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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

on Thursday May 27, 2010 @01:56AM (#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:Well at least... (Score:2, Informative)

on Thursday May 27, 2010 @03:21AM (#32359170)

>That doesn't mean "you need less people" - it means the same person can crank out more stuff.

Unfortunately, if the demand for said "stuff" is finite, and each person can crank out more, then "you need less people" is *exactly* what it means.

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

on Thursday May 27, 2010 @03:23AM (#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

• Re:And the moral is: (Score:3, Informative)

on Thursday May 27, 2010 @03:39AM (#32359230) Homepage Journal

Gold 'prices' do not deflate. Gold is the actual measure of value, like 1 gram = 1 unit of value. Gold can be accepted as the axis at 0,0,0 and everything else rotates around that axis.

Gold and Dow prices will meet, then you will know that buying it is probably not better than buying Dow. However before that happens, Gold is still a good purchase. It's relative price in dollars is irrelevant as long as Dow's dollar price is much higher, only relative prices matter.

• Re:The markets need to be forcibly civilized. (Score:4, Informative)

on Thursday May 27, 2010 @04:18AM (#32359416) Journal

(it's probably a simplified description[1])

The fact that the casino allows such stuff tells me that they and their friends are crooked. I don't really see how allowing this provides any advantage to the market or makes it more efficient.

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

on Thursday May 27, 2010 @08:57AM (#32361458) Homepage Journal

Your fatal misunderstanding of minimum wages is where your model fails. Legislating minimum wages is designed to reduce disparity between bottom-rung wage earners and the top rungs of the ladder. When minimum wages stagnate, the top incomes increase even more dramatically. Also, empirical evidence is against you, with higher minimum wages actually triggering even more employment since (among other reasons) the lower incomes don't save, they spend.

Oh, and please avoid the canard about the Government killing off businesses. Wal Mart, Best Buy, Clear Channel and their brethren have killed off far more small businesses than any government program has. In fact, government often keeps smaller busiesses alive with construction projects... or did you think the road crew companies work out of the goodness of their hearts?

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

<[kevstev] [at] [gmail.com]> on Thursday May 27, 2010 @09:43AM (#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.

Your last comment about companies selling stock directly is pretty childish. From the outside it may look like an exchange is just a chaotic casino with everyone screaming at each other for no good reason. But its not, most of the people there are serving a role to the exchange and have obligations in exchange for the privilege of being there. For instanc

• Re:Stock market serves two purposes (Score:3, Informative)

on Thursday May 27, 2010 @11:59AM (#32364176) Journal

Companies can issue new stock. When a company has its initial public offering (IPO), it generates some arbitrary number of shares, and offers them to the market at a certain price. People buy them, and the company gets the money, which is the number of shares multiplied by the initial price. Typically, some number of shares are allocated to the founders, or other people who held shares when it was a private (not publicly traded) company. These people make money if the price goes up.

Companies can also issue stock after the IPO. If a company needs to raise capital, it has two choices. It can go to a bank and ask for a loan. This will then need repaying at some interest rate. If the expected return is higher than the interest rate, then this might be a good idea. Alternatively, it can issue some new stock and offer it to the market. If the market buys it, then the company gets more money.

Issuing new stock has the same effect as printing new money; it causes something like inflation. If a company issues more stock, then the value of the existing stock goes down - the total value of the company remains constant[1]. If a company keeps issuing new stock, then there will be the perception that the company's stock value will decrease so no one will buy any when it's offered.

If the new stock is offered at the correct price, then it won't have any effect on the stock price, because the increase in money in the company's bank account will precisely offset the decrease in stock value from the dilution.

Ideally, the company will then use this new money to expand, and the value of the shares will increase. Effectively, the new shares are buying the new part of the business. If the share price goes up, then the company can later issue more stock and raise more capital.

[1] This is a massive oversimplification, and doesn't take into account the secondary feedback. For a full explanation, you need a much more complex model. For example, if the company is issuing new stock to expand, then the market might take the planned expansion into account and the stock price may go up.

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