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(Mother Jones)   The cause of the next financial meltdown: computerized high-speed trading that causes stock prices to fluctuate from $0.01 to $30.00 in less than a second   (motherjones.com) divider line 69
    More: Scary, proprietary trading, Wall Street, stock prices, Financial Industry Regulatory Authority, high-frequency trading, securitization, optical fiber cable, normal ranges  
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2249 clicks; posted to Business » on 04 Feb 2013 at 11:39 AM (1 year ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2013-02-04 11:47:21 AM
That'll do wonders for ruining the dumbass investors.

/a fool and his money
 
2013-02-04 11:59:33 AM
Meh, most of this volatility would disappear if there was a minimum hold on stock before you were allowed to sell it.  An hour would be a good start.
 
2013-02-04 12:04:12 PM
This will be the cause for all of the codemonkeys to be lined up next to the lawyers and the politicians.
 
2013-02-04 12:07:24 PM
My solution would be to make the minimum spread 10 cents.  The fractional penny spreads we now see since decimalization is what has allowed volume to skyrocket IMO.
 
2013-02-04 12:10:34 PM

Dinjiin: Meh, most of this volatility would disappear if there was a minimum hold on stock before you were allowed to sell it.  An hour would be a good start.


Even 1 second would be enough to put the hurt to the hyperfast trading
 
2013-02-04 12:16:46 PM

Smeggy Smurf: Dinjiin: Meh, most of this volatility would disappear if there was a minimum hold on stock before you were allowed to sell it.  An hour would be a good start.

Even 1 second would be enough to put the hurt to the hyperfast trading


The article stated that one plan was only 50 milliseconds.  I'd go for Dinjiin's hour though.  Anything worth doing is worth doing right.
 
2013-02-04 12:19:40 PM
B b but they provide liquidity!

Ban HFT. 5 minute minimum hold: nothing about the company could possibly change in the span of 5 minutes that would warrant its stock changing in value by a factor of 10%, let alone 300000%. The rate of change of a dynamic system as important as the stock market cannot be allowed to be unconstrained!

/Lipschitz continuity, how the hell does it work?
 
2013-02-04 12:25:45 PM

Smeggy Smurf: That'll do wonders for ruining the dumbass investors.

/a fool and his money


Says the guy with a bunch of money in an obviously rigged market.


You don't win till you cash out.
 
2013-02-04 12:33:27 PM

Dinjiin: Meh, most of this volatility would disappear if there was a minimum hold on stock before you were allowed to sell it.  An hour would be a good start.


They mentioned on the Daily Show the other day that there was a proposal for a minimum 1 second hold time on stock trades. It was shot down on a near unanimous vote.
 
2013-02-04 12:34:55 PM
Automatic 10 cent tax on every transaction. Whenever anyone puts in an order to buy or sell, the order is carried out with a 1 minute delay and cannot be rescinded.

This is seriously, seriously unfair. It takes any market savvy out of the equation. You don't need to know anything to make money; you just need to have access to software that normal people can't use.
 
2013-02-04 12:41:52 PM

Tommy Moo: you just need to have access to software that normal people can't use.


And enough money to make a 1% change in the stock price make you millions.
 
2013-02-04 12:49:14 PM
Yes, there are several simple, effective, logical solutions that can fix this.

Since there are companies that already invested millions, if not billions, to gain an advantage, we will never see them.
 
2013-02-04 12:50:12 PM

Tommy Moo: Automatic 10 cent tax on every transaction. Whenever anyone puts in an order to buy or sell, the order is carried out with a 1 minute delay and cannot be rescinded.

This is seriously, seriously unfair. It takes any market savvy out of the equation. You don't need to know anything to make money; you just need to have access to software that normal people can't use.


Tax at full income rate unles stock was held for "x*" period of time first.

If you want to play the HFT game you can, but you are exempt from capital gains rates.

/* period if time suggestions welcome
 
2013-02-04 12:55:27 PM
My 403b is with Fidelity. Anyone suppose they are harnessing the power of this new technology to get me the best returns? I'd be damn surprised. More likely is that they are setting their purchases for our retirement accounts to lag behind the purchases they make for themselves. We buy after they buy cheap, pushing their holding up, and then we only sell after they get out at the higher price.
 
2013-02-04 12:57:39 PM

DORMAMU: Tommy Moo: Automatic 10 cent tax on every transaction. Whenever anyone puts in an order to buy or sell, the order is carried out with a 1 minute delay and cannot be rescinded.

This is seriously, seriously unfair. It takes any market savvy out of the equation. You don't need to know anything to make money; you just need to have access to software that normal people can't use.

Tax at full income rate unles stock was held for "x*" period of time first.

If you want to play the HFT game you can, but you are exempt from capital gains rates.

/* period if time suggestions welcome


You may want to study up on the difference between short term and long term capital gains.
 
ZAZ [TotalFark]
2013-02-04 01:03:14 PM
Traders' need for speed has grown so voracious that two companies are currently building underwater cables (price tag: around $300 million each) across the Atlantic, in an attempt to join Wall Street and the London Stock Exchange by the shortest, fastest route possible. When completed in 2014, one of the cables is expected to shave five to six milliseconds off trans-Atlantic trades.

When we abolish high speed trading we can pick up those cables cheap for use by humans.
 
2013-02-04 01:14:34 PM
zerohedge.com has covered the topic of High Frequency Trading(HFT) for years, if this is something that interests you, please feel free to peruse their archives.

also, on the topic of hold times, there was an article recently.. i think by nanex.net, showing how they are currently exploited. i'm not going to find the link, ZH probably posted it though.
 
2013-02-04 01:55:38 PM
i believe individuals like mortimer should be yelling at eachother to make trades
 
2013-02-04 02:16:43 PM
I say ban the market entirely. Stockholders are more than likely rich, and therefore evil.

We should just take all stockholders and line them up against a wall and shoot them in market capitalization order, and take all their money and redistribute it into the TANF program, just to be fair.

Amiright?
 
2013-02-04 02:33:33 PM

DORMAMU: Tax at full income rate unles stock was held for "x*" period of time first.


The IRS beat you to it - x == 1 year.

Tommy Moo: My 403b is with Fidelity. Anyone suppose they are harnessing the power of this new technology to get me the best returns? I'd be damn surprised. More likely is that they are setting their purchases for our retirement accounts to lag behind the purchases they make for themselves. We buy after they buy cheap, pushing their holding up, and then we only sell after they get out at the higher price.


HFT is a proprietary trading function - nobody uses investor money for HFT, it is all their own capital.  In general, the returns on HFT aren't really that great, but you also don't need a ton of capital to do it, which is what makes it attractive.  In fact, too much capital would render the strategy useless - if fidelity were to engage in HFT with one of their huge funds, they would cease being a liquidity provider and instead turn into a major market mover which would actually create a position in the stocks they are trading.  HFT is all about using relatively small amounts of money and churning it *constantly*.
 
2013-02-04 02:38:11 PM

Dinjiin: Meh, most of this volatility would disappear if there was a minimum hold on stock before you were allowed to sell it.  An hour would be a good start.


Volatility is actually a bit on the low side recently:

chart.finance.yahoo.com
 
2013-02-04 02:40:48 PM

Stile4aly: Dinjiin: Meh, most of this volatility would disappear if there was a minimum hold on stock before you were allowed to sell it.  An hour would be a good start.

They mentioned on the Daily Show the other day that there was a proposal for a minimum 1 second hold time on stock trades. It was shot down on a near unanimous vote.


Who's gonna vote agains truckloads of free money for themselves?
 
2013-02-04 02:46:40 PM
The really scary part is that a huge amount of trading that occurs right now is a result of these shiatbirds. You can scream that you want to "fix" the problem, but, at this point, what's going to happen to the market if 2/3 of its trading suddenly disappears one day?
 
2013-02-04 02:50:50 PM
If  you don't want to purchase something...don't.
If  you don't want to sell something...don't.

Exchanges provide a way for people to buy and sell things.  No different than E-Bay or Craigslist.

I don't see why people want to impose restrictions on the concept of ownership (IE - you don't 'own' that thing you just purchased, you only have partial rights to it until the government says so.  Until that point in time, you are not free to do with it what you will).

Now - in practice - adding a time limit wouldn't do anything.  If I buy a comic book and want to turn around and sell it to Joe; but the law says I have to wait a month, I can create a contract where in Joe agrees to pay me for the comic book and I agree to provide him with ownership.  I'm not selling the comic book; I'm selling a contract to Joe.  Two milliseconds later - Joe might want to sell my contract to Tom, but he can't - because of 'the man', so Joe creates a contract where he agrees to provide said comic book.
 
2013-02-04 02:51:39 PM

OptionC: Dinjiin: Meh, most of this volatility would disappear if there was a minimum hold on stock before you were allowed to sell it.  An hour would be a good start.

Volatility is actually a bit on the low side recently:

[chart.finance.yahoo.com image 800x475]


Studies show HFT reduces volatility and increases liquidity. Unfortunately it causes some outliers which people use as evidence to show that it is evil.
 
2013-02-04 03:19:14 PM

You're the jerk... jerk: OptionC: Dinjiin: Meh, most of this volatility would disappear if there was a minimum hold on stock before you were allowed to sell it.  An hour would be a good start.

Volatility is actually a bit on the low side recently:

[chart.finance.yahoo.com image 800x475]

Studies show HFT reduces volatility and increases liquidity. Unfortunately it causes some outliers which people use as evidence to show that it is evil.


Is it worth it though, if one of the outliers is complete global financial crash?
 
2013-02-04 03:32:21 PM

AcneVulgaris: Smeggy Smurf: That'll do wonders for ruining the dumbass investors.

/a fool and his money

Says the guy with a bunch of money in an obviously rigged market.


You don't win till you cash out.


Yeah, I have a whole $1,000 in stocks and $5,500 in mutual funds.  Ooh, big investor me.
 
2013-02-04 03:45:22 PM
as a trader, i have seen this many many times. it kills your trades, and costs money. the first time, in 08, the broker comped me. another time, they didnt.
 
2013-02-04 04:13:34 PM

Karac: Smeggy Smurf: Dinjiin: Meh, most of this volatility would disappear if there was a minimum hold on stock before you were allowed to sell it.  An hour would be a good start.

Even 1 second would be enough to put the hurt to the hyperfast trading

The article stated that one plan was only 50 milliseconds.  I'd go for Dinjiin's hour though.  Anything worth doing is worth doing right.


Maybe selling or buying part of a company should be at least as much of a pain in the ass as buying or selling a car.
 
2013-02-04 04:13:35 PM
The whole financial industry is a sham. When they were providing a service to the community, they represented 1.5% to 2% of GDP. Now, they do more disservice to the community and represent 8-105 of the GDP.
 
2013-02-04 05:05:40 PM

You're the jerk... jerk: Studies show HFT reduces volatility and increases liquidity. Unfortunately it causes some outliers which people use as evidence to show that it is evil.


One of the outliers required the Stock Market to do a "backsies" and pretend as though several transactions NEVER HAPPENED.

I'm pretty sure that's a pretty dangerous problem. If my stock suddenly crashed (assuming i owned any), can I, as a regular owner, get them to reset to before it lost value? I'm thinking no.
 
2013-02-04 05:13:00 PM

Felgraf: I'm pretty sure that's a pretty dangerous problem. If my stock suddenly crashed (assuming i owned any), can I, as a regular owner, get them to reset to before it lost value? I'm thinking no.


Did you sell the stock when the price dropped?  No?  Then you didn't lose anything...

Now, if you decided to sell because other people were trading the stock at a lower price, that's just your own damn fault.
 
2013-02-04 05:25:03 PM

Mike Chewbacca: You're the jerk... jerk: OptionC: Dinjiin: Meh, most of this volatility would disappear if there was a minimum hold on stock before you were allowed to sell it.  An hour would be a good start.

Volatility is actually a bit on the low side recently:

[chart.finance.yahoo.com image 800x475]

Studies show HFT reduces volatility and increases liquidity. Unfortunately it causes some outliers which people use as evidence to show that it is evil.

Is it worth it though, if one of the outliers is complete global financial crash?


There are better mechanisms to stopping that problem the making markets less liquid.
 
2013-02-04 05:39:20 PM

Fark_Guy_Rob: If you don't want to purchase something...don't.
If you don't want to sell something...don't.


This doesn't work when imaginary property is traded thousands of times per second, inflating and devaluing just as quickly, and at sums of money that can mean a 0.01% difference can make millions.
This illusory wealth looks great on paper, but it's still illusory. As soon as someone goes looking for that comic book that's been contracted and leveraged to the moon, the whole system goes bust. The common sense approach is to make it so you can't contract and leverage the comic book to begin with.
 
2013-02-04 05:46:44 PM

Fark_Guy_Rob: If  you don't want to purchase something...don't.
If  you don't want to sell something...don't.


The third verse goes "Oh boy, things are really farked.  I can haz taxpayer funded bailout plz?"
 
2013-02-04 06:47:41 PM
I really think computers should be banned from being allowed to trade on the market. I by banned I mean make it a federal offense to use them in an automated fashion. If the U.S. does this, other markets around the world will have to follow, especially if we don't allow them to work in our networks.
 
2013-02-04 07:28:52 PM
Possible Fixes:

A: A 0.01% tax on the value of all trades
B: A stock cannot be resold within 30 minutes of buying.
C: Bids cannot be cancelled within 5 seconds of being made.
D: A 1 second delay on all trades, with a randomized +/- 0.1 second modifier on the delay.

I'm sure there are more. This is an easily fixed problem, the only reason it hasn't been fixed is the exchange owners get their cut from the rigged game.
 
2013-02-04 07:35:41 PM

SevenizGud: I say ban the market entirely. Stockholders are more than likely rich, and therefore evil.

We should just take all stockholders and line them up against a wall and shoot them in market capitalization order, and take all their money and redistribute it into the TANF program, just to be fair.

Amiright?


Well, you did your best, honeychild, and that's all that matters, bless your heart.
 
2013-02-04 07:36:33 PM
Still haven't heard the reason some people think this is a good practice.  It's ridiculous on its face to let this happen.  Free enterprise to allow microsecond transactions?
 
2013-02-04 07:56:38 PM

Target Builder: Possible Fixes:

A: A 0.01% tax on the value of all trades
B: A stock cannot be resold within 30  minutes secondsof buying.
C: Bids cannot be cancelled within 5 0.5 seconds of being made.
D: A 1 0.1 second delay on all trades, with a randomized +/- 0.1 0.01 second modifier on the delay.


There we go. Making hese few changes above would dramatically reduce the problem, without making time periods long enough that the average American would complain about the government infringing on their rights to sell their property. The tax especially is an excellent idea. For a normal person buying $10,000 in stock, they would be taxed $1. For companies buying and selling millions in stocks a day, the cost would be quite a bit more.

Reducing the ability of firms to rescind their offers would be the best first step. That's just gotten ridiculous.
 
2013-02-04 08:43:11 PM
This *is* a repeat of 1987
 
2013-02-04 08:57:35 PM

Dinjiin: Meh, most of this volatility would disappear if there was a minimum hold on stock before you were allowed to sell it.  An hour would be a good start.


ha, they tried to slow down transactions to a second, and that failed miserably.

there is class warfare, and unless you're bill gates typing with a fark alt, you and I are losing.
 
2013-02-04 09:03:14 PM

Bonkthat_Again: The whole financial industry is a sham. When they were providing a service to the community, they represented 1.5% to 2% of GDP. Now, they do more disservice to the community and represent 8-105 of the GDP.


right, they don't produce, they don't even provide capital or services.  they just drive prices up.
 
2013-02-04 09:06:49 PM
erik-k : Ban HFT. 5 minute minimum hold: nothing about the company could possibly change in the span of 5 minutes that would warrant its stock changing in value by a factor of 10%,

CEO steps out to podium.

"We cooked our books, the company is flat broke, later biatches I'm off to the Caribbean".
 
2013-02-04 09:07:52 PM

Dinjiin: Meh, most of this volatility would disappear if there was a minimum hold on stock before you were allowed to sell it.  An hour would be a good start.


Why do we allow volume program trading in the first place?

Stocks are about supply and demand, not speculation skewing demand.
 
ZAZ [TotalFark]
2013-02-04 09:14:18 PM
I am happy with the principle behind "you buy the stock, you commit to holding it until the next business day even if federal regulators shut the company down." But the effort required to police option-related abuses would be high.

Higher taxes on transactions and slowing processing would do a better job with less enforcement effort.

You do need some effort to enforce trade limitations. Look at deed recording. It used to be you took the deed and $50 to the county offices, recorded the papers, and the transaction was official. Some businesses decided that was too expensive and slow and formed MERS to handle it all electronically behind the backs of the official recorders. Ten cents per trade with trades handled at one second intervals is also too expensive and slow for market gamblers.
 
2013-02-04 09:55:05 PM

Tommy Moo: Automatic 10 cent tax on every transaction. Whenever anyone puts in an order to buy or sell, the order is carried out with a 1 minute delay and cannot be rescinded.

This is seriously, seriously unfair. It takes any market savvy out of the equation. You don't need to know anything to make money; you just need to have access to software that normal people can't use.


The only question I have is....do you know just how much you don't know what you're talking about?
 
2013-02-04 09:57:52 PM
lohphat:

Why do we allow volume program trading in the first place?

Stocks are about supply and demand, not speculation skewing demand.


While we're at it, let's go back to guys on hills waving flags at passing airplanes. Then we won't risk having the ATC system shut down by a bug.
 
2013-02-04 09:58:49 PM
For all of you with so many suggested solutions:

What problem are you fixing?
 
2013-02-04 10:08:28 PM

Target Builder:  This is an easily fixed problem


Sorry, I must have missed something earlier - what's the problem?
 
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