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## Sudden Demand For Logicians On Wall Street525

An anonymous reader writes "In an unexpected development for the depressed market for mathematical logicians, Wall Street has begun quietly and aggressively recruiting proof theorists and recursion theorists for their expertise in applying ordinal notations and ordinal collapsing functions to high-frequency algorithmic trading. Ordinal notations, which specify sequences of ordinal numbers of ever increasing complexity, are being used by elite trading operations to parameterize families of trading strategies of breathtaking sophistication. The monetary advantage of the current strategy is rapidly exhausted after a lifetime of approximately four seconds — an eternity for a machine, but barely enough time for a human to begin to comprehend what happened. The algorithm then switches to another trading strategy of higher ordinal rank, and uses this for a few seconds on one or more electronic exchanges, and so on, while opponent algorithms attempt the same maneuvers, risking billions of dollars in the process."
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## Sudden Demand For Logicians On Wall Street

• #### Well at least... (Score:5, Interesting)

on Thursday May 27, 2010 @01:46AM (#32358324) Homepage

Well at least, they seem to start to realize that perpetual growth is impossible to achieve in a finite universe. For us, right now, this means our planet.

We may need to start businesses on other planets until we have conquered the whole universe in order to maintain the illusion that perpetual growth is possible.

Yet, the whole point of investing in the market is more or less (at least it was traditionally) based on a perpetual growth principle where there would always be new markets to conquer thus, rising stocks on average and a perpetually growing economy.

Since they seem to begin to realize that perpetual growth is impossible and that trading is what they have done all their life, they need to keep the profits coming in anyway. So they figured that by using "high-frequency algorithmic trading" they could keep the profits coming in.

Well, at the expense of whom ? How long can this trend be maintained before major problems arise in the economy ?

• #### Re:Well at least... (Score:5, Insightful)

on Thursday May 27, 2010 @01:51AM (#32358352) Homepage

How long can this trend be maintained before major problems arise in the economy ?

before problems arise? Have you not been paying attention for the last two years?

• #### Re: (Score:2)

We may need to start businesses on other planets until we have conquered the whole universe in order to maintain the illusion that perpetual growth is possible.

If that were possible, then there would be quite a while to go before we'd consume everything. And then, depending on your religion on the universe, either you'd keep expanding forever, or crunch in the greatest market correction of all time.

• #### Re:Well at least... (Score:4, Insightful)

on Thursday May 27, 2010 @02:27AM (#32358546) Homepage Journal

Those of us in the rest of the world, who have been suffering being the weaker part in the worldwide marketplace game, we've been paying attention for much longer than two years.

• #### Re: (Score:3, Insightful)

Have you not been paying attention the last 40 years?

This is all about having an excuse for their machinations.

They will blame the geeks in court.

• #### Re:Well at least... (Score:5, Insightful)

on Thursday May 27, 2010 @04:59AM (#32359310) Journal

It's also about marketing, bullshit and "plausible deniability".

This is so the gamblers can give better excuses/bullshit for gambling with other people's money. This way everyone can say it's some sophisticated stuff that few people understand, so they get to keep their bonuses and profits when it all blows up.

Here's an analogy: the financial system is a casino. The casino doesn't produce any "real" wealth - it just distributes it. The Federal Reserve produces the casino chips (trillions of them if necessary). The casino operators take their cuts+fees. The players gamble with OTHER people's money (pension funds etc), and when they win they get pay raises and bonuses. If a single gambler loses big, he loses his job. If a huge bunch of gamblers lose big, they say "bail us out". How can a huge bunch of gamblers lose at the same time? They can if they play a "let's create fake wealth" game.

Here's a popular version: you start with a "parcel". You sell it for a profit to the next person. And the next person may do the same thing and so on. Whoever currently holding the parcel is allowed to declare that they are richer by the current "outside" value of the parcel. When the "music stops" the parcel is opened and the holder gets whatever is inside (which may be a bunch of IOUs).

It doesn't really need very much sophistication to play such games.

Here's another game: this is a trading/auction game: a few players pay the casino a special amount and they then get to see other people's bids 30 milliseconds[1] before everyone else does and they also get to make bids and cancel their bids rapidly. Naturally this is very profitable for those few players, unless there is a bug in their software, and they make a big loss in which case they ask the casino to rollback the trades, or change the rules so their losses are limited.

This needs a bit more sophistication if you are aiming for maximum profit since your program has to "battle" the other programs. But the few with the 30 millisecond advantage should make money from the rest.

Lastly, the gamblers who get sacked for losing will often get rehired since even if their companies lose big and maybe even go bankrupt, they make their _bosses_ rich.

Simplified version of how it works:

• #### Re: (Score:3, Interesting)

The casino doesn't produce any "real" wealth - it just distributes it.

Sorry, stopped reading at that point, as your ignorance of economics is obviously profound. How wealth is distributed has an enormous effect on a society's ability to produce new wealth. Many dirt-poor native tribes in Canada, for example, are "wealthy" on paper, but the ordinary people have no access to that money, only the band council does. A financial system that allowed ordinary people access to that money would make everyone but a few assholes at the top enormously richer.

Likewise, systems that att

• #### Re: (Score:3, Insightful)

You should read on. Especially the cited material.

• #### Re:Well at least... (Score:4, Interesting)

by Anonymous Coward on Thursday May 27, 2010 @11:20AM (#32362622)
I recently worked as a developer writing exchange gateways for a high frequency trading firm that traded with their own money, not other people's.

They were designated as a Market Maker, and their supposed purpose was to provide quotes on financial instruments.

Theoretically, the price for the same instrument should be the same on all exchanges, but in reality, there is lag. So, this company would pay for the fastest possible connection to each of the markets, and then sit and watch. Although What their real bread and butter was arbitrage, and they have automated systems that take advantage of lag between updates of the same instrument (usually derivatives) on different markets.

Basically, they'd see an instrument raise a fraction of a cent on one exchange, and they'd then buy a TON of it on another exchange and sell it back to the first exchange, all within a few milliseconds. Dumping all this would then cause the price to drop on the exchange they just sold it on, because the buy they executed on the second exchange would sometimes take a while to get back to the first exchange. Once all this instability started happening, it'd spur other people to start buying and selling - and they'd have an even greater opportunity to take advantage...

The whole system was very "clever" - but completely devoid of adding any real value to the market.

The company was investigated for some criminal behavior, but because they were very careful not to break the letter of the law in what they were doing - the law couldn't touch them.

I could give more details, but I'm afraid I've already said too much - because I certainly do not want to be identified by the company for fear of some kind of retaliation, either above or below the table

• #### Not again?! (Score:3, Insightful)

Look for these very mechanisms to be banned by congress, the senate and possibly by presidential decree as the kind of "wealth creation without effort but strictly through gaming the system" which led us down the same path that derivatives did.

All of the gains were wiped out and everybody but the insiders got stuck with the multi-trillion dollar tab when the music stopped and we found out the chairs were rented and had all be repossessed.

These are the kinds of games which should be outlawed.

• #### Re:Well at least... (Score:4, Insightful)

on Thursday May 27, 2010 @01:52AM (#32358356) Homepage

Well, at the expense of whom?

Currently, other traders with less sophisticated algorithms.

How long can this trend be maintained before major problems arise in the economy ?

Until they start gets jobs as Secretary of the Treasury and writing laws that distort markets in their favor at the expense of everyone.

• #### Re: (Score:3, Insightful)

But everything thus far shows us that perpetual growth is possible. Technology is a wonderful thing - each year we're able to do more with less.

That's not to say that a lot of what goes on in the market isn't pure, unadulterated bullshit, but real, honest-to-goodness "growth" won't stop until technology does.

• #### Re:Well at least... (Score:5, Insightful)

on Thursday May 27, 2010 @02:04AM (#32358410) Homepage

> Technology is a wonderful thing - each year we're able to do more with less.

A perpetually growing economy usually involves the average wage rising so average people can buy more stuff while still working less.

Have you looked around lately ? In fact you are right in some way: every year we need less people, so by the market rule, the average wage goes down relatively to what you can buy for a dollar on average, especially food and lodging.

• #### Re:Well at least... (Score:5, Interesting)

on Thursday May 27, 2010 @02:16AM (#32358488) Journal

And bullshit like high frequency trading (really the entire concept of trading in derivatives, I hesitate to say the entire stock market in general because at its core there is something useful) only makes things worse - and at a faster rate. Every year a bit of wealth from every person in the lower 90% is siphoned off by traders and bankers and given to the top 10% or less. Over the decades a self reinforcing, self perpetuating system has been created, linked with government apparatuses that give it the appearance of legitimacy; this system rewards people who produce nothing of value, make nothing, enrich no one's lives, do not create art, do not expand the sphere of human knowledge, and provide no meaningful service to humanity or the country.

When it's possible to get rich just managing other people's capital and skimming off the top then the way we organize our economy is broken. This house of cards cannot stand forever when you stack more and more of those people on top of the working class, the foundation, that actually produces wealth and knowledge.

• #### Re:Well at least... (Score:5, Funny)

on Thursday May 27, 2010 @02:40AM (#32358618)

But wealth trickles down! That's why we need to lower taxes!

Disclaimer: That's a funny, not a troll.

• #### Re:Well at least... (Score:5, Insightful)

on Thursday May 27, 2010 @03:45AM (#32359020)
The trickle has taken on a decidedly yellow tinge.
• #### Re:Well at least... (Score:5, Insightful)

on Thursday May 27, 2010 @02:47AM (#32358656)

this system rewards people who produce nothing of value, make nothing, enrich no one's lives, do not create art, do not expand the sphere of human knowledge, and provide no meaningful service to humanity or the country.

If only it were so simple. Efficient allocation of capital is extremely useful. It enables all kinds of progressive development that would never occur otherwise and stock markets (and derivative markets) are the best way humanity has come up with to do it. You might as well be arguing that farmers' markets and cattle auctions are just as useless - all they do is provide a meeting place and a means to buy and sell - they create nothing.

It should come as no surprise that the system can and is abused - that's pretty much the case for every system man has ever come up with. But to argue that capital markets are nothing more than siphons from the poor to the rich is to throw the baby out with the bath water.

• #### Re:Well at least... (Score:4, Insightful)

on Thursday May 27, 2010 @03:45AM (#32359014) Homepage Journal

Efficient allocation of capital is extremely useful. It enables all kinds of progressive development that would never occur otherwise and stock markets (and derivative markets) are the best way humanity has come up with to do it.

Stock markets for efficient allocation of capital, sure. Derivative markets, that's questionable, and in some cases downright laughable.

• #### Re:Well at least... (Score:4, Informative)

on Thursday May 27, 2010 @04:23AM (#32359184)

Stock markets for efficient allocation of capital, sure. Derivative markets, that's questionable, and in some cases downright laughable.

There are many different kinds of derivatives. Some of them are very useful. For example, futures [wikipedia.org] are very useful in farming where it gives relatively small producers a way to insure themselves agains e.g. bad weather.

That said, contracts that would now be called futures played a big part in the tulip market crash in 1637. But they needn't be bad, just because they can be abused

• #### The markets need to be forcibly civilized. (Score:5, Interesting)

on Thursday May 27, 2010 @03:13AM (#32358840)

Margaret Atwood once described civilization as the judicious trading of "freedoms to" for "freedom from". e.g. You trade the freedom to murder anyone you like for freedom from being murdered yourself. While a rather distressingly large percentage of Americans would scream "COMMIE PINKO!!!" at me for daring to suggest this, I feel that the stock markets could stand to be civilized a tad.

What is the purpose of the stock markets? Are they meant to be a video game played by A.I.'s for big cash prizes, or a way of facilitating investment and trade? It's time to find ways of restricting high frequency traders. While cumbersome regulations are one option, perhaps a per-trade tax or user-fee would be better. A tiny one, percentage wise, that will only have a significant impact on high frequency traders. Cuts to other taxes could be made to offset them for average frequency traders and perhaps even benefit low frequency traders.

There are, naturally, many other ways to approach this. All it takes is resolve and, in the U.S. at least, thick skin.

• #### Re: (Score:3, Funny)

What is the purpose of the stock markets? Are they meant to be a video game played by A.I.'s for big cash prizes, or a way of facilitating investment and trade?

Well, everybody knows that the botters and the Chinese are the richest players, next of course to the American folks that exploit them ;-)

• #### Re:Well at least... (Score:5, Interesting)

on Thursday May 27, 2010 @03:36AM (#32358980)

I subscribe that and add that the stock value concept is indeed useful but has been twisted beyond recognition. If I try to think about it with a clean sheet, I can't find a real reason why a company that manufactures screws is worth 10% more at noon than at 9 am and then 10% less at market close.

The company in my example behaves like most companies. They are going to open the next day and sell a bit more or a bit less, manufacture about the foreseen number of screws, some employees are going to get hired, others fired, others retire... Yet the swing in value of the whole company is based around news and rumours. Traders will "discount" this or that news on stock price of our happy screw manufacturer without even bothering about the steel stock or last month's sales. Some will buy stock and make a profit by noon if they are lucky, or loss at close if unlucky.

Now, what does all this have to do with manufacturing screws? Isn't there much more in common with Casino Royale than with industry and people building things and making a living out of creating something of value?

I attended a conference two years ago where an accountant explained that the concept of stock worth is fatally wounded. His theory, which I also agree wholeheartedly, is that stock should benefit the stockholder with dividends, i.e., with the net value generated by the company's activity. Not by the increase in the value of stock itself in the short term. Now there is a place for investors, he also said, who invest in stock and sell the stock. But that kind of operations ought to be separated by months or years, when actually the stock reflects the increase in the value of the company. Not by minutes, when the increase in value is nothing more than a throw of dice, even if you attach fancy and serious names to it.

• #### Re: (Score:3, Insightful)

The reason price fluctuates throughout the day is not internal to the company, but external. The price at any moment is fixed by supply and demand, and the demand for a particular stock is driven by any number of things: commodities prices, a presidential election in Brazil, long term weather forecasts, portfolio rebalancing, performance of a related stock, etc. All of these things take place within a network, where A affects B affects C affects D affects A.
• #### Re:Well at least... (Score:4, Interesting)

<[moc.liamg] [ta] [retawriaf]> on Thursday May 27, 2010 @11:09AM (#32362428) Homepage

The reason price fluctuates throughout the day is not internal to the company, but external.

That's pretty much his point - which seems to have gone whooshing right over your head. The value of a stock is (theoretically) tied directly to the value of a company, yet the price varies even when the value doesn't - and he doesn't see why that should be. I tend to agree with him, the stock market has increasingly become an abstract game unrelated to the underlying real world it's (theoretically) based on.

One result is that we take the market to be something it isn't - an accurate reflection of the underlying structure, despite the fact that the two increasingly bear no relationship to each other.

The other (and more dire) result is that we increasingly hold CEO's responsible for matters they have no control over - which leads to them indulging in all manner of what are regarded as reprehensible activities in a vain attempt to raise the value to meet the price. (The whole 'nothing but next quarters bottom line' mentality so often derided.) This also happens at the other extreme, if for some reason everyone decided GE was worth (priced on the market) 30% less at the close of trading today than at the start - the CEO of GE would be held responsible even if absolutely nothing had changed regarding the value of the company.

• #### Re: (Score:3, Funny)

If we can simply survive another decade the bullshit will reach critical mass, and gravitationally collapse! Then all we have to do is feed lawyers, politicians, and banker into it with sufficient angular momentum, and we should have a nearly infinite source of energy.

• #### Re:Well at least... (Score:5, Insightful)

on Thursday May 27, 2010 @04:14AM (#32359144)
I hesitate to say the entire stock market in general because at its core there is something useful

The "fix" is to have trades once every minute, and no more than that. Trades are executed to the number of "requests" times 90% (if there are 100 sell requests and 200 by requests, the lowest number of 100 is taken, multiply by .9 and so there will be 90 trades that minute). The sell and buy orders are randomly selected and then processed. Those passed over will be at the top of the queue for the next minute. I'm sure it would take some serious refining, but the idea is to completely eliminate microsecond fluctuations, eliminate priority trades, and make it "fair" for all. Either that, or make the market completely open where anyone can log on from anywhere and do a trade as if they are a broker. That would introduce many more problems than just batches and delays with limited processing, but it would fix many of the problems we have now.

But, anyway it goes, there needs to be a complete re-write of the stock market. It's been perverted from the paper trading to a good-ol-boys network of computers with systemic abuses aimed at hurting people trying to use the system in good faith. As it sits now, abolishing the stock market and having companies sell their own stock in paper in person at their corporate headquarters would be a massive improvement. Sadly.
• #### Re: (Score:3, Insightful)

Do you honestly believe there were no systemic abuses when it was all paper? That just seems so incredibly naive.

• #### Re: (Score:3, Insightful)

Why should they be delayed only a minute, why not a day? If they are a true stockholder, a day to wait is nothing. It is only people who are trying to skim money off transactions between people who are cannot wait. By comparison, stock owners hold most of the value in a company and we should be paying attention to their interests. Instead we have bent over and allowed faster traders to rule the roost against the best interests of everyone.

• #### Re: (Score:3, Interesting)

Indeed.

I don't like that plan because it still allows casino-like behavior, though, and it introduces even more randomness, of which there will invariably be complaints about.

I often say make people wait a month, although I've always conceived that as a delay from original purchase.

The GP's idea of on-the-minute trades, and your idea of delaying it longer, has merit though.

But I have a better idea. Let's leave things as they are, where people can buy and sell as fast as they want...but during each week,

• #### Re:Well at least... (Score:4, Informative)

<<kevstev> <at> <gmail.com>> on Thursday May 27, 2010 @10:43AM (#32362058)

But, anyway it goes, there needs to be a complete re-write of the stock market. It's been perverted from the paper trading to a good-ol-boys network of computers with systemic abuses aimed at hurting people trying to use the system in good faith. As it sits now, abolishing the stock market and having companies sell their own stock in paper in person at their corporate headquarters would be a massive improvement. Sadly.

The high frequency guys are not a good ole boys network. In fact, they are highly secretive, and since that piece of the industry is fairly small, they do tend to know each other from previous jobs, but this isn't an industry that is holding conferences and going out to steakhouses on expense accounts with each other. I work in the area, and I can tell you that many of these firms don't have websites, don't advertise where their office is, and won't even tell you what they are doing, even in late stage interviews.

• #### Re: (Score:3, Interesting)

I am wondering whether this story is some kind of practical joke.

Given that most of what passes for mathematical logic is pretty much a joke, and mathematical logicians are for the most part far more logician than mathematician, and therefore some of the stupidest people in math, that's my read as well.

Pretty much every logician I've ever dealt with has thought that Leibniz's Law is not only reasonable, but true, whereas we've known it to be emprically false for nearly a century. But logics that violate it are considered cutting edge, and are mostly toy models.

On the ot

• #### It can't get much worse... (Score:2)

At least for us low-lives; my hypothecary credit depends on a fixated repayments carrier, and my interest is down and (almost) out.

Now I just wish the credit would go away and leave me alone. :P
• #### If HFT wasn't bad enough (Score:2)

It's like solving a problem by making it worse.

• #### Re: (Score:3, Funny)

It's like solving a problem by making it worse.

The technical term is "Wallstreeting".

As in "Hey did you read about Tiger Woods Wallstreeting his marriage the other day?" or "Damn! I'm Wallstreeted".

• #### has anyone taken into account (Score:5, Interesting)

on Thursday May 27, 2010 @02:07AM (#32358430) Homepage
many stocks are valued entirely on speculation? how does one apply logic to that? what about crap like derivatives trading? effectively a "dont ask, wont tell" sort of thing based entirely on what you "think" the value of something that has no value might become?
• #### Interpreted another way. (Score:2)

Seems to me they need a few good engineers to boil down the theoretics into something smooth and workable. This talk of switching models should be run in tandem algorithms to help tune up the main trusted one in use and to test every concept under the sun. At least thats how I would work it. If I were King. That gives me and idea...

Gratuitous add: Vote for King elect Dilvish - he will ordinize your automated ruin, building more jobs.

• #### Carpenters on the Titanic (Score:2)

Its worth a try, get out what you can while the machine is still been fed.
• #### Lies, Damn Lies and Theft! (Score:5, Interesting)

on Thursday May 27, 2010 @02:17AM (#32358496)
Complexity in these algorithms is only to hide the fact that the are FRONT RUNNING trades, they have servers that are directly next to the ones performing normal trades and using the speed that affords they put themselves between buyers and sellers. Goldman Sachs steals 100 million USD every day. To hide this theft they claim sophistication. Same story with derivatives, they are FRAUD. to hide the fraud they are made 'complex' using the work of so called Quants. It is thieving and it is nonsense.
• #### Re:Lies, Damn Lies and Theft! (Score:5, Insightful)

by Anonymous Coward on Thursday May 27, 2010 @02:37AM (#32358600)

The same banks that perform HFT also act as brokers. They know where everybody's stop losses are. They can run your stops and cause you to sell, while triggering other people to sell the market short, then run the market back up and cause the shorts to cover, and cause you to buy again so you don't miss out. Rinse and repeat.

• #### Re:Lies, Damn Lies and Theft! (Score:4, Insightful)

on Thursday May 27, 2010 @10:23AM (#32361768)
I worked at one of the banks being lambasted here in a group that I left, within a year my peeps advised me that the group disappeared OVERNIGHT with no explanation. They pay big money to make the SEC an empty shell of what it's supposed to be doing (policing them). We need a big legal fence put up to keep these sharks away from "cash in a barrel" situations like being brokers and traders for the same products, and we need to vet any and all new products that hit the marketplace. Do we not remember the $4/gallon gas situation, an overnight doubling in price caused by pure speculation when we allowed oil companies to act as their own brokers? Wall Street banks bought oil companies and started Milken the public like crazy (pun unavoidable). Trusting Wall Street to not grab any and all cash it can any way it can is like trusting a starving 20 foot python to babysit your infant. • #### Re:Lies, Damn Lies and Theft! (Score:4, Insightful) on Thursday May 27, 2010 @05:08AM (#32359376) Isn't this some kind of insider trading? They are trading based on information before it is made public, but in the milliseconds range. The problem is the big players are given huge advantages, like free money from the Fed, while the rest of us suffer from the resulting inflation. Goldman Sachs and JP Morgan are way too powerful, they are powerful enough to destroy a currency, like the Euro. • #### Re:Lies, Damn Lies and Theft! (Score:5, Interesting) on Thursday May 27, 2010 @06:10AM (#32359678) Micro-timing has no purpose other than to take advantage of ordinary investors who don't have access to this information. It basically amounts to a kind of insider trading. I would propose that ultra-short-term profits should be taxed at a punitive rate, perhaps approaching 100%, to discourage this kind of cheating of ordinary traders. Already, short-term capital gains are taxed at a different rate than long-term gains, in order to encourage long-term investment. Micro-timing is short-term trading taken to an extreme, so why not tax it accordingly? There is no valid reason why anyone should trade a stock multiple times per day - either it is pure gambling or there is some inside information behind it. Companies report their revenues and profits on a quarterly basis, not microsecond by microsecond. (Of course news stories may affect a stock, but even news stories rarely change more than once per day.) • #### This is food for Slashdot readers (Score:2) This news is food for Slashdot readers! It is my guess that there are more logicians (albeit self taught...) here than at most forums. But, what do I know. • #### oh goodie, business majors now in charge of code (Score:4, Insightful) on Thursday May 27, 2010 @02:35AM (#32358594) Homepage This will end poorly (again). It's basically a bunch of business majors managing a poorly understood programming effort, but instead of running things in a development environment they're running it on massive computers and the variables are REAL MONEY. Hiring mathematicians to write their algorithms won't likely help, they will eventually do something stupid, divide by 0, have unbounded growth, or otherwise watch their program crash along with the market. I'm cashing out everything, buying canned food and ammo and moving to a farm. • #### Re: (Score:2) I'm cashing out everything, buying canned food and ammo and moving to a farm. Where you will grow your own canned food and breed more ammo? Maybe you should take a few books as well, or better, read them before you move. • #### Re:oh goodie, business majors now in charge of cod (Score:4, Funny) <nacturation@gmail3.1415926.com minus pi> on Thursday May 27, 2010 @03:11AM (#32358832) Journal Maybe you should take a few books as well, or better, read them before you move. Also, be careful with your eyeglasses. If you dropped them, it just wouldn't be fair when you finally had time enough to read. • #### Bugs? (Score:2) Well, by now we should all know that the only way to make money on the stock market is by having some amount of insider information. Everything else you can more or less forget about. ...unless, of course, you hook up a couple of billion to a computer program and really, really hope that it does not contain any bugs whatsoever... • #### Funny thing about these trades (Score:5, Informative) on Thursday May 27, 2010 @02:56AM (#32358742) If you watch a stock in real-time you can predict where it will move quite easily. Thanks to automated trading, you can just draw a line of best fit based on the stock's current direction and also determine a high and low amount of noise to where it will bounce around. Computer's have no idea how much a stock is worth, they just simply use these values to determine when to make a transaction and actually help self-perpetuate everything by being the major driving force behind a stock's movement. Changes in direction are caused by actual human intervention, such as a large buy order spaced out over several minutes. For example, if an algorithm says "the high point is at$10.50", then when the stock gets that high it will sell the hell out of it until it bumps the price lower. Then when it says "the low point is \$10.42", it buys the hell out of it again. However, if it notices an overall downward direction, it will reshift what it's idea of a high point and low point are as time progresses, helping to self-perpetuate that downward direction since it is probably one of many automated systems that work similarly and overwhelm actual human interaction with the stock price.

It's not necessarily a bad thing, if you realize this, then you can easily predict a stock's movement and make some easy income; knowing exactly where the low and high values are going to be at any point in time. Again, the only thing that causes a stock to change its movement is actual human interaction that results in the trend being broken.
• #### Re: (Score:3, Insightful)

then you can easily predict a stock's movement and make some easy income;

If it's that easy why aren't you a billionare? (or are you?)

• #### Love it! (Score:3, Insightful)

on Thursday May 27, 2010 @07:52AM (#32360224)
Society is so fucked up that people are being paid 7 figure salaries to develop smarter gambling algorithms, that produce no real value, when they could help solving science hardest problems. Specially people with this knowledge.

on Thursday May 27, 2010 @08:59AM (#32360828)
The high frequency traders of today basically fall into two categories:
• Those running algorithms that make use of various market anomalies to siphon money from the markets.
• Those doing the latter-day equivalent of the role that used to be played by a market maker.

The siphoners add no value to the market, in fact exactly the opposite. They take advantage of market anomalies that can only be detected by ultra-high speed trading to remove money from the system. A simple example of a market anomalies would be taking advantage of the distributed market place whereby you can trade the same stock on many exchanges and none of them perform at the same speed. So you see which way the stock is moving on a fast exchange and then take advantage of that on a slow exchange before it has had the time it needs to react. Just like betting on a horse race after it has finished because you know the result before the bookmaker is aware the race is over.

The other high frequency shops are adding value to the markets in the same way a market maker used to. They serve a function of keeping the market liquid. This means that a buyer can always guarantee to buy a stock or a seller can always guarantee to sell a stock because the market maker keeps some inventory to bridge any transitory lull when there are more buyers than sellers (or vice-versa) and yet the price is deemed to be correct. They are the brokers who reduce fluctuations in the market and offer a valuable service, even to a joe who wants to sell his 50 shares in IBM.

Just like anything, there are good guys and bad guys. The tool is high frequency trading. It can be used for good or bad, depending on who is using it and what they are using it for.

Disclaimer: I don't do any high frequency trading.

• #### An unemployment person isn't an opportunity? (Score:5, Insightful)

on Thursday May 27, 2010 @09:49AM (#32361364) Journal

4 seconds is too long to leave an opportunity of more efficient reallocation of capital unexploited, yet there are people who have been unemployed for over a year? This implies that we've created an economic system where it is a more efficient use of resources to rearranging ownership of theoretical constructs than finding a place in society for people who have none? Doesn't it seem that we've sort of lost sight of what the purpose of an economy is?

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