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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."
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.
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.
In your world the ideal market is a place where no one can ever trade. In my world the ideal market is where anyone can trade almost instantly at or near the desired price. Guess which one is closer to what HFT actually is? Don't let your jealousy of the rich man being able to roll over his capital much easier than you cloud the fact that no one is forcing you to complete a transaction. HFT is only providing a solution to the supply/demand of the market at any given point in time. It does not make the market. It does not force you to sell a share. It does not force you to buy a share. It does, however, enable you to sell your shares almost instantly at the asking price. And it does enable you to buy stock almost instantly at the bid. Now if you're a day trader trying to make money off the spread, HFT will eat your lunch. If you're an investor, however, HFT is your friend.
Strangely enough, the actual number of shares traded is declining after having peaked a while back, which seems to fly into the face of people who think that HFT is skewing the market. You'd think that if HFT businesses were just rolling the same cash over and over, this would increase the total number of trades and thus add to the overall volume of the market. But no, that's not the case. What's happening is that when their algorithms want to buy stock, they will buy it from you faster than anyone else. And likewise on the other end of the transaction. How does this affect you, if you manage to make the trade you were going to make anyway?
The REAL problem with the market is government money printing which is now pouring trillions into the market every year so that stock prices inflate not because of any actual connection to a company's performance, but because the economy is so bloated. It wouldn't matter if the market only went up, but the higher you go, the further down you get to fall when falling time comes...
Seven puppies were harmed during the making of this post.
No the problem is that it will not disappear because it will move to the side. Case in point UK. They have a stamp tax on stocks. What happened? The financial industry created CFD's Essentially these are leverage products that trade on top of the stocks (sorta like futures) are not subject to the stamp duty. Granted they don't get the stock benefits, but they still warp the market.
As somebody who works in the market, the solution is to introduce a 50 ms holding rule. It would work as follows. You put in a bid, or ask. The moment it goes onto the market you have a 50 ms waiting period before you can put in another bid or ask. You can cancel your original bid and ask within 1 ms, but you cannot put in another one until your 50 ms is up. This action will introduce a delay and slow the market down.
"You can't make a race horse of a pig"
"No," said Samuel, "but you can make very fast pig"