Crash", and then a few other, smaller market wide crashes which resulted in some, but NOT ALL trades being canceled. I can't imagine how much money insiders made off of that shit, and how many bottles of Bollinger were shared as a result. That doesn't mention the hundreds if not thousands of flash dashes and crashes that have occurred in single equities since then.
An investor only needs the best ask and best bid. They don't need the full microstructure.
the value of companies not based on actual profits, revenues, results, business methodology, strategic planning, or company history, but rather base the primary value of the company solely on the current trend of their stock, driving company value up and down in an attempt to exploit
^The modern basis of a stock (especially the non-voting kind) even with humans involved.
One thing I've always wondered: If the market for the most part trades based on other trades, then it is basically trading with itself. It is a closed system, occasionally infused with data from the real world. What meaning then does the stock price have?
As I understand it, supposedly the market arrives at a price based on its perception of the value of the underlying company, with its future prospects and the time value of money factored in. Unless these algorithms are taking this data into account, I'm not sure this idea is true now. After all, these algorithms are the ones setting the price. If they are not looking at the underlying company while setting the price, then the price they set has nothing to do with the underlying company or its prospects. Of course, there are still trades made that take the fundamentals into account, but as more volume becomes algorithmic volume, then the relationship between the stock price and the underlying value of the company becomes more tenuous.
This is equivalent to the Captain of the Titanic on being informed that they're Icebergs ahead starts a trading platform in icecube futures. They're all all fucking insane on Wall Street.
AccountKiller
It's not just FDIC deposits, it's your IRA and 401K. Since hardly anyone gets a pension anymore, we're all pretty much forced to be investors if we ever want to retire. And these bastards are leeching off our investments and putting them at risk.
Never let a lack of data get in the way of a good rant.
Didn't you catch the JPMorgan head visiting the senate, the Republican Congressmen were all fawning over him. This is the BANKING committee, the people who are supposed to regulate them, fawning over the people they're supposed to regulate because of the huge donations they give the Republicans (and yes it is mostly the Republicans):
http://videocafe.crooksandliars.com/heather/jon-stewart-knocks-senate-banking-committe
So a tax wouldn't make them anymore addicted than they already are, given the fawning nature of the committee that's supposed to regulate!
Investors invest for months not for microseconds. There is no gain from these trades, they just take profits away from investors and put them in the hands of traders. They don't provide liquidity, because the traders aren't in stocks that aren't already liquid. The profits they take from investors, mean there are fewer investors in the long run, and fewer real value companies going to the stock market.
Also (rant begin) I am sick to death of gambling on stocks. So called derivatives. These Wall Street parasites can have a side bet on a stock which causes them to drive good stocks down, and bad stocks up in order to win the side bets. The derivatives market does not provide stability and hedges, it's become a pure 100% casino. Worse, THEY'RE GAMBLING WITH PRINTED DOLLARS. So this stock market has become a rigged system again investors, you cannot win here and the opposition isn't even playing with their own money, they're playing with *your* money by inflation. So you cannot be out of the market, because your money will shrink by inflation (caused partly by their HFT) and you can't buy in the stock market because any profit is taken by HFT traders. /rant
Wall Street parasites have rigged the markets against investors, and bought congressmen to keep it that way. So we're all working for Wall Street even if you're not invested in the stock market.
Then why do they pay so very much for the rest of it?
Support the EFF and Creative Commons. The war is coming, and they're supporting you...
YOU CAN'T BLAME THIS ON JUST *ONE* PRESIDENT.
Nice try though.
"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." -Woodrow Wilson, after signing the Federal Reserve into existence
you explain why a self-important dickhead like you feels that they have the right to fuck over everyone else for not other reason than your greed and delusions of adequacy?
What did we get? Poor unsophisticated people with bad credit, low income, and no chance in hell of paying off a mortgage that was going to have monthly payments increase 50%-100% within 24-36 months.
I take offense at this characterization, and this, in my experience, mis-appropriates blame. Allow me to explain:
- In 2004 I signed a purchase agreement for a new construction project in a major east coast city.
- In 2005, construction was completed, and we moved to close the sale.
- There was a mortgage broker who was affiliated with the builder. If you went with this company, some fees would be waved, including the seller's realtor costs, which was approx 2%.
- The mortgage broker was pushing really hard to do an exotic 100% mortgage, with an adjustable rate, that would somehow instantly re-fi to avoid PMI, but would incur additional origination costs.
- I had 20% saved to put down, and just wanted a conventional 80/20.
- My savings was split between an online brokerage account, an online savings account, and my local credit union.
- I combined my funds into the credit union, and drew a cashier's check.
- The mortgage broker required a bundle of paper work, including pay stubs, and, "in order to combat terrorism", approx 6 months worth of bank statements to verify that the down payment was not being laundered.
- I sent all required paperwork in, weeks in advance.
- The mortgage broker gave me a verbal OK over the phone, that all required paperwork was received.
- My closing was on a Monday.
- The Friday before the close, at approx 5:01pm (after all banks are effectively closed) the mortgage broker called and told me that he couldn't accept my paperwork, because, quote "it would take a forensic accountant to make sense of all my bank statements." These statements were very straightforward. The online savings account and brokerage account had no activity during the 6 month window. The credit union account had basic direct-deposit / paying-rent type transactions.
- The net result was that the mortgage broker said he couldn't accept my downpayment, and I had to accept the exotic mortgage. My only choice would be to basically default on the purchase agreement, pay some penalties, and try to line up a conventional mortgage as fast as possible. I could have hired an attorney and tried to fight it, but honestly, what decision are you going to make after close of business the day before your closing? I actually had an attorney for a separate matter, but paying him 5 or 10k to possibly save me 5 or 10k seemed just silly.
- We proceeded with the exotic mortgage. I paid probably 2x the amount of closing costs I should have, and ended up with an ARM, paying maybe 1% interest over what I should have been.
I was not poor. My credit was perfect. My income was significantly above average. I wasn't "unsophisticated" with regard to the relevant financial concepts. I had not, however, ever done business with professional scumbags.
The problem is that when you have middle-men in transactions of this scale, and they perfectly understand how to maximize their own compensation with no regard to how it affects the system, guess what they do..?
Most of this did not matter too much, for me personally, in the long run, because I had the financial resources to weather the storm. I could afford the higher payments, and eventually just re-fi'ed into something more appropriate. I chalked up the loss to an expensive lesson in the importance of being able to trust your banker. Many people were not so lucky however.
I think it is a significant mis-understanding of the situation to lay blame for the mortgage fiasco on the poor and unsophisticated. There are plenty of wealthy, sophisticated actors who understood better than anyone what they were doing, and that deserve their share of the blame.
Until this is fully internalized, there will be no meaningful reform.
You may be right that the $440 million changed pockets, but I doubt it. In the stock market, money appears and disappears like ocean mists.
Say Bill Gates has a billion stocks, they're worth $5 each, he's worth $5 billion on paper. Stock goes down to $4, he just lost a billion dollars. Nobody made those billion dollars, they just evaporated like the ether they always were.
Can yu explain a bit or point to a source on how all this works? I literally hate it when options are 20% apart on the bid ask. I can't make a good investment with that spread factored in. It's worst that playing bingo. So if HFT heps narrow the bid/ask then for me it's great. But I don't see what's their gain yet, or how they affect the market.
unfinished: (adj.)
I think it is a significant mis-understanding of the situation to lay blame for the mortgage fiasco on the poor and unsophisticated.
Where on earth did you get the idea that I blamed the poor and unsophisticated? From your own story the people to blame are the loan consultants and the bankers, and in your case, it sounds like there was some fraud involved.
When loan consultants started running out of speculative investors they needed somebody to come in and get loans. That's why there were shoving people into the exotic loans that probably required less paper work (thank the bankers).
You do not sound unsophisticated. I'm talking about people that would have never, ever, qualified for a mortgage in a million years if it were not for pure greed on the part of the loan consultants, and outright "professional scumbags" in the financial sector that were sucking up these worthless loans into worthless financial instruments to sell on Wall Street.
We don't need to blame people whose only crime was believing a professional telling them that they could afford a home loan and enjoy home ownership. We need to blame the professional that absolutely knew these people would be in foreclosure within 3-4 years.
I know little about HFT, HFQ or HFW(hatever). But if an algorithm is many a company worth $5 dollars $1 dollar, it's based on a future dividend pay. So the computer is gifting you privilege to pay $1 for a return that should have cost you $5. Assume the opposite scenario, where it should be woth $5 and and it went to $10. Now suppose you own the stock, which will have a return double of what it should have. (now you need $2 for every %dividend that it shields). So you can sell for $10 what truly was worth only $5. Now suppose you don't own the stock and it's just making its price inflated, Buy a put at $7 with a 6 month expiration and way. But that wont likely happen, they company would sell it's own stock, as would anyone that saw that their $5 turned $10 undeservedly. Or the company itself would float more shares (but who'd buy that). Getting $10 for something worth $5 is good business regardless of who cashes it. And doesn't last long because no HFT or hedge fund would survive by doing that.
Another different thing is naked short selling. I think it should be banned (if it's not done already) Actually, any short selling should be banned (as I understand it). Basically, it can enforce a lower price by generating bearish pressure for a sustained time, until actorrs convince themselves the market knows best. Since the company may have their cost of capital affected by their stock value, it can create situation where the company profitability, market credibility, bargaining power and overall brand may be affected in real life, just because of the short selling effect. This is unethical, wrong and dangerous.
A analogy, suppose you sell lemons, and that after a day, they expire (no longer fresh). You go to the market and offer them for the fair price of $5. No a short seller has this awesome idea of selling lemons they don't have -with the promise to deliver them later, for the exact quantity that you brought to market that day. You had 50 lemons. And the short seller offers $4 for 50 lemons, exhausting demand. The lemon seller will wait until the end of the day, and realize there's not market at $5. Nor $4. Nor $1. And a mistery shopper now offers $0.5 for 50 lemons. The short seller gets the lemon for $0.5, and deliver them for $4 with amazing margin. The one that harvested the lemons gets a huge loss.
This happens to company that typically fond themselves needing to repay debt. If their stock falls significantly (eg. short selling), then a lot of shareholder value is lost because they must issue much more (bringing the price further down). After this is done, it's only been a transfer to the short seller with no additional function or value to the market. A pure brute force game on trading what you don't and have never owned.
unfinished: (adj.)
Say we have a market that buys and sells a commodity like crude oil. You buy a few hundred barrels of oil and hold on to them. Then some HFT algorithms go to work in the oil markets. Now you are seeing much wider swings in the price of oil. Does this actually alter the value of a barrel of oil?
Um....yes? From my perspective, the "value" of a barrel of oil is the amount of money someone will give me for it. If the price is swinging widely, that impacts the "value" of that oil.
I thought it was a "market". How could large bid-ask gaps appear.
and why do you need intra-second trades to prevent those gaps from appearing.
I just like the way the colours were chosen to make the graph look like a blazing inferno.....
Ok, the bastards who thought this up, designed the algorithms, and use them for their daily benefit will be joining the lawyers against the wall come the revolution. I wouldn't even want them to roast in Hell. Hells too good for them.
That's absurd. On the contrary, regulators expect that all quotes are bona fide and tracked by an audit trail. No high-speed "shenanigans" will have any impact on a thorough post-trade audit. Where did you hear this claim?
The term "quote stuffing" comes to mind. That is abuse of the trading platform, effectively a DoS attack against the exchange and other participants. Definitely a bad thing. However, it has no intrinsic impact on the price that the "stuffer" can execute.
I've been following stories about what to do for months now. Most of the authors still live in the 20th century, if not the 19th.
Here's the ugly truth: There are no simple answers.
The HFTs are making money faster than they could print it if they had a printing press. There is no way you will solve this problem with a simple tax or a simple regulation or a simple law. You will need multiple, interacting component, or your nifty little "solution" will be circumvented before the ink is dry.
I distrust any "solution" that can be explained in less than three paragraphs. We don't live in a world that simple anymore.
Assorted stuff I do sometimes: Lemuria.org
Anyone else think Trent Reznor should write the score for that gif?
Why is this needed, when it was never needed for other types of speculators or market-makers in the past? You are seeking perfection in a system which has never been perfect.
It's possible to minimize trading even with funds in the stock market. Pick funds which generate very low transaction costs (i.e. those which trade very little). Rebalance your funds on a low-frequency basis, maybe quarterly at most. You will find very little competition with HFT if you do this, because your holding periods will be so vastly different. A home-office day trader, OTOH, is practically getting in line for a sucker-punch.
They bought at the offer and sold at the bid, over and over again. They definitely handed that money over to other market makers.
... when you've got something like this to finish companies and ruin economies?
Privacy is terrorism.
When "investing" means trying to game the underlying system, do we really wonder why the economy sucks?
newsflash: Computer reads /. front page .. US dollar drops 30 points
Don't doubt it. If I sell something worth $5 for $1, it's guaranteed that I lost $4 and the buyer earned $4, since in the Knight case, that something remained at $5 once people figured out nothing had changed. Moreover, when you earn your salary, you are not creating money. Your employer (or your client) is trading your time for money - for exactly how valuable your work is. If you get paid more, you likely are providing more value or being more productive. Microsoft is no different. They did good choices, and capture revenue from companies and individuals that traded their salary/revenue for Software. Again, money traded hands. The only measure of wealth creation is the real NDP (cousin to real GDP). It means there are more people producing, that people are more productive, or a combination. In the mortgage fiasco, housing skyrocketed. But again, no "money" was created. You can decide your cat is worth $1 billion dollars. And if your neighborhood and everyone you know believes it's a fair price, you'd be a millionaire. But if you find a buyer, you'd have 1 billion, and the buyer will have a dog worth $200, and he'd have lost $1 billion - $200. Again, money traded hands.Bubbles like prime crisis happen to bad causes: there are big commissions, bonuses, and a sense of wealth. But it's just trading.
Now, if we all suddenly agree each tree is worth a billion bucks. Did we just create money? Not really. We just created the illusion of wealth. If you buy a tree and spend $1 billion, you'd have a tree and a paper that says "paid $1 billion". But again, you'd have only traded your $1 billion for a tree. And the illusion can last for as long as the belief is sustained.
You are always trading money for things, and vice versa. And Kight transferred $440 in profits to savvy buyers/sellers.
unfinished: (adj.)
When most of the trades in the market are traders trying to out-gaming each other, that can't be healthy.
Why?
Nixon.
http://www.peakprosperity.com/blog/death-debt/58941
or perhaps you could add Woodrow Wilson.
It's all about the money. It's always been about the money.
Who trusts a bank, any bank, these days?
Banks used to be a useful, trustworthy, within limits, intermediary between sources of capital and productive users of capital. Now that has gone, unless you are a favored insider.
The time bomb of Credit Default Swaps activation is ticking. Once that goes off, the whole edifice collapses.
BTW I know this is not directly an HFT problem. It does combine with HFT to reflect the big problem - banks who say bail us out or we crash the economy.
1. It doesn't matter who is doing the whining, is there complaint true? You don't dispute it is true.
2. I can recognize that HFT is a parasitic trading that takes money away from investors and the companies they invest in.
3. I am not a former stock broker, hence you claim doesn't apply to me.
It's a parasitic trade, it's no different from any other scalping in it's nature, however it's grown to such an extent that it's threatening the underlying investor market and thus needs to be stopped.
"If you think HFT is bad, then you must think $0.99 individual tracks"
False equivalence, if iTunes was HFT scalped, you'd be paying $99 for the track you really want and unable to buy any other tracks. Meanwhile the artist would be getting only $0.26, and the middle men HFT traders $98.01.
A rip off market rigged for insiders is good for no one and (to use your argument) only HFT rip off insiders defend it.
I'm an Investment Adviser Representative, so I work in the industry, a mere pawn 2000 miles from Wall St. HFT hits home for me, as it costs my clients money. There's a legal foothold here to ban this activity, called Front-Running. If I hear a co-worker say "I'll place that buy order for 1000 shares of Google as soon as we hang up" and I then race over to my computer to place my own Google buy order first I can be prosecuted. It's called Front-Running because I'm racing my order in in-front of a trade I know is coming. (My new holding should bump up a tick when their order comes in next driving up the market price. It works more reliably with thinly traded stocks. And did I mention it's illegal?) And yet the exchanges, for payment, allow the high-frequency traders to see incoming trades. It's illegal, plain and simple. The question is why no one has stopped it yet. The CFTC has done some good investigations, I hear. I can't give investment advice as every person's situation is unique. But do you think more or fewer potential investors will want to get in the market once this criminal activity is stopped?
Would it not be possible for the stock exchanges to make a trading system where bids and offers are resolved at the end of fixed time slots? Let us say 1 second per slot. At the end of the time slot the trades are performed. This would avoid the issue of government intervention and taxation. In other words: It would be a technical fix which is in the interest of stock exchanges (in so far as they want to prevent some of the problems associated with HFT).
Stock shares are fungible.
Not in the eyes of the IRS, they're not. Except if you're trying to claim a tax deduction for losses ... Only then do shares become fungible to allow them to declare a "wash"
We don't have *time* to get a warrant!
To err is human. To really fuck things up, you need a computer.
"When information is power, privacy is freedom" - Jah-Wren Ryel
That was the point of the CDO though - to reduce the overall risk by joining smaller risks together. If you are a lender and you loan $1million, with a 10% risk of default then you have a 1 in 10% chance of losing everything and on average you get 90% back. If you make 10 loans of $100k at 10% risk then you've got a more complex risk but what you can avoid is the black-or-white nature of the single loan where you either get what you expected or get nothing. So by collateralizing a bunch of loans you are creating a risk curve. The odds of you losing everything are much lower, and the presuming your loan pays back some amount more than you lent your risk of making any loss is significantly reduced. It's the same as insurance. You expect occasional large payouts but overall you take in more than you pay out.
So having a product made of non-triple-A loans is fine, so long as the risks are correctly understood - a problem with a vast number of things in finance. Two things occur: First people don't take into account, or aren't aware of, the interconnected nature of the risks - they are not independent. In the real world someone might stop paying their mortgage due to events that are connected to them only, but as a group the loans may be affected by much larger scale events (e.g. economic downturn, war, environmental disaster). Second is that the responsibility for the risk was passed on: the person making the loan gets their money when they sell the CDO to the market so their need to ensure that they have correctly analyzed the risk is significantly reduced, hence all the selling of loans to people who were in no way able to repay them. The people buying the CDOs _should_ have been thoroughly investigating the products they were buying - at least some kind of independent audit sampling the quality of loans to ensure that the risk matched what was being presented - but while everyone was making money that doesn't happen, what could be wrong when everyone's getting richer?
The whole thing is not really any different to how most stock market investments are made. Diversify risk so that isolated drops in value can be absorbed and the overall investment turns a profit. If there is a major stock market shift then everyone loses - pension funds etc., the big, long-term investors that everyone wants to see lose a lot in these situations. Playing a long term game means they recover in time, but still they are affected by systemic problems and in some cases affected by poorly categorized or unknown risks (financial/accounting scandals spring to mind).
In fact the only thing to do is guarantee some of those products, to stem the panic and cut the losses. On the other end there need to be tighter regulations on lending, right at the end-user point. I don't know about the US but in the UK this is definitely the case - we already have pretty strong regulation around lending and especially mortgages and people I know who are mortgage assessors for lenders are now incredibly cautious and will follow requirements to the letter - partly as every application they approve will be checked and any discrepancies mean that everything they've done will be thoroughly investigated.
The government involvement is a trade-off between a true free-market where, yes, all the people who made out like thieves in the boom will be shirtless in the bust and having some kind of limits on the damage that can occur. Allowing an enormous crash like we would see without the bailouts will affect everyone. Pensions, investments, businesses, economies will all collapse and that will leave _everyone_ in a bad situation. Perhaps a few bad people will learn a lesson, but we will all definitely take an enormous punishment. It's not fair, but nothing is, and to take that as a basis for action is unfortunately naive. The best of a bunch of bad choices is more careful regulation. I'd like to see a much more proactive and independent approach to quantifying the risks being taken in some of these areas and a bit more backbone fro
Comment removed based on user account deletion
HFT has created transparency, in so much as it's put a lot of old-boy-networks out of business. Back in the day, if you wanted to trade a stock, you went through multiple humans on phones. They, in no possibly imaginable way were 100% on your side. They'd maybe perform their duties out of order, or accidentally delay an order or do things far further under the table. Thus, you could win or lose by who your friends were.
At least these days you can be fairly sure that an exchange actually matches orders deterministically. The fact you can't make money wheeling and dealing stocks as easily (or maybe not at all) is mostly because HFTs (and indeed anyone trading for a living) is much better at it than you. And one thing I can say with absolute certainty is that any rule you can think of that you think will "solve" the "HFT problem" won't do what you think it will. Trust me on this: there are hundreds, if not thousands of people who are much brighter than you who are also highly motivated working their entire careers on working around any rules you create.
Honestly, if you don't like this shit, then go play on a different stock exchange. They all have different rules, so go pick one you like the look of. Just because your beloved Apple stocks aren't listed there probably means you won't do this. That being the case, you either need to man-up and play the same game as everyone else, or lose your money, or shut up.
The value of the asset is what someone else will pay for it - that's all.
If I have a bottle of tap water and walk out into the city, the asset value will be close to zero - everyone's got a tap, so no one needs my asset. If I go into a desert, then maybe I can sell it for a couple of bucks. The underlying asset hasn't changed, yet the value has.
Algo traders do care about the asset value - it's just that the asset isn't a tangible thing. Just like you care about how much a music download costs - that too isn't a tangible asset, yet it has a value. If everything has to be a tangible asset, then we'd live in a world without music recordings, TV, /. and a bazillion other things. The only "gaming" going on is on you - you believe the market is some magical place where you'll be safe. No one has a right to make money on a market of any kind. You couldn't start buying and selling vegetables without worrying about Sprawlmart undercutting you because they're better at it than you, and you can't buy and sell on an exchange without someone else doing it better than you.
I think you may be more concerned with intangible assets that are linked to their tangible counterparts by such complex means that there is no way to mentally link the two. IMHO, this is where problems occur because there's no way the average politician or financial regulator is ever going to be able to think about them in such a way as to protect the majority of us from the minority. And yes, we do need that protection, just as the majority of us need protection from the minority of murderers. How you stop intangibles when they get "too intangible" is anyone's guess.
Well, yes, that too. But positive feedback loops are a real bitch. In a real, physical system, positive feedback can be mitigated through damping, time delays, etc. In the worst case, you are still limited by the strength of your actuators - you'll saturate the system, or become slew-rate limited. Sticking a microphone next to a loudspeaker may make an unpleasantly loud sound, but it doesn't immediately become infinitely loud. HFT has the potential to blow up, almost without bound, almost immediately. Would the liquidity and purity of the market really suffer that much if the minimum hold time was, say, one second? At the very least, it would slow the ridiculous arms race of who can clear the most trades per second. I'd be pleased it we could free up the brainpower of some of those very smart people to solve more important, though less immediately profitable, problems. When a billion-dollar investment to shave a millisecond off latency times becomes worthwhile, it is time to change the game to straighten out our priorities.
I just ran out of mod points or you would have gotten +1 insightful.
the profit in HFT comes from exposing those who cannot protect themselves to risk via liquidity.
Long term investors have precisely zero interest in microsecond liquidity. It means their fortune can be lost without a chance of recovery when the markets go haywire, such as on May 6th 2010: http://en.wikipedia.org/wiki/2010_Flash_Crash
Tell me, what use is this kind of behavior to the market?
http://www.zerohedge.com/news/wtf-skynet-chart-du-jour
That's IBM we're talking about. This is of precisely zero value to the long term health of the market.
HFT needs to be banned, or microtransactions taxed a fraction of a cent per transaction. Not so much that it's not prohibitive to meet the market if it really needs the liquidity, but enough to protect the "little guy".
Ha, right.
http://www.zerohedge.com/news/wtf-skynet-chart-du-jour
It's clearly enough to push IBM around.
IBM!
IBM is not a small cap.
This is antagonistic towards long term investors. Some guys had trailing stops and were shaken lose by bending the system. Sorry, but that's stealing to the tune of (volume * range/2).
IE, a few million shares in volume * (196.50-195.00)/2
so 2,000,000 * 0.75, or $1.5m.
Stolen.
The only reason this hasn't been criminalized yet is the public has no idea what's going on, and the politicians are receiving campaign contributions from the guys benefiting from HFTs.
May 6th 2010 is a great example of this:
http://en.wikipedia.org/wiki/2010_Flash_Crash
While I will grant that HFT has a role in lowering spreads and increasing liquidity,
this comment by mfw13 offers a different perspective:
High-frequency trading harms longer term investors by distorting prices.
Fundamental to the orderly functioning of markets is the idea that asset prices reflect the underlying value of assets they represent. In the case of stock markets, this means that the price of a stock at any given time should represent the perceived value of the assets it represents. This implies that trades are being made which reflect informed opinions and judgments about whether the current price of an asset accurately represents the present and/or future value of its underlying assets.
However, algorithms do not have the capability to make these types of judgments. Nor do they care about the present or future relationship between price and actual underlying value. All they care about is pricing inefficiencies.
This is why high-frequency trading is so dangerousi.e. because it does not care about the relationship between underlying asset value and current price which is the underpinning of orderly and well-functioning markets.
Why would any sane person invest in the stock market when they have no faith that asset prices are accurately reflecting the value of their underlying assets? High-frequency trading is now such a high percentage of overall trading volume that the long term value of an asset barely factors into its current price at all.
Ten years ago, a billion shares a day was considered to be huge volume.now its 4-5 billion shares a day, and let me tell you, all that extra volume isn’t coming from rational investors making judgments about the long terms values of stocks.
Beauty is in the eye of the beerholder.
Bingo - understanding feedback is the key to this problem, mod parent up - feedback loops also dominate a lot of social systems as well and answers questions like "why is Snooki so popular?"
Everyone thinks the problem with automatic trading is that the computers can crash the market before anyone realizes it. But there is a bigger problem: run away stock prices. What happens if suddenly every stock was worth 1,000,000,000 times what it was a few seconds ago? What would that do to the economy?
Don't stop where the ink does.
If I take droppings from a bunch of individual chickens, put them together, cook them a little, and then sell them as "Chicken derived high-fiber compound", I can't very well lie to you and tell you that I'm not selling you shit.
This is why chicken produced in USA (of the same "quality" that is sold to US consumers) can't be exported to places like EU and Russia. But the US producers actually claim that it is "chicken meat", not "chicken derivate". There are some chicken produced specifically for EU within USA, that contain no measurable traces of faeces, that is allowed to be exported to EU (but US chicken is still controlled extra cautiously at the borders, compared to chicken produced in countries with less sickening chicken/food industries, like Thailand. Pakistan or Peru). Russia got fed up after a decade of US exporters trying to sneak in bad "chicken" in the country and prohibited all import of US produced chicken products.
Another reason that EU and Russian authorities don't like US chicken products is their high content of chlorine (no traces are allowed in Russian food products and considerably lower quantities of chlorine are allowed within EU then in US) and other disinfectants. Apart from being unhealthy, and contrary to popular belief in US, traces of disinfectants in food is a sure sign of bad food hygiene.
I wish I was kidding.
the guys who own the exchange get money now from the current hft system. it's like an extra transaction fee done with incredible complexity to not appear as such. you could just easily make the market tick every 3 minutes. shit easy to implement and would level robo-trading to be the same for everyone.
world was created 5 seconds before this post as it is.
Fallacy.
The guy who said the election was rigged won the presidency with the second-most votes.
You're playing word games.
Its supply and demand. He has something with a value. That value decreased, but it still has a value, and he can trade in for it.
And he didn't "lose a billion dollars", his worth, ie the value of his assets, decreased. He only LOST money if he came into the market with a 5b and comes out with 4b. Same as you only GAINED if you come out with more than went in. right now my invested dollars are up ~15%, but I haven't made any money yet, and wont until I cash them out (which I wont be doing).
The guy who said the election was rigged won the presidency with the second-most votes.
Fact: the biggest crashes over the past couple of years have occurred when HFT pulled out due to bad information and impossible quotes.
Question: Where did those impossible quotes come from? Why were they impossible? What prompted such quotes? Were the algo quotes, or human quotes? Was HFT any significant factor in why such impossible quotes were made?
Fact: studies has concluded that HFT is overall good for the marketplace.
Question: Who commissioned such studies? Are there any other studies commissioned by other people/groups? Do all studies of HFT reach the same conclusion? Are all such studies commissioned by the same people?
Overarching question: What are your sources?
So far, all I have is your say-so. Admittedly, that's also most of all I have for SerpentMage (the GP), but he also provides what looks like a real name in his email, and a short bio. I don't even have that for you. In addition, and no offense meant, but a username such as "tolkienfan" does suggest someone with a bent towards fantasy, and when that's all I have to go by, as compared to SerpentMage's claim to be a quant algo writer, then SerpentMage's comments at least appear to be a bit more authoritative.
Cheers,
"What in the name of Fats Waller is that?"
"A four-foot prune."
... the casual buyer, the casual seller, and the market maker all come out ahead!
That cannot be true. The money for the market maker has to come from somewhere and that means either the buyer or the seller is paying more/receiving less than they could have. So the market may be slightly less inefficient than it could have been, but your saying that all three come out ahead is disingenuous at best and absolutely false, if you compare against a perfect market.
As a corollary, you might want to consider that current market makers might actually be moving away from a perfect market rather than towards one - reducing inefficiency via one mechanism (better price discovery) only by adding inefficiency via another mechanism (increased risk due to volatility).
That is all.
I really did not understand that. If by that you mean "a lot of people trade, and telling them to stop is useles"? If so, fuck those people, if they can't risk losing money and trade stocks, there is nothing anybody can do for them, besides telling them "if you can't afford losing money, don't trade". If they'll just ignore that, well...
But if by that you mean "I don't even know how to invest my money and not trade stocks", you deserve an answer. Funds quota seem to be a losing proposition. In theory you'd hire somebody way better at money management than you, he'd manage your money and get paid some of the earnings. In practice experts don't get an overall result much better than non-experts, some get but evaluating experts is quite hard. Also, there are some huge conflicts of interest on their profession. You must keep in mind that all those things that your fund does, you can do too. You can buy and sell bounds, stocks, etc, and you can allocate them in a way that fits your willigness to risk.
Rethinking email
soo ... where did the 440 melleon dollars go? *puff* ... .. .. like a bank? ... for the computers?
i like to believe, that if i lose 1 dollar selling a stock, someone else got that dollar
soo... with this "foolish" believe, the money that went to all the "too-big-to-fail" bailout by government
will come back in tax percents?
okay, maybe a machine makes shoes and so the company that owns this machine has a worth/value.
when the machine breakes, the company lost all it's value and the outstanding stocks become worthless
but how does this work for a company with no machines (that can break)
srsly? HFT quants will prolly buy into a safe and reliable electricity.power source
"In the case of stock markets, this means that the price of a stock at any given time should represent the perceived value of the assets it represents."
Wrong. It also represents the future worth of the company. http://en.wikipedia.org/wiki/Stock_price
Judging from someone else's analogy of purchasing a can of Coke in microseconds, it sounds like many have this misconception. Stock prices don't solely reflect commodity prices. It' s not like you can buy BP's stock under the assumption that oil costs a lot (or will cost a lot more tomorrow). There's a different class of stocks devoted to perform this function, and from my limited personal experience, fail at this function. Exchange Traded Fund USO attempts to reflect the spot price of a barrel of West Texas Light Intermediate Sweet Crude (sounds tasty! http://finance.yahoo.com/q/pr?s=USO). Regardless, stocks are not simply a reflection of current commodity prices. There's also an entire market just for commodities, the Futures Market.
"algorithms do not have the capability to make these types of judgments. Nor do they care about the present or future relationship between price and actual underlying value. All they care about is pricing inefficiencies."
That's what pricing inefficiency is. A difference in price and underlying value leads to a pricing inefficiency. Like others have pointed out, HFT's can lower spreads quicker, which is beneficial to us long term investors. BTW, humans write algorithms, and humans have judgement. If you write shitty code, or fail to evaluate fringe cases, your algorithms might have some costly repercussions. If you write elegant, robust code, you can prevent people from dying while operating machinery, fly a spaceship to the moon, or (as of late) prevent your firm from losing millions of dollars by making shitty trades.
"Why would any sane person invest in the stock market when they have no faith that asset prices are accurately reflecting the value of their underlying assets?"
Hedging. Sane people hedge their investments. Insane people don't. Then insane people complain when their retirement savings gets chopped after buying a bunch of over-priced stocks. It's possible to invest more money in the market and end up with a more conservative portfolio. Counter intuitive, ain't it? Add in some stock options, an understanding of the Black-Scholes Model (differential equation), and now you can begin hedging against a variety of risks.
I've seen soooooo many people hate on that which they don't understand without justification (or logic). Hoping they're just old geesers, otherwise we're going to continue with bubble trouble.
No trees were killed to send this message, but a great number of electrons were terribly inconvenienced.
The market maker makes the profit on that bid-ask gap. By taking the other side of transations in the actual exchange, employing a bunch of capital, and taking a bit of risk they can hold securities just long enough to profit from the spread. As soon as there are 2 market makers doing that, the spread becomes quite narrow. That's one reason why options with gap of 1/8 vs 3/8 are rare now (well, that and the fact it's all decimal now) - 20% apart is the victory.
The other gain for options specifically is that caluclating the appropriate price for every option in the chain every time the stock moves a bit was really labor intensive and error prone before computers took that over, and so would only happen for well-traded options.
Socialism: a lie told by totalitarians and believed by fools.
That cannot be true. The money for the market maker has to come from somewhere and that means either the buyer or the seller is paying more/receiving less than they could have.
True as a first order analysis, but false in practice. As soon as you have 2 market makers competing, the bid-ask gap nearly vanishes. You can see this historically in just about every thinly-traded security, especially options. Automation has made it profitable to be that second market maker in just about every market now.
Also note that the increased volatility is mostly intra-day, which is actually a problem for markey makers (they can actually lose money on sharp intraday moves), but just noise if you hold stock for any length of time.
The problems if capitalism are usually solved by competition, whereever competition is legally permitted. In this case, any given market maker would benefit from less efficient markets, but these are about the most competitive people in the world.
Socialism: a lie told by totalitarians and believed by fools.
Yes, my point was that they are (thus far) only dangerous to the people doing the automaiton, for whom I have no sympathy at all.
Socialism: a lie told by totalitarians and believed by fools.
For now. It *will* be problem when innocent buy-and-hold long term investors saving for retirement get soaked.
Or, you know, maybe it's people who want price to actually reflect value instead of taking wild swings?
What a meaningless statement. Value is subjective, and it varies from minute to minute, second to second even. Just because you can't understand the logic of this doesn't make it any less true. Step up your game son, and stop your whining and griping. Progress will march on with or without you.
Why is this needed, when it was never needed for other types of speculators or market-makers in the past? You are seeking perfection in a system which has never been perfect.
It isn't a matter of seeking perfection. It's a matter of having no idea about what is going on. What and where where triggers buy or sell? If the trading is going along at such a fast pace, is the software weighted to hold my particular sell so that an investor who has more influence gets sold first? And therefore in a selling frenzy, is harmed less? Just a few milliseconds makes the difference. Same with when it's buy time. A short hold on my behalf makes me pay more, and then recoup less when I sell.
The shepherds did so well protecting the flock that the sheep no longer believed that wolves existed.
Thank you for the reasoned and explanatory reply. One minor suggestion for the future would be to preface your comments about HFT with a simple statement that you work in the field. That might be visible if someone were to dig through your posting history, but I sure didn't catch it in this particular subthread; starting with that would have put your comments in a different light as I read them.
Cheers,
"What in the name of Fats Waller is that?"
"A four-foot prune."
It a law is never enforced, to what extent is it a law, and to what is it just an illegal pretext for punishing those you disagree with? The law is not enforced against HFT.
To be strictly honest, it would be quite difficult to claim that a program had an intention, and corporations are never jailed. So if the program is making the trades automatically as an agent of a corporation, who is breaking what law? And how could it be enforced? (Well, if the penalty were a fine, I suppose the corporation could be made to pay, but we don't put corporations in jail.) There used to be laws that would pull the charter of a corporation that acted in ways deemed anti-social, but I've never heard of such a law being used.
I think we've pushed this "anyone can grow up to be president" thing too far.
All orders are attributed to a specific trader. Although an algo selected when to order, what price and so on, the trader takes responsibility for every order.
And it actually is enforced. I have first hand knowledge of inquiries and punitive actions.
Behaviors that are considered manipulative are punished very severely. They aren't good for the exchange, SRO or marketplace.
If milliseconds matter but your executions are going through a broker, I think it's safe to assume that you're talking about stop-loss orders here. Normal limit orders from retail traders are not sensitive to millisecond-level delays at the broker, as they are already typically delayed by the Internet connection, human trading decisions, and possibly even quote delays (i.e. reacting to the 20-minute delayed quotes publicly available, or reacting to "breaking news" from the media). Given that basis, I think it is a valid complaint if brokerages are not sending stop-loss orders to the exchange in time-price priority. However, you can mitigate that risk by sending stop-limit orders, where you can set your worst possible execution price.
See near the end: http://marshallbrain.com/manna1.htm
Or see my parable video:
http://www.youtube.com/watch?v=p14bAe6AzhA
"A parable about robotics, abundance, technological change, unemployment, happiness, and a basic income."
There's more stuff on other alternatives on my site.
Thansk for the insightful post.
A 21st century issue: the irony of technologies of abundance in the hands of those still thinking in terms of scarcity.
If you think that's bad and scary, you should see my sock drawer. There are some that don't even have a match!
If it's legal then it's not immoral.
Casteism
But how could that happen? Take the flash crash - prices when crazy for a minute or two, but returned to something reasonable as soon as hunams intervened. Price changes due to algorithmic mistakes won't have any durable effect on prices, I wouldn't think..
Socialism: a lie told by totalitarians and believed by fools.
No, the only value of X is what you can do with it. Monetization is the only price of X, and may or may not have anything to do with its value.