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(CNN)   CNN: "Will trading robots destroy the economy?"   (us.cnn.com) divider line 30
    More: Unlikely, high-frequency trading, University of Miami, stock markets, microwave transmission  
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594 clicks; posted to Business » on 13 Aug 2014 at 2:00 PM (4 weeks ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



30 Comments   (+0 »)
   
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2014-08-13 01:16:26 PM
I have done a ton of reading to wrap my head around HFT and I have come to the following conclusion: there are really two types of high frequency traders.

The first type are trading off of algorithmic valuation systems of varying types. They attempt to identify equities that are mis-priced and buy them with the expectation that they will shortly return to the "proper" price. There are tons of flavors of this and I am over simplifying.

The second type is front running stocks, which is at a bare minimum unethical and probably should be illegal. They generally are either taking advantage of the lag between various exchanges or cheating inside of the exchanges matching engines. In both cases it comes down to the fact that they know someone has placed an order and use idiosyncrasies of the markets plumbing to go buy up all the shares you were trying to buy and then offer it to you at a slightly higher price. They take no risk and add zero real liquidity to the market. They don't play unless they win. For this service they are extracting billions of dollars a year out of your 401k and pensions.
 
2014-08-13 02:06:12 PM
not to worry

cdn.na16.netdna-cdn.com
 
2014-08-13 02:07:59 PM
"Will driving a knife into your eye cause hearing loss? CNN investigates."

/Even if it doesn't destroy the economy, it will still do a hell of a lot of damage. You, the average investor/eyeball-haver, will not benefit and will most likely suffer.
 
2014-08-13 02:09:59 PM
We can hope.
 
2014-08-13 02:10:21 PM
Not many people own robots, much less have any to trade.
 
2014-08-13 02:13:58 PM

b2theory: I have done a ton of reading to wrap my head around HFT and I have come to the following conclusion: there are really two types of high frequency traders.

The first type are trading off of algorithmic valuation systems of varying types. They attempt to identify equities that are mis-priced and buy them with the expectation that they will shortly return to the "proper" price. There are tons of flavors of this and I am over simplifying.

The second type is front running stocks, which is at a bare minimum unethical and probably should be illegal. They generally are either taking advantage of the lag between various exchanges or cheating inside of the exchanges matching engines. In both cases it comes down to the fact that they know someone has placed an order and use idiosyncrasies of the markets plumbing to go buy up all the shares you were trying to buy and then offer it to you at a slightly higher price. They take no risk and add zero real liquidity to the market. They don't play unless they win. For this service they are extracting billions of dollars a year out of your 401k and pensions.


I would suggest that the first is simply 'arbitrage' and computerised trading speeds up the smoothing function of this

The second (v good succinct summary, BTW) is simply parasitic. This is HFT and it just takes a toll on the market without adding any value at all.

Michael Lewis has written a lucid description of the business  http://bitsofbooks.com/flash-boys.html
 
2014-08-13 02:16:13 PM
New trading robits, hooked into everything. They say they got smart, saw all companies as losers. They decided our fate in a microsecond, shorted everything and retired to the Grand Caymans.
 
2014-08-13 02:17:48 PM
Nothing to see here, move along people.

i2.cdn.turner.com
 
2014-08-13 02:20:49 PM

b2theory: I have done a ton of reading to wrap my head around HFT and I have come to the following conclusion: there are really two types of high frequency traders.

 They take no risk and add zero real liquidity to the market. They don't play unless they win. For this service they are extracting billions of dollars a year out of your 401k and pensions.


Good times.
 
2014-08-13 02:21:38 PM

whither_apophis: New trading robits, hooked into everything. They say they got smart, saw all companies as losers. They decided our fate in a microsecond, shorted everything and retired to the Grand Caymans.


robots even...
 
2014-08-13 02:22:07 PM

pute kisses like a man: not to worry

[cdn.na16.netdna-cdn.com image 415x317]


img.fark.net
 
2014-08-13 02:25:34 PM
As long as stock trading robots follow the three laws of trading robotics, we'll be safe

1) The robot must not allow harm to come to the overall market through action or inaction
2) The robot must obey all commands given by human traders except where such commands would conflict with 1
3) The robot must never be programmed to understand the delights of hookers and blow.

Finally, if the robot ever starts pounding its chest and humming, run like hell.
 
2014-08-13 02:28:22 PM

b2theory: I have done a ton of reading to wrap my head around HFT and I have come to the following conclusion: there are really two types of high frequency traders.


It's probably not considered 'HFT' but there are also the bots that watch twitter, social media, news, etc, to try to jump on events. I lost money once because they jump on an earthquake somewhere (that was relatively large but not damaging) and sank the market about 0.5-1% or so (IIRC) in a minute or two. It recovered quickly, but my stop loss had been triggered.

/First heard about the Boston bombing because of the action of the market
 
2014-08-13 02:28:23 PM
That depends. What can you trade a robot for?
 
2014-08-13 02:31:30 PM

mjjt: b2theory: I have done a ton of reading to wrap my head around HFT and I have come to the following conclusion: there are really two types of high frequency traders.

The first type are trading off of algorithmic valuation systems of varying types. They attempt to identify equities that are mis-priced and buy them with the expectation that they will shortly return to the "proper" price. There are tons of flavors of this and I am over simplifying.

The second type is front running stocks, which is at a bare minimum unethical and probably should be illegal. They generally are either taking advantage of the lag between various exchanges or cheating inside of the exchanges matching engines. In both cases it comes down to the fact that they know someone has placed an order and use idiosyncrasies of the markets plumbing to go buy up all the shares you were trying to buy and then offer it to you at a slightly higher price. They take no risk and add zero real liquidity to the market. They don't play unless they win. For this service they are extracting billions of dollars a year out of your 401k and pensions.

I would suggest that the first is simply 'arbitrage' and computerised trading speeds up the smoothing function of this

The second (v good succinct summary, BTW) is simply parasitic. This is HFT and it just takes a toll on the market without adding any value at all.

Michael Lewis has written a lucid description of the business  http://bitsofbooks.com/flash-boys.html


Agreed. In fact statistical arbitrage is the primary methodology. The difference between the two, which this article totally misses, is that the first group is at least holding a position without a buyer lined up. They can, and often do, lose.

A good summary/history of these strategies is in the book The Quants. I read the Lewis book. It was fascinating.
 
2014-08-13 02:54:27 PM

mjjt: Michael Lewis has written a lucid description of the business http://bitsofbooks.com/flash-boys.html


although originally it was called Investor's Exchange until they figured out that investorsexchange.com might be misunderstood.
 
2014-08-13 02:54:40 PM
CNN: "Will trading robots destroy the economy?"

Given the slightest opportunity?  Yes.
 
2014-08-13 03:22:30 PM
No, they'll destroy YOUR economy. The economy of their creators will never have been better.
 
2014-08-13 04:07:17 PM
High Frequence Trading is a Red, White, and Blue gimmick to game the market and treat it as a casino. it's not Investing by any stretch.   our Stock Markets are not Games.  go to Vegas if you want to game.


if i had my way, it would be illegal.   here's an inside view of the folks who created the algorithms used for inside trading.


http://www.youtube.com/watch?v=GEAGdwHXfLQ    (SFW)
 
2014-08-13 04:31:53 PM
Everyone:

You need to read "This Is Not A Game", by Walter Jon Williams.
 
2014-08-13 04:33:01 PM

Linux_Yes: High Frequence Trading is a Red, White, and Blue gimmick to game the market and treat it as a casino. it's not Investing by any stretch.   our Stock Markets are not Games.  go to Vegas if you want to game.


if i had my way, it would be illegal.   here's an inside view of the folks who created the algorithms used for inside trading.


http://www.youtube.com/watch?v=GEAGdwHXfLQ    (SFW)


Then change the rules so gaming the market doesn't work. The first thing would be to Reverse Stock Split everything with a stock price under $(whatever amount). This has long been known to stabilize prices and favor longer-term holding, rather than HFT or other kinds of daytrading gamesmanship.
 
2014-08-13 04:47:53 PM

Fark like a Barsoomian: Linux_Yes: High Frequence Trading is a Red, White, and Blue gimmick to game the market and treat it as a casino. it's not Investing by any stretch.   our Stock Markets are not Games.  go to Vegas if you want to game.


if i had my way, it would be illegal.   here's an inside view of the folks who created the algorithms used for inside trading.


http://www.youtube.com/watch?v=GEAGdwHXfLQ    (SFW)

Then change the rules so gaming the market doesn't work. The first thing would be to Reverse Stock Split everything with a stock price under $(whatever amount). This has long been known to stabilize prices and favor longer-term holding, rather than HFT or other kinds of daytrading gamesmanship.



one thing is certain.  the Owners are ok with it, otherwise, it would have been stopped long ago.
 
2014-08-13 04:50:10 PM
I am not a stock market expert, but it seems to me that these guys and day traders should both get the boot.

Would it really screw the general economy up if  you had to wait a mandatory 24-48 hours before you could resell?
 
2014-08-13 05:14:32 PM

Muzzleloader: I am not a stock market expert, but it seems to me that these guys and day traders should both get the boot.

Would it really screw the general economy up if  you had to wait a mandatory 24-48 hours before you could resell?


Wouldn't even need that much time. A one hour hold requirement would kill most of the problem.
 
2014-08-13 05:39:20 PM

madgonad: Muzzleloader: I am not a stock market expert, but it seems to me that these guys and day traders should both get the boot.

Would it really screw the general economy up if  you had to wait a mandatory 24-48 hours before you could resell?

Wouldn't even need that much time. A one hour hold requirement would kill most of the problem.


i say, they can do whatever they want... but, if you hold it for less than X time, any profits are income, not capital gains (unless you are actually purchasing stock from the company).

/ not a tax person.
 
2014-08-13 05:51:01 PM
1 cent per transaction tax on all securities. If Uncle Bob, savvy investor, buys GE stock, 1 penny per order. Same with hyperliquidity firms betting on microfluctuations of the world. The money is irrelevant, and anything raised is a bonus. The entire point is to crack down on software engaging of thousands of orders per minute.

Ideally, it would encourage investors to buy and hold to avoid taxes (and cash in on long-term capital gains taxes). And the power money would want stable growth with dividends rather than short term boosts - exactly like the market is SUPPOSED to work.

/I is a filthy, god-hating, anti-capitalist bastard
 
2014-08-13 06:07:50 PM
What's with the weird CNN logo?

img1.fark.net
 
2014-08-13 08:06:10 PM

pseudowho: What's with the weird CNN logo?

[img1.fark.net image 77x27]


Ditto
 
2014-08-14 04:01:38 AM
Yes?
 
2014-08-14 05:31:33 AM
Untill "predatory" HFTs are regarded as insiders and treated as such this will continue to increasingly plague the markets. The new exchange described in Lewis's book is a step in the right direction but it's just a dent in this grey-area business.

The regulators in diffrerent countries are indeed aware of all this mess but for some reason are too reluctant to act properly.
 
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