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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."
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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
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.
...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.
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.
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.
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 and the guy who actually knows what the hell he's talking about (Daniel) should totally have it out, because he's claiming it's cheaper and you that it's more expensive...
Today, you need to process 1.5 million quotes a second.
For which we have computers. It's not like I need or want to see each one by hand.
Luddite.
I'm all for more faster trading. But that demands increased transparency. I should know more about where my $20,000 trade executed and the route my order took than my $20 order from Amazon.
Why don't you? Most online traders now offer more information than in the past, and you have many choices on where to make trades.
The mistake you make is thinking I value transparency less than you - in fact I care about it far more than you ever could (as if an AC would ever really support transparency). And that is why the use of computers is better, because it enables the transparency you crave.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
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.
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.
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.
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.
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?
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."
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
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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.
http://www.zerohedge.com/news/interview-high-frequency-trader
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.
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.
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.
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.
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.
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.
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...
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
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.
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
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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.
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?
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 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.
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.
... when you've got something like this to finish companies and ruin economies?
Privacy is terrorism.
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!
Comment removed based on user account deletion
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.
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.
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.
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."
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
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."
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