Basically, a physicist made up some BS and got it published in a journal called Social Text about postmodern cultural studies. He then came out later and revealed the hoax, embarrassing the reviewers and the journal. Lack of intellectual rigour seemed to be the target. This time, it seems to be more specifically aimed at the lack of understanding of statistics in certain subjects.
How about requiring patent holders to have a product that they sell in order to hold the patent.
This would get rid of the holding/shell companies that just buy patents for the purpose of sueing other companies to make their money. It would also mean that a company has to actually produce something that uses the patent in question first, instead of saying "hay, we could move into this direction in the future, so lets patent it to reduce the competition.".
That's just a legal patch on an already burdensome system. If you want to prevent people from knocking up a simple product, you'll need to invent more rules about what constitutes a "working product". And then you have more lawyers...
The fact that people set up patent trolling firms isn't the problem. It's the laws that have gotten out of hand, too far away from the original intentions, and not keeping up to date with technological advancements that make PT firms a viable play.
No idea what to do about it, though. The problem isn't confined to one country, and even if it was, the lawyers are influential in congress, and ofc they make money off these lawsuits. It's a tax on innovation.
Why would they have to steal it? The regime can put a lot of resources behind developing it. They've probably taken whatever inspiration that's easy to get a hold of.
In the 60 minute video, he goes on about saying something about how quite the machines are (exception being the air conditioning). Is there something I'm missing? I've been in plenty of server rooms and servers always seem to be noisy. Is he trying to contrast a traditional trading floor with the server room (being quite)?
OR
Are these some type of super new server that doesn't make any noise that I'm simply not aware of?
The other thing I'm wondering about is the 65 micro (not milli) second times. What permits this incredibly fast trip time? Are they dealing with simply ethernet here or something else? Otherwise looks like a typical data centre - far more tidy that I normally encounter however.
I'm not able to watch the video, but I've actually taken a phone call from an engineer in one of the data centers mentioned in the NYT article. It sounds like he's standing in a hurricane. The aircon in the building and the fans on all the machines must be the source.
And what's wrong with speculating? We all do it in one way or another. Taking a degree in the hope of getting a job. Buying a house. Holding cash instead of hard assets. Changing jobs. Speed dating. Many of life's decisions are made in the hope of an uncertain gain.
Yes, this is a real issue. But consider what happened in the mini-crash. Inside of an hour or so, everything was back to normal. If old school flesh and bone market makers had seen the market collapse hundreds of points in an hour, they would NOT be jumping back in immediately. They'd probably have at least gotten themselves out and then closed the day at a big minus. This then would cause waves in other markets, people would start talking about what to do overnight, and there would be all sorts of spurious explanations of why the market had to collapse, which would all feed on itself. Perhaps, as they read that not much had happened as a real cause, the market could come back to where is was, but more people would have been affected.
There's a market where farmers come to sell pigs, and butchers come to buy them. Unfortunately, the farmers and the butchers are not there at the same time. They might arrange a market day, which concentrates the trading in certain periods. Fine. But that leaves risk. What if market day is in a few months, and farmer doesn't know whether it's worth making some more pigs? Maybe he'll keep safe and decide not to. Result: fewer pigs, even if butcher actually wanted to buy them.
So, let's keep the market open. But farmers and butchers won't know when to show up? What if I go to market, and no butchers are there? Same problem as before... take less risk.
Enter the market maker. He doesn't know how to farm or butcher, but he does hang out at the market all day. He has a good idea of how many pigs are needed, because each time a real farmer/butcher comes in, someone is asking around about the pig price. So he uses his own money to buy pigs from farmers and sells them to butchers, based on what he thinks the balance is. So now, farmer guy can offload his pigs, and butcher guy can buy them, without having to coordinate with each other. They just talk to the middle man.
Now, the middle man has to manage the pig inventory. What prices does he make? Well, again, he thinks about risk. If he makes a wide spread, he'll make more money on each turn. But that will discourage the farmers/butchers, because they lose more from when they do their business. But if he tightens, he'll make less. He'd have to have enough business to compensate.
Enter middle man 2. He spots the same opportunity. Interestingly, now the two middle men need to trade with each other. And also, their trading doesn't need to be governed by the external customers.
I've worked in markets for years, though nobody can really can themselves an expert in something so complex.
As for dividends, there's no requirement that you hold on to high-div stocks for a long time. Also, and this is critical, you know exactly when that dividend is coming out of the price. So, basically, it completely doesn't matter whether the stock is paying a high dividend or not, since the liquidity providers know this. Having a narrow spread is good for you no matter what you're buying.
BTW, you might like to consider that ALL prices can be considered as bid/ask spreads. It's just that in your everyday life, people tend to only show you ONE side. In a supermarket, all the prices are Walmart's ASK price. Walmart got your potatoes by BIDDING for them from the wholesaler. They pocket the difference (bid-ask spread) just like a market maker.
When you buy a house, you are BIDDING (though confusingly this is colloquially called an offer on a house). If the owner is wanting 100K, and you are willing to pay 95K, one of these things will happen: 1) You cross the spread to LIFT THE OFFER 2)He crosses the spread to HIT THE BID 3) One of you moves their price and either 1 or 2 happens. The guy who crossed the spread is the aggressor, and he basically has swapped 5K for immediacy, ie to make the deal happen now rather than wait.
Good writing. You've explained why HFT is actually good for everyone, but only a very little bit. The piece you're missing is scalability. A good doctor can only save so may lives in a day, and makes an effort roughly in proportion to the number of patients. A broker can save a tiny few cents off a trade, but can do it for a huge number of clients, without extra effort. That's why they make more than doctors. Same goes for other almost pointless stuff, like sports stars, actors, authors, etc. Same effort, huge number of small beneficiaries.
That's right, but you can't say it's a great deal for everyone (taxpayers) just because GS didn't go bust and managed to repay their loan. There was a chance they were gonna go down. If the government keeps giving them money to bet with, they'll roll snakeeyes someday.
It's true that software ideas are often a dime-a-dozen, but there are software projects that require a lot of investment of money and manhours. In fact something like an OS would take a long time to write and test.
Aside from arguments about the research environment, people here on/. have also mentioned that statistics need to be understood better by certain scientists.
Those arguments all make sense, but here's some more:
The fields mentioned in the articles are things like biology, medicine, and psychology. I'd bet economics would show up there as well if it had been investigated. These are the kinds of fields where there are many interacting components, often with feedback loops and non-linearities. Often, it is also very hard to find a well-suited dataset for testing specific factors on their own. In other fields, one can rule out a great many factors by clever experimental design. With complex stuff, there's no obvious simplification. Often, you even have the problem of a self-aware dataset. Someone mentioned the Demand Effect.
So what can one do? The brute force way is to try and gather a lot of data. That can help, until you realise that the very act of gathering more data might corrupt the data. Well, suppose you're trying to learn something, and the very act of learning it screws up your result. Sounds like quantum mechanics, doesn't it? But at least in QM you can have someone else try to replicate your result. Suppose you've published an article saying that stocks tend to rise in January. That could screw up the market every January as investors have read your article. What I'm getting at is some things seem to be path dependent. How the heck do you hypothesise about that when you only have one "real world" to look at? I think economics might have an issue like this. Loosely speaking, everyone studied what caused previous crises, and base their response to the next one on what they think they learned. So obviously, you never get a second test with the same model. Is the model right then? Hard to say.
Slashdot Mirror
That's just a different game. One that incidentally is already being played at start and end of session auctions.
He then came out later and revealed the hoax, embarrassing the reviewers and the journal.
What reviewers? The journal was not a peer reviewed journal. In other words, it was merely at the level of a magazine.
Almost every time the Sokal Affair comes up on the net, I have to correct someone on this point.
See what happens when you ignore the review process? :)
I wasn't saying it was ALL invalid. Just that one needs to be vigilant.
http://en.wikipedia.org/wiki/Sokal_affair
Basically, a physicist made up some BS and got it published in a journal called Social Text about postmodern cultural studies. He then came out later and revealed the hoax, embarrassing the reviewers and the journal. Lack of intellectual rigour seemed to be the target. This time, it seems to be more specifically aimed at the lack of understanding of statistics in certain subjects.
How about requiring patent holders to have a product that they sell in order to hold the patent.
This would get rid of the holding/shell companies that just buy patents for the purpose of sueing other companies to make their money. It would also mean that a company has to actually produce something that uses the patent in question first, instead of saying "hay, we could move into this direction in the future, so lets patent it to reduce the competition.".
That's just a legal patch on an already burdensome system. If you want to prevent people from knocking up a simple product, you'll need to invent more rules about what constitutes a "working product". And then you have more lawyers...
The fact that people set up patent trolling firms isn't the problem. It's the laws that have gotten out of hand, too far away from the original intentions, and not keeping up to date with technological advancements that make PT firms a viable play.
No idea what to do about it, though. The problem isn't confined to one country, and even if it was, the lawyers are influential in congress, and ofc they make money off these lawsuits. It's a tax on innovation.
Why would they have to steal it? The regime can put a lot of resources behind developing it. They've probably taken whatever inspiration that's easy to get a hold of.
What do you when the union strikes?
They don't always work, true. But tinkering with them isn't too easy either.
What do you mean by this? The market enforces rules as to which orders are first in the queue.
Well, it's the FX shops raping you because you're in an airport terminal, with no access to sensible prices. But I get your point.
With regard to "in the open" prices, the first thing human market makers do in a crisis is shut down. Just like machines, except humans are slower.
In the 60 minute video, he goes on about saying something about how quite the machines are (exception being the air conditioning). Is there something I'm missing? I've been in plenty of server rooms and servers always seem to be noisy. Is he trying to contrast a traditional trading floor with the server room (being quite)?
OR
Are these some type of super new server that doesn't make any noise that I'm simply not aware of?
The other thing I'm wondering about is the 65 micro (not milli) second times. What permits this incredibly fast trip time? Are they dealing with simply ethernet here or something else? Otherwise looks like a typical data centre - far more tidy that I normally encounter however.
I'm not able to watch the video, but I've actually taken a phone call from an engineer in one of the data centers mentioned in the NYT article. It sounds like he's standing in a hurricane. The aircon in the building and the fans on all the machines must be the source.
No idea why someone would call it "quiet".
And what's wrong with speculating? We all do it in one way or another. Taking a degree in the hope of getting a job. Buying a house. Holding cash instead of hard assets. Changing jobs. Speed dating. Many of life's decisions are made in the hope of an uncertain gain.
Yes, this is a real issue. But consider what happened in the mini-crash. Inside of an hour or so, everything was back to normal. If old school flesh and bone market makers had seen the market collapse hundreds of points in an hour, they would NOT be jumping back in immediately. They'd probably have at least gotten themselves out and then closed the day at a big minus. This then would cause waves in other markets, people would start talking about what to do overnight, and there would be all sorts of spurious explanations of why the market had to collapse, which would all feed on itself. Perhaps, as they read that not much had happened as a real cause, the market could come back to where is was, but more people would have been affected.
A wide bid-ask spread IS a form of rent. Just look at the FX shops in any airport.
Analogy for why you need a market maker:
There's a market where farmers come to sell pigs, and butchers come to buy them. Unfortunately, the farmers and the butchers are not there at the same time. They might arrange a market day, which concentrates the trading in certain periods. Fine. But that leaves risk. What if market day is in a few months, and farmer doesn't know whether it's worth making some more pigs? Maybe he'll keep safe and decide not to. Result: fewer pigs, even if butcher actually wanted to buy them.
So, let's keep the market open. But farmers and butchers won't know when to show up? What if I go to market, and no butchers are there? Same problem as before... take less risk.
Enter the market maker. He doesn't know how to farm or butcher, but he does hang out at the market all day. He has a good idea of how many pigs are needed, because each time a real farmer/butcher comes in, someone is asking around about the pig price. So he uses his own money to buy pigs from farmers and sells them to butchers, based on what he thinks the balance is. So now, farmer guy can offload his pigs, and butcher guy can buy them, without having to coordinate with each other. They just talk to the middle man.
Now, the middle man has to manage the pig inventory. What prices does he make? Well, again, he thinks about risk. If he makes a wide spread, he'll make more money on each turn. But that will discourage the farmers/butchers, because they lose more from when they do their business. But if he tightens, he'll make less. He'd have to have enough business to compensate.
Enter middle man 2. He spots the same opportunity. Interestingly, now the two middle men need to trade with each other. And also, their trading doesn't need to be governed by the external customers.
I've worked in markets for years, though nobody can really can themselves an expert in something so complex.
As for dividends, there's no requirement that you hold on to high-div stocks for a long time. Also, and this is critical, you know exactly when that dividend is coming out of the price. So, basically, it completely doesn't matter whether the stock is paying a high dividend or not, since the liquidity providers know this. Having a narrow spread is good for you no matter what you're buying.
BTW, you might like to consider that ALL prices can be considered as bid/ask spreads. It's just that in your everyday life, people tend to only show you ONE side. In a supermarket, all the prices are Walmart's ASK price. Walmart got your potatoes by BIDDING for them from the wholesaler. They pocket the difference (bid-ask spread) just like a market maker.
When you buy a house, you are BIDDING (though confusingly this is colloquially called an offer on a house). If the owner is wanting 100K, and you are willing to pay 95K, one of these things will happen: 1) You cross the spread to LIFT THE OFFER 2)He crosses the spread to HIT THE BID 3) One of you moves their price and either 1 or 2 happens. The guy who crossed the spread is the aggressor, and he basically has swapped 5K for immediacy, ie to make the deal happen now rather than wait.
Good writing. You've explained why HFT is actually good for everyone, but only a very little bit. The piece you're missing is scalability. A good doctor can only save so may lives in a day, and makes an effort roughly in proportion to the number of patients. A broker can save a tiny few cents off a trade, but can do it for a huge number of clients, without extra effort. That's why they make more than doctors. Same goes for other almost pointless stuff, like sports stars, actors, authors, etc. Same effort, huge number of small beneficiaries.
Finally, a sensible remark. It's really crazy how many people here on Slashdot hate finance more than they love technology.
Actually, it's both.
That's right, but you can't say it's a great deal for everyone (taxpayers) just because GS didn't go bust and managed to repay their loan. There was a chance they were gonna go down. If the government keeps giving them money to bet with, they'll roll snakeeyes someday.
Overrated athletic teams' performance isn't dependent on how much people have bet on them winning. FB's valuation benefits from GS betting on them.
I'd have to agree, I don't see how it's worth so much. But that doesn't mean I'd have to balls to bet against GS.
They're doing God's work.
Please don't hurt me...
It's true that software ideas are often a dime-a-dozen, but there are software projects that require a lot of investment of money and manhours. In fact something like an OS would take a long time to write and test.
Aside from arguments about the research environment, people here on /. have also mentioned that statistics need to be understood better by certain scientists.
Those arguments all make sense, but here's some more:
The fields mentioned in the articles are things like biology, medicine, and psychology. I'd bet economics would show up there as well if it had been investigated. These are the kinds of fields where there are many interacting components, often with feedback loops and non-linearities. Often, it is also very hard to find a well-suited dataset for testing specific factors on their own. In other fields, one can rule out a great many factors by clever experimental design. With complex stuff, there's no obvious simplification. Often, you even have the problem of a self-aware dataset. Someone mentioned the Demand Effect.
So what can one do? The brute force way is to try and gather a lot of data. That can help, until you realise that the very act of gathering more data might corrupt the data. Well, suppose you're trying to learn something, and the very act of learning it screws up your result. Sounds like quantum mechanics, doesn't it? But at least in QM you can have someone else try to replicate your result. Suppose you've published an article saying that stocks tend to rise in January. That could screw up the market every January as investors have read your article. What I'm getting at is some things seem to be path dependent. How the heck do you hypothesise about that when you only have one "real world" to look at? I think economics might have an issue like this. Loosely speaking, everyone studied what caused previous crises, and base their response to the next one on what they think they learned. So obviously, you never get a second test with the same model. Is the model right then? Hard to say.