Slashdot Mirror
Mysterious Algorithm Was 4% of Trading Activity Last Week
concealment sends this excerpt from CNBC:
"A single mysterious computer program that placed orders — and then subsequently canceled them — made up 4 percent of all quote traffic in the U.S. stock market last week, according to the top tracker of high-frequency trading activity. The motive of the algorithm is still unclear. The program placed orders in 25-millisecond bursts involving about 500 stocks, according to Nanex, a market data firm. The algorithm never executed a single trade, and it abruptly ended at about 10:30 a.m. ET Friday."
I hear the production IT department of a big trader had been drinking (something about the bonuses, don't know if they were celebrating or trying to forget) and started to play truth or dare.
The game was interrupted when the boss arrived (what he called "first thing in the morning").
Perhaps somebody was running some unit test on production here?
Privacy is terrorism.
forgot to exit my Do While loop :) had to ctrl+al+del
A single mysterious computer program that placed orders — and then subsequently canceled them
The algorithm never executed a single trade
No regulator should accept this.
I think we are taking significant risks with the stock market and automated trading. It is now a complex system of interracting algorithms that nobody understands or can understand. I have heard it said that the fluctuation patterns we are similar to fluctuations in chaotic systems before a state change. It is entirely possible that the markets could lose most of their value in a matter of minutes, before anyone knows what's happening - and the unforeseen interaction of algorithms could put a whole generation into poverty
to exploit the next major act of terrorism in the US?
How does "4% of Trading Activity Last Week" sync with "the algorithm never executed a single trade"?
The real problem is that there is too much fake money that people do not personally feel attached to, because it's created by the main counterfeiters of the world - the central banks, and because starting a competing exchange is nearly impossible.
How about this for a story:
In April, motivated by what I consider pure maliciousness, the SEC initiated a âoecease and desistâ administrative proceeding it deemed âoenecessary for the protection of investors and in the public interestâ against Egan-Jones Ratings Co., a privately owned, 20-person firm based in Haverford, Pennsylvania, and against its principal owner, Sean Egan.
Do you know what the alleged crimes are?
Here:
Now, incredibly, Egan-Jones is the sole rater that the SEC has decided to attack. The trouble for the firm started on July 16, 2011, when Egan-Jones downgraded the U.S.â(TM)s sovereign debt by one notch, to AA+ from AAA. Egan-Jones cited âoethe relatively high level of debt and the difficulty in significantly cutting spending.â Two days later, the SECâ(TM)s Office of Compliance Inspections and Examinations contacted the firm seeking information about its rating decision. (The next month, S&P also downgraded the U.S.â(TM)s sovereign debt, but neither Moodyâ(TM)s nor Fitch did.)
Then, on Oct. 12, Egan-Jones received a call from the SEC notifying the firm of a Wells Notice, an indication that it was being investigated. On April 5 of this year, Egan-Jones again downgraded the U.S. sovereign debt, to AA from AA+. On April 19, leaks started emanating from the SEC that it had voted to start an âoeadministrative law proceedingâ against the firm. And on April 24, the SEC filed its complaint.
The crime is that this one agency is not paid by the sellers of the bonds but instead it's paid by the buyers of the bonds, and the buyers have an incentive to have debt rated properly, so that they know their risk.
Of-course AFAIC US bonds are junk.
So you think SEC is interested in really dealing with HFT and whatever you think is market manipulation?
Think again, the only thing it is interested in is protecting the fake rating of the sovereign debt, so that the US gov't can keep piling it on.
MY OTHER COMMENTS
"The motive of the algorithm is still unclear."
Oh what a load of bullshit.
It's obviously an experiment in painting the tape. Make bids, cancel them. Walk stocks up and down with the bid price. Head-fake other HFT corps that track bid prices in their algorithms.
It went badly because it was detected. It needs tweaking to be not so obvious next time. And yes, there will be a next time.
It's a casino now. It's been a casino for a while, and if you're not part of the house, you're the mark.
--
BMO
Whose pip size is bigger than whose.
My ism, it's full of beliefs.
It sounds like this 'test' hack was just that, a 'test' of the system. Whoever's behind this will one day execute the real deal. Expect carnage and chaos in the stock markets to ensue.
The data on open orders is available to some. Of those who get it, some are 'more equal' and get the first look at the data.
A group who is 'less equal' and feels a competitor may be using their advanced look at the open orders to gain a competitive advantage could be placing these orders to neutralize that advantage.
Guys, think of it. Our stock exchange, i.e. your pension or if you are unlucky also your mortgage is depending on this kind of software these days... And this is not the first time this year that stock trading software is in the news. This has nothing to do anymore with owning a share of an organization in the hope the organization will make a profit and pay you dividend. This is total craziness.
If it had a motive, it would be sentient. I think the terminator movies were fictional
I was amused. TYVM.
--
BMO
I've found the pattern in pi that can predict the stock market. It is only good until my coffee wears off though. // Yeah but seriously who sees this as being beneficial to the system?
1) If I were to do something like this with amazon.com (add things in my shopping cart and then remove them rapidly) wouldn't the headline be "hacker attempts to take down amazon site" with jail time? Why does this receive such a neutral headline like "mysterious algorithm?"
2) I pay $25 to execute a trade. How much money does it cost these people to put a bid or ask up and pull it? Shouldn't there be some sort of punitive cost for doing this?
I find it a bit strange that these trading systems don't seem to use some kind of identification (like signed certificates). How is it possible that some system did these things and the stock exchange doesn't immediately know whose system this was? This sounds like a disaster waiting to happen.
Felix Salmon on high-frequency trading and its part in the current financial crisis.
Listen to this 13 min BBC programme/essay at: http://www.bbc.co.uk/programmes/b01n1thw available for the next 12 months
Artificial intelligence is the study of how to make real computers act like the ones in the movies.
Alright, stop this scaremongering right now. Some under-informed people may actually believe you.
Let's make few thinks clear:
- Condensation trials left by airliners are not chemicals spread by the government,
- Elvis is dead,
- High Frequency Trading does not influence long term security values.
Of course the exchange knows who they are - you can't just stuff orders into the market anonymously from your PC at home. I'm mean the exchange needs to know who you are so they know who to charge for the trades. The exchanges aren't happy about people placing and cancelling tonnes of orders - after all they only make money when something trades. You can guarantee that they got on the phone to whom ever was doing this and asked them to stop.
Sig (appended to the end of comments you post, 120 chars)
Let's make one thing clear. Of course it does.
Two things. One, it has always been like this. The stock market has never been predictable to the extend the players would have liked. Luck is and remains a major factor.
The second thing is - it was never a good idea to run pension funds by investing in the stock market. That "ponzi scheme" whereby the pensions of today are paid by those paying into the pension plan is the only good, cheap, and stable way such a thing can be run. Especially if there is only one plan and it is run by a decent governement. The current system leaves to luck stuff that nobody wants to gamble with (retirement). Banks and fund managers love the current scheme, but not normal people.
Indeed this is an important information...
Herve S.
And now for the truth:
- HFT is essentially a tax that is extracted from users of the stock market, by private companies.
It may not bring about the downfall of civilization, but that does not mean it is a good thing or should be left alone.
NO MORE AUTOMATED TRADES. All trades must be executed by a human to another human. This will eliminate all of the massive fluctuations. Time to reign in the rampant greed.
Do not look at laser with remaining good eye.
I've always heard that investing in the stock market is the same as gambling in Las Vegas. And that you shouldn't entrust any more than 15% of your available investment money in stocks. Tha way, in case of a major crash, you'll only lose a small 'slice of your pie'.
The US Savings bonds remain the safest bonds in the world. They're also the only bonds worth buying. * * * There's still plenty of funds available to service the debt.
First, while there are too few of them, there are a number of countries in the world without debt problems. The US is one of the countries that is worst off, especially if you add in all of the unfunded pension liabilities (which the government generally avoids). Any country colored green, yellow or even orange in that map has its debt under control. Cross-reference for a trustworthy government, and you still have quite a selection of countries whose bonds are a much better choice than US Savings Bonds.
The only source of "funds" to pay off this massive debt are called "printing presses". While printing more money is, in fact, probably what will eventually happen, this will destroy private saving, cause massive inflation, and completely undermine the position of the dollar in the international markets.
tldr; The US is not the whole world. Have a look around, much of the rest of the world is doing a lot better than the US nowadays...
Enjoy life! This is not a dress rehearsal.
Achievements Unlocked!
Goldfinger - become a billionaire
Squandered Fortune - lose it all overnight
Look Out Below! - Exit the game
If I have been able to see further than others, it is because I bought a pair of binoculars.
Much as I dislike adding fees to inhibit the free market, the whole HFT world desperately needs them. Placing any bid or making any transaction should cost some small-but-tangible amount of money.
Even better, if more complex: add a fee based on how long a particular security is held. Less than a second, the fee is 1000% of the transaction value, more than a year, no fee at all, and scale for all values in the middle. HFT is legalized theft, and needs to be penalized out of existence.
Enjoy life! This is not a dress rehearsal.
Let's get one thing clear:
Transparency, or lack thereof, will determine if people in the market stay in the market or desert the market. It's called confidence in the market. And if confidence disappears, you have no market, because everyone leaves.
People eventually get tired of being fucked in the ass with no lube or reach-around and look for nicer places to be fucked in the ass or find ways to stop being fucked in the ass.
"I've been kicked out of classier joints than this."
--
BMO
'First Pen Test successful. All is going according to plan.'
Where's the news? This is called quote stuffing and has been going on for ages. The reason is simply to mislead or overwhelm the HFT algos of competitors.
[pro-hft trolling]
Those of us who "buy and hold" using a properly diversified strategy are unaffected by these shananigans. Yawn...
"Marker research" company says public market is a dangerous place. Who would have known?
What is next, Symantec claims that internet is dangerous place?
Ok, it's been a few years since I worked at the stock exchange, so someone please update me:
What is this bullshit with cancelling orders, in bulk? What is the reasoning, how could anyone ever think that would be a good idea to allow?
Assorted stuff I do sometimes: Lemuria.org
The rule of law is dead in the USA. Bankers and financiers have a free pass from Washington DC to break the law with impunity.
It is a crime to undertake any action (other than buying and selling of course) to profit from deliberately attempting to manipulate prices. Placing orders with no intent to have them executed is no different than a pump and dump scheme, or leaking a fake press release to affect a company's share price.
There's an easy solution (actually two) to stop this BS. Make a rule requiring that all orders need to be open for at least, say 15 seconds. Long enough for a small day trader to act on them. Alternatively, they could assess a small fee for every canceled order above some threshold in a trading day. Call it 5000. i.e. You get to submit and cancel 5000 orders for free, but every additional canceled order costs you a penny.
If I could figure out a good way to cash out my 401K without getting ass-raped by the government (Ask Slashdot?) I'd cease participating in this gambling casino where the house always wins.
If it's advantageous to sell, you sell and make money, there's your liquidity
That is most definitely not liquidity. Just because you want to sell something doesn't mean there is a buyer. Or it might mean there is a buyer but they want a big premium to do the deal. Liquidity is a measure of the ease with which buyers and sellers can find each other and agree to a price. Our recent financial crisis was in large part a crisis of liquidity. Big banks needed to be able to borrow money and everyone was afraid of lending to someone who might be insolvent so there was literally nowhere to borrow from. It's not just an all or nothing proposition either. If a stock is thinly traded, the spreads are going to be huge and it will be really expensive to buy that stock. If it is difficult to find sellers it likely will be difficult to find future buyers as well. The more trading that occurs in a stock, the narrower the bid/ask spreads because it is easier (and less expensive) for buyers and sellers to find each other. More trading = more liquitity = lower transaction costs.
Now there are algorithms to deal with the algorithms. Someone wrote a program to spook someone else's program into making trades it wouldn't have normally made. I don't think it's illegal at all. Yes it's a war out there. Of course the exchange isn't going to like it when large volumes of traffic don't result in an actual paying trade, because exchanges make money on a transaction not a bid/offer. I expect some sort of "cap" or "fee" soon.
Seven puppies were harmed during the making of this post.
4% of quote traffic is not the same as "4% of trading activity"
At Reuters.
Best Slashdot Co
- Elvis is dead
Certainly is. Died last year at the ripe old age of 76 after falling down a cliff in New Zealand while filming his latest movie. Sad story.
Except that taxes are generally spent on the well-being of society (and yes, this is easily contested, but it is the idea), whereas income extracted by private companies is definitely not.
That "ponzi scheme" whereby the pensions of today are paid by those paying into the pension plan is the only good, cheap, and stable way such a thing can be run.
Please explain how you manage to maintain adequate levels of pension when the ratio of workers (ie those paying) to pensioners (those receiving) has shifted from around 10:1 in the 1960s to around 4:1 now and heading towards 2:1? Pay-as-you-go pensions work when your population pyramid is a pyramid, just like a ponzi scheme apparently works when it is growing -- it's when the growth stops and more and more people want their money that the shit hits the fan.
"What they are doing is consuming the service to the detriment of other users, and extracting a tax with their unfair advantage over other users, while contributing exactly nothing back."
Reply: In addition to competing to a fixed volume of trade time, it still seems possible that these bot traders may accidentally "collide" at some point producing a massive change in prices and cause huge artificial alteration of the market that has NOTHING to do with rational investing.
We usually call this gambling. Normal stock buyers at that point can be considered the sheep to be fleeced.
Wall street hates Obama.
Not a partisan jab, just an observation. (I am actually one of the 'undecideds' they keep talking about)
Remember what happened to the stock market 2 weeks before the last election (October 24th, 2008) The election was Nov. 4th.
this year it is Nov 6th. You'll see.
-badford
1: They get to skim off the differences. Making up for thin profit margins by huge unit time trade volumes.
2: The speed of light insists that you have a limited space to get the same latency as another HFT. Since this limited space has demand, that demand raises prices. And therefore unless you have a huge amount of money AND connections, you won't be able to bid, let alone win, a lease that close to the exchange.
3: study wrong. Fast trades make the stock market INHERENTLY unstable.
And what bad effect does it have? It makes markets crash. Since there isn't any INFORMATION passing that fast, all you work on are the motions of the trade. Since you're looking at small changes, you will not be able to tell the difference between an insider dumping shares before a bad report or an executive cashing out to put their child through Harvard. And so you will sell before it drops any more. Other machines see the bigger drop and will call an out on the product and dump even more rather than be left with the options at a low (hoping to buy when the other suckers who held on find they have to sell at low prices).
but don't let facts get in the way of your rant.
I read the other day that the EU Parliament is considering adding a 0.5 second minimum order duration limit to the relevant directive (MiFID) to ensure that other parties can actually close the orders and prevent this kind of thing from happening.
You do what the SS Administration did. You account for demographics when setting the tax rates. It's why we have this nifty tool called mathematics.
Back in the 1980's there was a big hike in Social Security taxes plus an increase in retirement age. This was intended to give a surplus in SS payments that would accumulate for the baby boomer retirement. People of that age have been paying these higher taxes for their entire working lives.
From planning perspective this approach worked. The SS Trust Fund holds trillions in assets in the form of a specialized government bond. These assets are pretty close to being enough to pay for the boomer generation retirement.
The problem with our system is that the bonds are worthless because the US government is bankrupt - they don't have the funds to pay off these bonds. If it hadn't been spending the revenues from these tax revenues ignoring the long term obligations this wouldn't be a problem.
Where did this money go? Well I like to look at it this way. When the SS tax increase passed Reagan and Congress passed a income tax cut that benefited mostly rich people.
This is a problem with Congress and budgeting, not a problem with demographics which is eminently solvable.
That "ponzi scheme" whereby the pensions of today are paid by those paying into the pension plan is the only good, cheap, and stable way such a thing can be run.
no it is not. Ponzi works and everything is peachy until it doesn't. Shitty economy will take its toll either way in any scenario, but the 'ponzi scheme' is a sure way to enslave the young and the productive once the demographics goes south - many old people vs not so many young... ah the joys of democracy.
Half of fucking Europe sits at the fertility rate of 1.4, next to Japan that is supposedly a country of old people.
https://en.wikipedia.org/wiki/List_of_countries_and_territories_by_fertility_rate
Polish retirement system has a hole equal to 1/3 of total inflows, today. In 30 years it will be a disaster of epic proportions. Half of the earnings will go to retirees right off the bat, before any general purpose taxes kick in. If you believe the US will always have positive population growth, think again.
You pay less pension and increase the rates.
What your rates buy you in a good scheme of this type is the promise that you will be looked after. Note, not a fixed ammount of money, but a guarantee that what comes in will be split proportionally and you will get your share, unless it is too little to live, in which case you get more. Unlike a ponzi scheme, this kind of thing is sound and can go on for ever.
I have no idea why a system with a nonzero probability of leaving people homeless and poor when they get old is considered to be better.
"- High Frequency Trading does not influence long term security values."
That argument provides ZERO justification for skimming a few dollars here and there from millions of small investors. Can I take 10 cents per day of everyone's 401K because it won't have a material effect on their standard of living during retirement? Can I engage in a pump and dump scheme because it won't affect "long term security values"? What if I issue a fake press release and profit from people trading off the false information? Based on your absurd argument, that would be OK because the long term price of the stock is not affected.
You must work for a bank if you're trying to suggest that the blatant and obvious criminality of HFT is just some fringe "conspiracy theory".
No it's front running by any other name, giving a mark/investor a delayed feed is just the same as a broker doing front running. FR was made illegal, so should this.
It's not Wallstreet firms that are the marks to be scammed here, they have their servers sitting on the exchange, its the ordinary investors getting the slow feeds.
It's also not pennies, it's a significant sum, and all of that profit comes from parasitic trading. Every investor needs to cover that extra cost, and in turn every US company needs to grow faster to make up the difference.
Of course the real joke here is the tiered delayed feeds. For free you get 15 minute delayed feeds, pay and you'll get one with a 100ms lag, pay more and you can plug your server direct in the exchange. The exchange is selling 100ms of front running time, or 15 minutes of front running time to whoever will pay. Again it's the sucker investors who are being packaged and sold there.
Thank you for checking on that.
The person is obviously a shill for the scumbags engaged in this practice. Nobody could be so stupid as to think this is "harmless".
By the way, that was a great post, choprboy.
Another way that HFTs justify "liquidity" is that they are generating a lot of transaction fees by doing HFT and this brings down the cost of transaction fess to Joe Schmuck, common man. So basically Joe Schmuck can make his one trade a month or one a year at a lower cost in exchange for allowing HFTs to potentially destroy the market with unchecked activity. Sounds like a fair deal to me - not.
I recently read a book William Poundstone wrote called "Fortune's Formula" that is a history of how extremely smart people like Claude Shannon used their genius to exploit minor advantages in the stock market for profit after first figuring out how to make small profits by gambling (ie. they found that a commonly used roulette wheel wasn't perfectly balanced and tended to slightly favor one color, another guy counted cards at blackjack, and so on). One of the things that fascinated me is how it talks about people trying to exploit very minor discrepancies in the market for a long time now. These techniques are now well known and nobody can really use them any more, but decades ago it was unheard of to use computers to try to find stocks that might be mispriced and use that to make money and the first people to do that became very wealthy. It talks about gaming the system like with junk bonds and how some huge players in the market were wiped out almost overnight by the Russian economic collapse of the late 90s when they had too many investments tied up in that one market. The book is fascinating, but it's very depressing because it made me conclude that the stock market is beyond the control of average guys like me and we'll always be the ones getting the shaft while the rich exploit the system.
There's always a lot of plain assertion in these /. HFT discussions, so let me provide a citation: http://www.futuresindustry.org/ptg/downloads/HFT_Trading.pdf
"By constructing a hypothetical alternative price path that removes HFTs from the market, I show that the volatility of stocks is roughly unchanged when HFT initiated trades are eliminated and significantly higher when all types of HFT trades are removed."
This posting is provided 'AS IS' without warranty of any kind, implied or otherwise.
I have no idea why a system with a nonzero probability of leaving people homeless and poor when they get old is considered to be better.
Because it stands to make a small number of people an absolutely astounding amount of money, and they're therefore prepared to spend a lot to persuade Congress and the regulators that the system we've actually got is a great idea against all fair evidence.
"Little does he know, but there is no 'I' in 'Idiot'!"
I found this article an interesting read on high frequency trading.
- First they ignore you, then they laugh at you, then ???, then profit.
You're the only slashtard who gets it. This is what has let normal people, instead of just the 1%, into the stock market.
mmm...as a normal person who has been in the stock market since the mid 80s, let me be the first to say that you don't know what the fuck you are talking about.
I cannot remember the book. I thought it was Tom Clancy's Debt Of Honor. A trader manipulated the markets to cause crashes which in turn cascased into political and national turmoil. In the end, the reversed all of the electronic transactions prior to the crash and everyone lived happily ever after (until the next Clancy book).
I've always said English was my second language. Had Romeo and Juliet been written in C, I might have understood it.
Security price is affected by people buying or selling stuff. It goes up if people are willing to cross the spread to buy, and goes down when they are willing to do the same to sell.
In other words: stock (or any other security) price will go up if people are buying to hold (expecting dividend or buying control over the company); and it will go down if people who held it sell out.
HFT traders by definition don't hold the position for longer than a day. It means that whatever they buy, they will sell it back on the same day, and whatever they sell, they will buy back on the same day. They may affect short term (intra-day) prices by few cents, but they have no effect on long-term price trends. And pensions and similar instruments are long-term investments, when position are held for years. Years [milli]seconds.
One need to remember that *investment* is when your are holding your position for long (some say 3+, some say 5+ years), and everything shorter is *speculation*. From speculator point of view, the exchange is a zero-sum game.
You are mentioning trading off false information and "pump-and-dump" schemes. These illegal activities were invented by speculators long before HFT came to the game, and actually both devices you've mentioned would not work on HFT scale (is hard to issue 1000 fake press releases a second, right?). Granted - HFT has it's own arsenal of dirty tricks, but it doesn't automatically mean that all HFT is wrong.
And finally, the "blatant and obvious criminality of HFT" is a conspiracy theory. It's invented by the same guys who invented "pump-and-dump", "false press releases" and "insider trading", and who have now have they profits slashed by whizz kids with fast computers.
Better yet: Go back to open outcry trading.
Have gnu, will travel.
Yeah, stealing money from people is a victim-less crime... Except of course for the people whose money you stole.
So fuck of troll, of course it influences long term values, the profit they make does not pop out of thin air.
Bruce Wayne Enterprises must be disguising another order for bat capes by buying 10 million units.
I swear to God...I swear to God! That is NOT how you treat your human!
China is in a cold war with the west. They prefer to win this via economic means. So far, with the global economy dropping, they had high hopes that most would use the Yuan as the core money. However, most have moved back to the dollar (personally, I wonder if the loonie is the way to go). As such, China needs to further collapse the American economy. Best and easiest way is at the stockmarket.
The other real possibility would be setting up for an october surprise. Collapse the American economy and nuke O. It would not be the first time that the corrupt republicans have done such a thing.
I prefer the "u" in honour as it seems to be missing these days.
.... - High Frequency Trading does not influence long term security values.
Citation needed.
I prefer the "u" in honour as it seems to be missing these days.
Get-Money
Doesn't the Securities Act of 1933 make it illegal to place an order on the stock market when there is no intention of that order being fulfilled?
Quoting the act:
"(2) To effect, alone or with 1 or more other persons, a series of transactions in any security registered on a national securities exchange, any security not so registered, or in connection with any security-based swap or security-based swap agreement with respect to such security creating actual or apparent active trading in such security, or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others."
Why don't we just start prosecuting these jokers with already existing laws?
-- Give me ambiguity or give me something else!
Clearly, SKYNET has some commitment issues when it comes to day trading.
Charge a fee for every placed order. Don't refund the fee if the order is cancelled.
The population pyramid is now a snake with a big fat area we like to call the "boomer", and that snake has swallowed all of the next few generations hope.
"His name was James Damore."
It's mostly like poker. If you play stupid it's gambling. If you play smart you can eliminate the luck factor and reliably win.
It's mostly like poker. If you play stupid it's gambling. If you play smart you can eliminate the luck factor and reliably win.
Someone should tell that to Phil Ivey.... http://www.latimes.com/sports/sportsnow/la-sp-sn-phil-ivey-london-casino-refuses-to-pay-20121010,0,6445151.story
I checked on Bloomberg today.
7 year US treasury bond is yielding 1%.
7 year Australia goverment bond is yielding 5.25%
7 year German government bond is yielding 3.5%
Why do the world investors accept a lower yield for US government bond that German government bond?
Because they trust the US government MORE than German government to pay back their money.
Don't live in a 'Gold Bug' world view seeing inflation around every corner. You must look at the entire economy of each country one by one and learn the facts, not blindly follow theoretical fantasies.
I am always amazed at the ability of some people to say absolutely breathtakingly ridiculously stupid things like this. The hope a few generations? WTF?
This kind of bullshit is why exchanges shouldn't be run by traders. They should be run by a publicly funded non-profit entity with paid staff members who aren't permitted to trade or gain financially from public trading or be employed by publicly traded companies. All their personal finances and taxes should be a matter of public record. In turn they should be paid an insanely high salary to compensate for the fact that they can't invest in retirement accounts and to keep them contented and less inclined to bribery. Those individuals should also be policed by the SEC.
I'd say make the exchanges government run but that would result in the same backslapping that goes on now with the rich paying congress critters to lock in laws and statutes that benefit them. Usually if congress did a non-profit they'd fill its board with industry leaders (the same arses who run it now) we need independent people with no financial interest that would be considered bias.
Bravo! Well done!
Nanex
40 cents a minute cost would stop this kind of crap and not even be noticable to human traders.
She was like chocolate when she drank... semi-sweet at first and then increasingly bitter.
The problem isn't government borrowing today, it's government borrowing yesterday. Today, the government should be borrowing on a massive scale to stimulate growth.
Indeed. In depression, the most actors are bound to procyclal behaviors: businesses and workers make less money, they spend less money. The only actor that can have a countercyclal action is the state: despite that depression is cutting its revenues, it can still borrow to spend more and restart the economy.
US situation may be bad, but it is nothing like the madness that is occurring in UE. Here most member states (all except UK and Czech Republic) are signing a treaty that is forbidding states from borrowing money (deficit shall be less that 0.5% of GDP). UE member states are about to carve recession in the stone.
You again? If I was looking for a clown to provide bit of deliberate sillyness I would have written something different above. Please stop pretending to be someone far too stupid to have survived to your age.
Suggesting that 70% of all trades have no impact on a market takes a very special kind of person.
Fake wealth and a zero sum game are two different things. They might overlap, but they aren't the same.
A zero sum game's main characteristic is that the total sum of all points in the game never chances, so each point you gain corresponds to a loss of a point for another player. A market is never a zero sum game, even a market for shares is not. Except for some special cases where someone is forced to sell, a trade only happens if both sides are better off after the trade, which is au contraire to a zero sum game.
I really cannot understand why you are taking such a stand against the obvious.
This is good stuff, I didn't know Bill Gross was 'an extremist'
Gross runs the largest bond fund called 'Pimco', he manages 1.8Trillion dollars.
Here is his latest investment letter, I just found out:
To keep our debt/GDP ratio below the metaphorical combustion point of 212 degrees Fahrenheit, these studies (when averaged) suggest that we need to cut spending or raise taxes by 11% of GDP and rather quickly over the next five to 10 years. An 11% "fiscal gap" in terms of today's economy speaks to a combination of spending cuts and taxes of $1.6 trillion per year! To put that into perspective, CBO has calculated that the expiration of the Bush tax cuts and other provisions would only reduce the deficit by a little more than $200 billion. As well, the failed attempt at a budget compromise by Congress and the President - the so-called Super Committee "Grand Bargain"- was a $4 trillion battle plan over 10 years worth $400 billion a year. These studies, and the updated chart "Ring of Fire - Part 2!" suggests close to four times that amount in order to douse the inferno.
Investment Conclusion
So I posed the question earlier: How can the U.S. not be considered the first destination of global capital in search of safe (although historically low) returns? Easy answer: It will not be if we continue down the current road and don't address our "fiscal gap." IF we continue to close our eyes to existing 8% of GDP deficits, which when including Social Security, Medicaid and Medicare liabilities compose an average estimated 11% annual "fiscal gap," then we will begin to resemble Greece before the turn of the next decade. Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline. Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the "Ring of Fire."
To hedge against the inflation risk, Mr. Gross has cut down holdings of Treasury debt to 21% at the end of August compared to 33% in July.
MY OTHER COMMENTS
Alice with the assets wants to sell. Bob the broker wants to buy. Eve wishes to profit by inserting herself into the communication channel and buying at the lowest price Alice will sell at then sell at the highest price Bob will buy at. This works if Eve can communicate to them much faster than they can communicate with each other - hence HFT.
It's a classic man in the middle attack.
Your attempts to pretend it is not by focusing too closely on details of specific man in the middle attacks, and saying that just because Eve is not wearing a black hat and smoking a cigar (or other less silly things that really amount to the same thing), are an obvious attempt at distraction - such as your bullshit that it has to be "covert". Acting rapidly enough accomplishes the same aim since Alice and Bob may never be aware of each other. They can only really hear Eve saying what they want to hear and the other party is lost in the noise.
No.
The attack is only possible due to being able to communicate much faster than a human could. A human can put in a lot of failed bids to find out Alice's lowest price, but in the mean time Bob could have put in a successful bid. A high frequency trader can do that long before Bob can put in a bid.
Thus Eve does have special knowledge of Alice or Bob's price thresholds at which they're willing to trade.
I think your "covert" limit is a completely irrelevant figleaf you are trying to hide behind for purposes of your own terminology - personally I think it defines a type of man in the middle attack instead of being a feature of all of them. Besides, if Alice is never aware of Bob due to the speed of the trade doesn't that even fit your artificially narrow definition? You are pinning everything on a completely irrelevant distraction to get away from your ridiculous assertion that 70% of all trade has little impact on the market.
The attack is only possible due to being able to communicate much faster than a human could. A human can put in a lot of failed bids to find out Alice's lowest price, but in the mean time Bob could have put in a successful bid. A high frequency trader can do that long before Bob can put in a bid.
Well, you just said above that it works better when it's faster, not that it becomes impossible at human speeds. In addition we need to consider the nuts and bolts of what's going on. Basically, in the above scenario. Alice is running a computer program not a limit order and selling to what appears on the market. So no matter how fast the HFT is, it can only respond to Alice's activities as her program makes them.
Now she might have a stop order which is a trade that operates at HFT speeds. Then it becomes to some degree worth poking around to see what triggers when one creates a small "flash crash".
Or she might do a bunch of market orders which are also operating at HFT speeds and very gameable once you know the timing of her activities (say she sees your book order and then 200 ms later sells 500 shares to market). An HFT trader can drop their buy order (in practice they'd be putting up a buy order for short periods of time, long enough for it to register to program traders and short enough that it doesn't have much chance of getting triggered) in that short period of time and pick up those shares for even less than what Alice thought she was selling them for.
But these sort of things are simply bad trading tactics for Alice in a market where HFT traders are known to lurk. That's why it's not a traditional man in the middle attack.
Thus Eve does have special knowledge of Alice or Bob's price thresholds at which they're willing to trade.
This is a typical market maker advantage.
I think your "covert" limit is a completely irrelevant figleaf
The covertness is a standard part of the definition of man in the middle attack. If you know Eve is there, you'll behave differently than if you don't know she's there.
Besides, if Alice is never aware of Bob due to the speed of the trade doesn't that even fit your artificially narrow definition?
Technically, none of the three know of each other aside from the very limited actions they have via the market. But they know there's other people on the market including HFT players doing their thing.
to get away from your ridiculous assertion that 70% of all trade has little impact on the market.
As I stated earlier, it could be 99.9% of the volume on the market and still be as irrelevant as it is now. Market makers have always had a high part of the volume of the stock market. And they don't accumulate stock. So in the long term it's only the people who want to buy and sell long term the stock who actually have the stock. In terms of a communication channel, HFT is noise (and even at high volumes, just not that much noise) and long time scale trade is the signal.
Obviously the vast advantage of speed is where the HFT algorithms can act while a human cannot, so it DOES become impossible at human speeds. Alice and Bob cannot act while Eve is busy working out the profit margin - and they don't even know Eve is doing it. There's that "covert" fig leaf blown right off so stop pretending it's no man in the middle attack.
Not a chance, since it all depends on communicating with Alice and Bob before they can get in touch with each other. If a third party is not quick enough the attack fails and Alice sells directly to Bob without the man in the middle getting their cut.
Why would Alice sell directly to Bob? A feature of this "communication" is that Alice and Bob aren't advertising their actual prices. That is, they're waiting for someone to place limit orders that they'll trade with. Instead I don't believe the trade would occur, at least not on short time scales (until Alice or Bob try a different approach or some other party puts up an order). This "attack" allows a trade to happen that wouldn't otherwise happen.
This makes your term for this activity even more questionable. Now, we see that not only does the activity not satisfy covertness, but the "attack" is beneficial to the supposedly attacked parties in that it creates an opportunity for trade where one hadn't existed before!
You are not being very clear - understandable because you really have nothing.
Even your argument that it cannot be covert because everyone knows there are many HFT out there is worthless, becuase if applied by the same measure to any other form of electronic communication you could say that everybody knows there is some risk of interception by carriers, law enforcement, covert agencies or anyone that owns a router or bridge between the two points.
I'm truly amazed by you claiming that a middleman driving up the difference to the maximum is more beneficial to the two parites than Alice and Bob eventually getting in touch with each other and getting the price without Eve's cut. Have you no shame? With that outlook that maximum exploitation at the expense of others is beneficial, have you ever been sent down for jail time by people that "just don't understand how the world works"? All that's coming out of this discussion is a relevation of an aspect of your personality that you are most likely not proud of.