Slashdot Mirror
Computer Trading and Dark Pools
Bob the Super Hamste writes "CNN Money has an article on computerized trading; specifically, the non-public markets that are often used to execute orders. The company that the article discusses executes 1/8 of all stock trades in the U.S., or about 900 million trades a day. For comparison, the NYSE executes about 700 million trades. The article discusses 'dark pools,' or private markets where quotes aren't disclosed to the broader public markets. If the company is unable to fill an order from within its own dark pool, it will submit the order to the broader public market (13 public exchanges), as well as up to 20 other private dark pools. The quotes offered by the private dark pools, by law, have to be the same or a better quote than those offered on public exchanges. There have been recent questions about whether the quotes provided by dark pools have been the best for customers and there is a current investigation by FINRA into the methods used by market makers and dark pool operators to fill orders."
If the question is, "are financial institutions doing the end run around public or private regulation for the purpose of screwing people, engaging in fraud, and dodging (necessary) liability?" the answer is always yes.
The government isn't just regulating stock markets because they want a cut.
They regulate them because there is a widespread opportunity for fraud and the bullshit from the Asset Backet Paper Commodities which were worthless but some how were getting passed off as AAA debt. It was a shell game of moving around the money until it was someone else's problem.
This isn't trying to "satisfy a market demand", this is trying to sidestep the entire market and play under a different set of rules than everybody else.
Banks and their high-frequency trading is just trying to take a cut out of the market before anyone else gets a chance. Why should trading institutions have privileged access to the market to pad out their own bottom line and skim the money off before everyone else can?
But, based on your posting history, you probably think it should be perfectly OK to manipulate the markets for their own ends.
Lost at C:>. Found at C.
How can a quote be "better"?
Well, Slashdot quotes would be better if we could specify who we're quoting, but you probably meant a market "quote". Assuming TFS means "bid or ask", it's better if it's better for each party trying to trade. That doesn't mean that either the buy or the seller is getting a bad price.
The usual state of a market at any given moment is that a "bid-ask gap" exists - when the best price someone is willing to buy at is lower than the best price someone is willing to sell at, so no trade can happen just at that moment.
Market makers make their money in between the bid and ask, by doing "time arbitrage" (not strictly arbitrage, because they carry risk). For example, if in the instant you can buy for 102, or sell for 100, the market maker might make a better offer: "you can sell to me for 100.50". He's hoping a buyer will come along before the price moves much to who he can say "you can buy from me for 101.50". Those prices are better than anyone else is offering, and still the market maker makes money - at the risk of the price moving enough where he takes a loss.
Socialism: a lie told by totalitarians and believed by fools.
Junk bonds, liar loans, "derivatives", "subprime", EFTs, dark pools, etc. Yes, it's a new bubble. Yes, the regulators are 45 steps behind.
You can't make liquid financial markets safe. You can only outlaw them after they emerge, and unless you're willing to employ gulags and torturers you can't prevent them from emerging.
This is why you're supposed to keep your pension funds, endowments, real property and other critical assets out of liquid markets. It is disappointing that doing this means they're not going to grow 8% a year, but juicy returns require big risks.
We use to understand this but hey, working for a living sucks so abso-fucking-lutely everything has to be hung out on the precipice to return enough dosh. So we employ righteous hyper-statists to punish anyone that might jiggle system a bit and upset all that tasty income. Every few years a new regulatory regime blossoms on top of all of the existing ones to make sure nobody tampers with the magic money faucet.
Keep printing Ben. There aren't enough lawyers on the planet to keep that bubble under control.
Maw! Fire up the karma burner!
This isn't really any voodoo here, and it is something stock brokerage companies have been doing for decades or even from the very beginning. If you have two customers where one customer is trying to unload some stock and another is trying to buy the same issue of stock.... why not simply exchange the stock certificates between the two customers without having to go through the big stock exchange?
The point is that these trading companies sometimes have thousands of trades going on all of the time, sometimes with customers having "put" or "stop" orders in place to buy or sell at certain prices. On the whole it really does make the markets much more efficient because the only time you go to the "big boards" is when you have a large number of your customers either all trying to sell or buy a particular stock issue.
This is certainly not something that will "destroy the economy", but rather that it will even help make the "economy" run even better by making sure that those who are either buying or selling shares can get the best possible price among the most number of people who may be interested in either buying or selling that stock. It also keeps stock brokerage costs down, thus lowering your fees for making an individual transaction. In other words, this makes it much easier for "ordinary people" to get involved with the stock market if you really care to do something like that. The New York Stock Exchange was explicitly set up with this kind of arrangement in mind, where people "with a seat" would carry on major transactions on behalf of trading companies, and ordinary people would contract out with those trading companies if you wanted to make occasional trades or buy in low volumes.
That there are problems with brokers and reasons to be concerned about how they are handling your money is something to be concerned about, the mere fact that "dark pools" exist isn't one of those things to panic over. If they didn't exist, all trades would need to happen on the major exchanges and would be a whole lot more expensive with much higher fees. The end result is that it would cause the world economy to collapse if they were outlawed or something else equally stupid. That brokerage houses should be expected to be honest to their customers is what this whole story is about, not the existence of these trading environments.
Or you could say Obama got a second term because the voters still remember George W. Bush.
[Sir Garlon] is the marvellest knight that is now living, for he destroyeth many good knights, for he goeth invisible.
I heard a funny story about the 1929 stock market crash, where in the middle of all of the sell orders somebody on the exchange decided to write up an "ask 1" order for 1000 shares of a major company that had been trading at about 50 dollars previously.... sort of as a joke just to see if anybody was that desperate. The shock was when the bid was accepted as there were order in to sell at any price.
Your general explanation here is spot on though. It is one of the ways that traders can make money for themselves if they spot a large gap and can identify a potential trend in the near future. This is also a good thing so far as it does make the markets much more efficient, noting that traders don't hang onto shares of companies like this.... their only motive is just to buy the shares and unload them a short time later. It helps the markets because it can help smooth out the ups and downs of the market and make it possible for trades to actually go through when people want to buy or sell their shares instead of needing to wait.
I worked at a dark pool.
When a whale buys or sells a sizable amount of stock in the public market it moves the price. When they execute the trade it doesn't happen all at once but in blocks. When bids and offers are made other players in the market see it and they try to jump on. This moves the price. The whale would like the price not to move so they can maximize profit. When trades are executed in a dark pool the market doesn't see the trades until they clear at the end of the day. Who trades in a dark pool you might ask? Other whales. Stocks traded in a dark pool are usually fairly distributed between groups of buyers and sellers so no one trading party has an advantage.
My problem with this is, you can't say what the "market" price is when so much of the bidding is in dark pools. You can't look at a 1/8 or smaller sliver and say "that's the market price" - your participation in that market would have changed the price.
Because unregulated markets always work the best. Disregard the panics of 1819, 1825, 1837, 1847, 1857, 1866, 1873, 1874, 1884, 1890, 1893, 1907, and the Great Depression. Those were just anaomolies, as were the crashes which occurred as the market regulations were dismantled starting in the 1980s. The unregulated market is always the best.
putting the 'B' in LGBTQ+