If you can read this, either the style sheet didn't load or you have an older browser that doesn't support style sheets. Try clearing your browser cache and refreshing the page.

(CNBC)   Skynet tried to steal your money last week   (cnbc.com) divider line 60
    More: Scary, high-frequency trading, money-making, arbitrages, algorithms, David Greenberg  
•       •       •

14483 clicks; posted to Main » on 09 Oct 2012 at 9:29 AM (2 years ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



60 Comments   (+0 »)
   
View Voting Results: Smartest and Funniest

Archived thread

First | « | 1 | 2 | » | Last | Show all
 
2012-10-09 07:00:46 PM  

moefuggenbrew: So hey, can we start a 'new' stock market that does not allow these automated trades and super computers? We could call it 'new stock market' people only


And with hookers! And ... blackjack!
 
2012-10-09 09:30:54 PM  
In David Cay Johnston's book Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With The Bil he talks about a company that was based in Omaha or some other Midwestern city that wound up moving to New York because they were losing out on trades because their high powered computers couldn't keep pace with the east coast traders...who were conducting trades hundredths of a second faster than they could because of the distance. As the author puts it (paraphrased) "the speed of light wasn't fast enough for them to maximize profits."
 
2012-10-09 10:42:20 PM  
True story: a relative of mine works for the SEC. The agency spent a lot of time and money building a new super computer to track and monitor market manipulation by HFT machines. The SEC budget is completely controlled by washington... and they killed the budget for the HFT tracking specifically. The kicker? The SEC is self funded... they bring in more revenue than they cost through fines and fees.

It was entirely a move by someone powerful in washington who wanted to shut down the program so their cronie buddues could continue siphoning money from the markets. My relatives boss resigned over the matter because he was so pissed.
 
2012-10-09 10:58:46 PM  

drdonks: In David Cay Johnston's book Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With The Bil he talks about a company that was based in Omaha or some other Midwestern city that wound up moving to New York because they were losing out on trades because their high powered computers couldn't keep pace with the east coast traders...who were conducting trades hundredths of a second faster than they could because of the distance. As the author puts it (paraphrased) "the speed of light wasn't fast enough for them to maximize profits."


Its more complicated than that... and more messed up. There are different tiers of pipes going into the markets... for people who are willing to pay the price, you can buy a higher priority tier and have your servers sitting next to the markets systems. The difference in speed isnt just speed of execution... if you are on the top tier, your computers can actually see new orders coming down the pipe... and you can alter your orders after you see theirs, but before they are processed. So machines blatantly walk up the price etc.. you place a sell order for $1.00 per share.. then as a buy order comes in for the $1.00 price, you alter your order to $1.01. The buyer then alters his order to match at $1.01 price, but again, you see it coming and alter your order to $1.02. You do this process automatically until you find the buyers price ceiling.

Do this over and over hundreds of times a second all over the market... doing the inverse for your own buys, and you end up with a price spread that you can profit off all day long.
 
2012-10-09 11:32:01 PM  

Alonjar: drdonks: In David Cay Johnston's book Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With The Bil he talks about a company that was based in Omaha or some other Midwestern city that wound up moving to New York because they were losing out on trades because their high powered computers couldn't keep pace with the east coast traders...who were conducting trades hundredths of a second faster than they could because of the distance. As the author puts it (paraphrased) "the speed of light wasn't fast enough for them to maximize profits."

Its more complicated than that... and more messed up. There are different tiers of pipes going into the markets... for people who are willing to pay the price, you can buy a higher priority tier and have your servers sitting next to the markets systems. The difference in speed isnt just speed of execution... if you are on the top tier, your computers can actually see new orders coming down the pipe... and you can alter your orders after you see theirs, but before they are processed. So machines blatantly walk up the price etc.. you place a sell order for $1.00 per share.. then as a buy order comes in for the $1.00 price, you alter your order to $1.01. The buyer then alters his order to match at $1.01 price, but again, you see it coming and alter your order to $1.02. You do this process automatically until you find the buyers price ceiling.

Do this over and over hundreds of times a second all over the market... doing the inverse for your own buys, and you end up with a price spread that you can profit off all day long.


... How is that in any way, shape, or form legal?

Wouldn't that be insider trading, if it were done by a human?
 
2012-10-10 12:47:09 AM  

Alonjar: True story: a relative of mine works for the SEC. The agency spent a lot of time and money building a new super computer to track and monitor market manipulation by HFT machines. The SEC budget is completely controlled by washington... and they killed the budget for the HFT tracking specifically. The kicker? The SEC is self funded... they bring in more revenue than they cost through fines and fees.

It was entirely a move by someone powerful in washington who wanted to shut down the program so their cronie buddues could continue siphoning money from the markets. My relatives boss resigned over the matter because he was so pissed.


We are in dark times indeed. Duplicity and cronyism has always run roughshod over financial markets (just read anything on Morgan's day) but the financial weapons of mass destruction are reaching potency levels that are as game-changing as the A-bomb.
 
2012-10-10 09:54:43 AM  

drdonks: In David Cay Johnston's book Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With The Bill he talks about a company that was based in Omaha or some other Midwestern city that wound up moving to New York because they were losing out on trades because their high powered computers couldn't keep pace with the east coast traders...who were conducting trades hundredths of a second faster than they could because of the distance. As the author puts it (paraphrased) "the speed of light wasn't fast enough for them to maximize profits."


The Wired article speaks directly and at length of this sort of thing: the technology of trades, bandwidth and transmission, separating cities with markets (Chicago, NYC, London, Tokyo, etc). They're investigating ways to transmit directly through the earth for that .00003 second speed bump.

Alonjar: True story: a relative of mine works for the SEC. The agency spent a lot of time and money building a new super computer to track and monitor market manipulation by HFT machines. The SEC budget is completely controlled by washington... and they killed the budget for the HFT tracking specifically. The kicker? The SEC is self funded... they bring in more revenue than they cost through fines and fees.

It was entirely a move by someone powerful in washington who wanted to shut down the program so their cronie buddies could continue siphoning money from the markets. My relatives boss resigned over the matter because he was so pissed.


That's really depressing. And people scoff at me when I say we're past the point of no return for governmental change; it's going to take revolution.
 
2012-10-10 10:14:00 AM  
4.bp.blogspot.com

I'm not the only one that thought this.
 
2012-10-11 02:16:46 AM  

vudukungfu: "I feel a tax on order-stuffing is what the markets need at this point," said David Greenberg of Greenberg Capital. "This will cut down on the number of erroneous bids and offers placed into the market at any given time and should help stabilize the trading environment."



They should do that at the drive up windows in America. And you should have to stand on scales before ordering.

I'm sorry, according to your BMI, you may have a salad, no dressing, and an ice water.

you sir are a gentleman and a wizard.

 
2012-10-11 11:46:15 AM  

pag1107: This is why the theory of the high holy market regulating itself fails, there's always going to be some asshat trying to game the system.


That is not what happened here, in all likelihood. It's the computer software that's at fault. This has happened before, and the market narrowly avoided a panic and collapse when automatic trading software ran amuck. To understand why this is inevitable, you can read the brilliantly amusing and informative book, Gödel, Escher, Bach. It is basically a type of chaos, although Hofstader wrote his book long before that theory became a pop phenomenon.

Every system sufficiently complex to describe itself is incomplete (Gödel's theorem) but it is also capable of self-destructing (a program of a given sophistication contains the inherent and unavoidable possibility of code that will shut it down, wipe it out, erase the operating system, whatever).

These algorithms are basically computer code or programs, and they are inherently unstable. They produce what Nicolas Nassim Taleb calls "black swans", which are events of extreme costliness (or profit) which occur very rarely. People think to tend in terms of Bell Curves (normal or Gaussian curves) but in reality, much of what we think of as behaving in this "normal" way has lurking spikes of extreme events or else a very long tail on either side of a seemingly normal curve. This means that extreme events almost always happen more often than expected. At least the movies get one thing right.

Of course, that doesn't mean that the explantion that Goldberg's character gives in Jurassic Park isn't crap, because it is. He basically explains Murphey's Law (anything that can go wrong will). Chaos and black swans are something different. They do have to go wrong. They just have a sad tendancy to go wrong unexpectedly. The problem is not in our stars but in ourselves--we have not evolved to expect the unexpected that is so improbable that it lies outside of the power of natural selection to adapt us to the very possibililty of such extremes.

In other words, we are not meant to win the lottery for good or evil. We can't cope with the possibility, let alone the actualization of such "miraculous" or catastrophic events.

Murphy was right, as they say, but he was an optimist.

Nobody knows why the algorithms go wrong, or when, or even how likely it is. We only know that shiat happens, and that it is likely that it will eventually crash machine trading and human trading and all.

Because human peoples are just like algorithms and computer programs: we are chaotic phenomenon in our own right. Humans do exactly what these machines do, and despite attempts to regulate ourselves and to build failsafes and trip lines and warning devices into ourselves and our creations, we can't avoid mathematical probability even though we are really, really lousy at understanding and adapting to it.

As my favourite touchstone, Philip K. Dick's reply to a University of Alberta (Edmonton) student puts it: "Reality is that which, when you cease to believe in it, continues to exist."

We can not escape chaos because we can not exist without chaos. It is inherent in the degree of complexity necessary for life, for self-awareness, for auto-referential statements and paradox, and the knife's edge between order and disorder that all living and thinking beings walk or dance according to their lights.

But yes, you MIGHT be right. Maybe it is just somebody trying to game the system. In which case their software is more dangerous even than software that works.

But there are ways to test even a chaotic seeming event to see if it was done by human design or true randomness. Benford's Law and even Bayes Theorem can be brought into the game.

But those take even longer to explain than Chaos Theory.
 
Displayed 10 of 60 comments

First | « | 1 | 2 | » | Last | Show all

View Voting Results: Smartest and Funniest


This thread is archived, and closed to new comments.

Continue Farking
Submit a Link »
On Twitter





In Other Media


Report