How To Profit From Planetary-Scale Computing 178
An anonymous reader writes "MIT physicist Alex Wissner-Gross and mathematician Cameron Freer have devised a technique for exploiting geographic location in high-frequency trading, reports FastCompany. From the article: 'We view this work as one of the first serious, credible justifications for covering the planet's surface with computers. [...] We've perhaps identified a new type of natural resources that sovereignties might take advantage of.' Physicist and hedge-fund manager Jean-Philippe Bouchaud says, 'This shows that the technological arms race to extract every penny from high-frequency mechanical arbitrage will soon reach its ultimate limits.'"
FIRST!!!!! (Score:3, Funny)
Due to geographical locality!!!!!
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Limits? (Score:2)
'This shows that the technological arms race to extract every penny from high-frequency mechanical arbitrage will soon reach its ultimate limits.'
Limits? Only if we stack them one computer high. If we start piling them up - especially those little mac Mini's - we'll exceed these perceived limits in no time.
Now if you'll excuse me I have to go invest in companies that sell outdoor extension cords for electronic trading workstations.
Re:Limits? (Score:5, Interesting)
These guys go too far. One of these days we'll have botnets doing trading with funds from sniffed credit/debit info. They could even pay back what they took... then profits get dumped anonymously to campaign funds. Botnets do get free-speech rights don't they?? (they may have an opinion on capital gains taxes, or want to own broadcast stations)
If it makes anyone feel better, call that pile of computers a bank and lend it some "government" money
Trading in those strange mortgage death futures is too risky, botnet futures are the new thing.
Cylons and Skynet Terminators will have their own electronic religion making them tax exempt.
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These guys go too far. One of these days we'll have botnets doing trading with funds from sniffed credit/debit info. They could even pay back what they took... then profits get dumped anonymously to campaign funds. Botnets do get free-speech rights don't they?? (they may have an opinion on capital gains taxes, or want to own broadcast stations)
If it makes anyone feel better, call that pile of computers a bank and lend it some "government" money
Trading in those strange mortgage death futures is too risky, botnet futures are the new thing.
Cylons and Skynet Terminators will have their own electronic religion making them tax exempt.
That people are doing this is a sign of a broken fiancial system (as if fiat currency based on debt didn't already establish that). They are not producing anything. They are buying low and selling high units of wealth that others have produced. They are not creating wealth, they are redistributing it.
This is the kind of shit that has madmen and economists thinking you can forever grow an economy in a finite world with finite resources. It's also the kind of shit that encourages people to view stocks
Re:Limits? (Score:4, Insightful)
You know how you can avoid ever having a huge national housing market crash? Easy. Limit the purchasing of non-commercial residential homes to people who actually intend to live in them. Do that and DON'T make "securities" out of them. Then you can't have a bubble in the first place -- no bubble, no burst.
What do you do with all the people renting investment properties now because they are not in a position to buy a home? If it wasn't for people investing in property there would be no rental market. I agree with you in principle but adjusting one thing has an effect on others. Solving the next problem then becomes the issue.
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Without an arbitrary investment in rental properties housing prices would fall. Supply and demand. It's a fallacy to think that if you flood the market with homes prices will drop never mind the current bust scenario. It is the land that has value and by turning land into investment properties you make land more scarce for those who would buy a home to live in. This drives up prices for the land itself. Without rental properties the developers would be out as they need those investors to buy up the surplus
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Without the massive inflation of the last decade, how many of us do you think would have bothered with renting?
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No, what would happen is the lender would sell off that loan into a CMBS ( Commerical Mortgage Back Security). That CMBS would still be tranched out based on the risks of the asset pool ( it's not divided into shares ). And those tranches would be
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No, what would happen is the lender would sell off that loan into a CMBS ( Commerical Mortgage Back Security). That CMBS would still be tranched out based on the risks of the asset pool ( it's not divided into shares ). And those tranches would be bought by any number of clients.
You seem to think the concept of Asset Backed Securities lead to the housing collapse. What lead to the housing collapse was simply banks giving loans they shouldn't have. Requiring 40% cash down on housing loans would have been another easy way to avoid all the problems.
That's true. But there's more to it than that. The reason they made these risky loans was that they didn't have any incentive to properly vet the applications and in fact they had an incentive to make as many loans as possible. For each loan they made, they could sell it into a MBS and also receive a piece of the monthly payments to administer the mortgage.
I'm not saying that you shouldn't blame the lenders (or some of the borrowers), but in general, I think you should expect that if someone can make money
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Umm, you can. Sure, there are far too many people getting paid well for completely non-productive work, but if I spend two weeks creating a compiler that makes me and my team twice as efficient I have not detracted from anyone else, but have grown the productive capacity of the world by a small amount. Economics is not a zero sum game.
Additionally, those "finite resources
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The are producing something, liquidity. Liquidity has value. It's like saying cab drivers don't do "real" work, they just redistribute people who do.
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The are producing something, liquidity. Liquidity has value. It's like saying cab drivers don't do "real" work, they just redistribute people who do.
So if I steal the mail from several Realtors' mailboxes, hack their emails and bug their phones so I can undercut bids and resell at a profit, I'm not doing anything wrong. I'm creating liquidity! What a great business model.
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They aren't redistributing wealth, they are stealing a few pennies from every trade. Which might create a market opening for a stock exchange with synchronized trading - that is, a stock exchange where all trades are processed once per minute at the same time, making it impossible to do "high-frequency" parasiting.
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They are not creating wealth, they are redistributing it.
Redistribution is such a nice word for theft. Ah, who cares, it's getting redistributed to the rich, and that's OK. We'd better not see a botnet redistributing wealth to the poor. That would be communism.
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Quantum entanglement?
can't send information unfortunately
Wow! (Score:4, Funny)
So, just when you thought HFT couldn't get any worse of a rep, now its going to turn our world into a dystopian matrix/terminator/cleopatra2525 place.
At least there's a chance of hot babes in leather and armored bikinis though! That's gotta count for something.
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there's a chance of hot babes in leather and armored bikinis
Not unless they hire an eccentric Hollywood type for a manager. TFA didn't mention such thing.
Seems completely stupid. (Score:2, Insightful)
This doesn't create any value for anyone.
Another way to look at this: (Score:5, Interesting)
And to what extent is this latest proposal, while apparently to do with the distance between exchanges, also actually about putting resources into jurisdictions which have perhaps more elastic definitions of what constitutes legal trading?
On previous form, this will probably get moderated troll or flamebait. But it's actually two questions that I have never had adequately answered, except for the usual "you wouldn't understand" from the traders. If I, a graduate systems developer with further education in economics, can't understand them, what's the betting that our elected representatives can?
Re:Another way to look at this: (Score:4, Insightful)
what's the betting that our elected representatives can?
Don't worry, they have lobbyists to help them.
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Once long ago there was "a href="http://dssresources.com/history/sshistory.html"> vis-a-calc. Who would of thought today we'd be in the mess we are in.
Once long ago there was real and imminent fear that mutual self destruction would occur, and almost did, because the Nuclear C&C systems act out commands fast. Humans were inserted to cool things off.
Wow, now the Wall Street(s) have wired the financial & economic system together with less safeguards of global meltdown when the spreadsheets (now h
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And to what extent is this latest proposal, while apparently to do with the distance between exchanges, also actually about putting resources into jurisdictions which have perhaps more elastic definitions of what constitutes legal trading?
Lolwut? Did you RTFA?
I'm making an educated guess, but I'd say the answer to your question is "zero extent."
If you want to trade on [exchange] you have to play by [exchange]'s rules.
Basing yourself in another jurisdiction will not keep [exchange] from locking you out for bad behavior.
If I, a graduate systems developer with further education in economics, can't understand them, what's the betting that our elected representatives can?
Knowing how stock markets physically work isn't necessarily the kind of thing they teach you in economics.
Maybe you should keep furthering your education and audit some relevant business classes.
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The Scandinavian case he mentioned is when the small bunch beat the robo traders, they go to jail.
When the robo traders screw up big time, the stock exchanges roll back their losses.
http://www.bloomberg.com/news/2010-05-06/nasdaq-to-cancel-trades-of-stocks-moving-more-than-60-in-market-plunge.html [bloomberg.com]
They claim it was "someone hits the wrong button", but I think most slashdotters can guess what really happened :). Bug in computer programs - failure to handle corner cases or exceptions.
I understand a rollback if
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Think of the economy as a Magic the Gathering -tournament. With money, you can buy cards which bend the rules in various ways, which allows you to win more often, which gets you more cards and so on.
I wonder if Stock the Acquisition would become a new hit?
Cheat? Heads they win, tails you lose. What's unfair about that?
Increases liquidity at what cost? (Score:5, Interesting)
Some of the more involved trading strategies exploit price fluctuations between separate exchanges: traders construct complex automated financial instruments designed to seek out and exploit price differences between a range of different shares or commodities on these exchanges. The uncertainty of price movements means that individual transactions cannot guarantee a profit, but firms can make steady profits by making millions of transactions each day.
Maybe we should be exploring cheaper ways to create market liquidity without allowing firms to siphon off profits through pure arbitrage.
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Re:Increases liquidity at what cost? (Score:5, Interesting)
I don't get why we can't even just have one-day ticks. Every day an order book accumulates, and at 5PM the exchange executes everything at the price that generates the most volume. Priority is given to sellers who offer the lowest price and buyers who offer the highest price. Within a price orders are executed in random order.
The book is kept secret until after all trades are settled. So, you can't see if the price is trending towards a price you like and then put in a bunch of sells for 0.01 to get ahead of the line - if you put in that price you might just find your trades executing at that price.
With such a system ordinary investors can compete with investing houses. Bad news means that everybody loses out at the same time, and the insiders don't have nearly the same advantage (getting news 15 minutes early can make a HUGE difference today). You could even make the trade settlement time midnight or something like that so that it is well after the business day so that last-minute news has more time to get around.
You wouldn't need so many market-makers and other forms of arbitrage since the total daily volume of a stock will tend to guarantee that there will always be buyers and sellers. Market makers could still fill a niche in low-volume stocks making sure that there are always buy and sell orders in the book.
You could even go a step further and execute trades once per week/month/etc - that would start to make investing more of a long-term thing and less of exploiting market psychology..
Re:Increases liquidity at what cost? (Score:4, Insightful)
"I don't get why we can't even just have one-day ticks."
I used to think the same, but now I feel some things are still untied.
"Every day an order book accumulates, and at 5PM the exchange executes everything at the price that generates the most volume."
It still would make it worth waiting to 4PM to order in case there are interesting late news. And then waiting till 4:50, 4:59, 4:59:59...
"Within a price orders are executed in random order."
Then I'd make sure not to issue a 10 million dollars order but 10 million orders for one dollar (or a cent, or a millicent or whatever is the lowest order).
"the insiders don't have nearly the same advantage (getting news 15 minutes early can make a HUGE difference today)"
But insiders still could take advantage of news produced at 4:59 that, depending on the system other couldn't take advantage of.
"You could even make the trade settlement time midnight or something like that so that it is well after the business day so that last-minute news has more time to get around."
You know the world is round and economy is global, don't you?
Re:Increases liquidity at what cost? (Score:4, Interesting)
All of the potential issues you have raised could be fixed using just two minor tweaks to the grandparent's suggestion:
- Trade every hour, on the hour (this is unaffected by timezones)
- Trade 24/7 (it's done by computers, after all, so it makes zero sense for an exchange to be "open" at only certain times of day)
- Every trade is logically split into some small unit (share, dollar, whatever), and randomized, or an algorithm is used that effectively trades simultaneously in a completely fair way.
Done.
Problem solved.
The current situation is not necessary and the alternative proposed by the gp has no real issues except that a bunch of HFT traders would lose their jobs. Boo-friggin-hoo.
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This is why I think 1 minute (or maybe as little as 1 second) would be a reasonable minimum trade interval. Kills the HFT hacking competition/arms race, still allows trades that are basically continuous as far as humans are concerned.
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You put your order in at 5pm. Now you get news at 5:01 that can change the price drastically. Oops, you can't trade yet you have to wait an entire day to say, close your position. There is also news that comes out at 6pm, but you still can't trade.
In that case the system is operating EXACTLY as I intend.
During that 24-hour period NOBODY can change their positions. During that 24-hour period everybody gets to stew on the news, and think about what the new valuation should be. You don't put in an order to s
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Adding a tick rate is so obviously the solution that the only reasonable explanation for it not being mandated already is corruption.
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The only people screaming about high-frequency trading are the human market makers who've been left in the dust by their silicon counterparts.
AKA "everyone but the biggest banks and trading firms" AKA "the people getting ripped off by HFT"
Very few can afford a crazy-fast semi-supercomputer physically located close to the stock exchange.
Re:Increases liquidity at what cost? (Score:4, Insightful)
How about this as a backup...
Investment doesn't, in and of itself, create wealth. Investment is putting money in the hands of people who CAN create wealth, but don't have enough money to do so on their own. The idea is that the investers should be rewarded for taking the financial gamble, and the people they invested in should be rewarded for having created something valuable.
High Frequency Trading screws them both.
High Frequency Trading is anathema to the very concept of investment - and the stock market.
We'd all be better off if the HFT people simply went to the races, instead.
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Investment is putting money in the hands of people who CAN create wealth, but don't have enough money to do so on their own.
Often it's little more complex: it is putting money in the hands of people who will give a little of that money to the people who do the actual work and/or own the resources needed to create that wealth and keep the rest for themselves.
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But that was really my point. If the goal is to create wealth, anything that "disrupts" the flow of money between the wealth creators and the investors is counter-productive. Any "inefficiency" in that flow impairs the creation of wealth.
Re:Increases liquidity at what cost? (Score:5, Interesting)
A) Require 1/2 hour averaging for all trades. This will stop most arbitraging on two accounts: 1) it stops exploiting split second inefficiencies that can only be spotted by computers, 2) creates doubt to which price one is actually paying.
B) Tax all automated computer trades at 1%. Takes the profit motive out of computerized trading.
C) Charge all revocations of unused (non-expired) puts and calls a flat fee. This is to prevent flooding the market with option trades that people have no expectation of completing.
D) Tax profits made by short term traders at a higher rate than long term holder. I propose having several rates for capital gains based on how long a person holds a stock. Example (illustrative only) Less than two weeks @ 50%, less than six months@35%, 1 year @ 33%, 5years @25%, 10 years @10%, greater than 10 years @0%.
The problem isn't liquidity. Never was. Market is plenty liquid at 1/2 hour intervals. Low volume stocks need lower liquidity than high volume stock. The problem is exploitation of timing at split second intervals which can only be accomplished by computers, and has no basis in fundamental market principles. The goal should be to limit trades to people who actually hold stocks as investments, not in people making money off market fluctuations.
Trading is competitive (Score:5, Insightful)
A) Require 1/2 hour averaging for all trades.
B) Tax all automated computer trades at 1%.
Result - trading moves to another exchange where this is not required. Your solutions depend on international cooperation between government and exchanges, all of which compete with each other. Good freaking luck getting policies like that instituted.
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SEC regulates the markets already.
If what you are saying is correct, you are saying that those regulations issued by law and the SEC are bogus and ineffective window dressing.
If that is the case, then we should remove all the restrictions and let it be a free for all.
However, if you're not right, then the SEC has all the power needed to carry market reforms I mentioned.
The question is, does SEC have power to enforce market rules and regulations or not? If not, then it would be much better to quit pretending
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There are two kinds of investors on an exchange, people with and without patience. The one with patience will put a buy/sell order at a price and waits for someone without patience to trade against it. A market maker will trade against both people and offer a better market for both.
I suggest you go play eve online for a while and see why market makers and arbitrators are so important.
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Actually not, as serious investors would avoid the robot dominated exchanges like hell.
No, they wouldn't. You use the exchange that the stocks you want to invest in are listed on. Companies usually choose to list themselves on exchanges that have high volumes in other companies like themselves, because otherwise they run the risk of having low volumes which decreases their ability to raise funds by selling their own stock. High volumes only happen on exchanges that hedge funds work on. Hedge funds are t
The utility of arbitrage (Score:3, Informative)
The thing is, arbitrage doesn't create liquidity, it simply capitalizes on the mistakes other people make.
Generally speaking arbitrage depends on the existence of liquidity (the ability to sell an asset without greatly moving the price) in order to work. It's impossible to capitalize on a "mis-priced" asset if there is no market for that asset. That doesn't mean however that arbitrage is without value. Price convergence [wikipedia.org] is a common result of arbitrage and it tends to reduce price discrimination.
In a certain sense, all business is an exercise in statistical arbitrage - exploiting the difference in prices betwe
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Nonsense. Businesses in your example introduce value, by taking care of shipping the
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Businesses in your example introduce value, by taking care of shipping the products to/from the place of production to the place of sale.
Businesses DO introduce value by by shipping products where they are needed. They are exploiting the difference is value between two markets by doing so. That is by definition arbitrage.
It's not statistical arbitrage at all, which alone creates no value, only number games.
Sure it is - you just have to think about it in a slightly larger context. Statistical arbitrage occurs whenever there is a mispricing of price relationships that are true in expectation. In other words, you produce a good or service and ship it to market because you have an expectation of exploiting a difference in pric
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I don't think arbitrage means what you think it means. Arbitrage occurs when a price difference leads to risk free profit at no cost, which is not what the businesses in your example do. There is essential risk in conducting their business (customers cannot be ordered to buy) and there is essential cost (shipping/wareh
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"That doesn't mean however that arbitrage is without value. Price convergence is a common result of arbitrage and it tends to reduce price discrimination."
That's common wisdom but all those things are only true when an implicit is acomplished: arbitrage should offer an intrinsic value in exchange for the benefits it pumps off the system, usually making ends meet that otherwise wouldn't have met.
The exemplary arbitrage system is the silk route: it takes something from where it is more abundant/less valued to
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In a certain sense, all business is an exercise in statistical arbitrage - exploiting the difference in prices between two or more markets. You buy goods where they are cheap (possibly assembling them) and sell them where they are dear.
You're confusing comparative advantage (and business in general) with arbitrage.
Arbitrage, statistical or otherwise, almost never involves taking delivery of goods.
Further, arbitrage rarely involves holding a position for more than a couple days.
The comparison you're trying to make isn't there.
Fundamentally, arbitrage is about taking advantage of imperfect communication in/across markets.
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You're confusing comparative advantage (and business in general) with arbitrage.
No I'm quite familiar with both and not confusing anything, but thanks for presuming slept through all the graduate finance courses I took and got my certification as an accountant out of a cracker jack box.
Comparative advantage has to do with profits derived from differing opportunity costs. What I'm talking about is that for anything to be sold at a profit, you have conditions where you can buy low and sell high. To do this you buy in one market and sell into another at a profit - basically arbitrage bu
...serious, credible justifications... (Score:2, Insightful)
I would say anyone knowledgeable and not directly benefiting from HFT would rather take this as a serious, credible justification to ban this tax on serious, honest investors.
But Wallstreet's buddies in Washington will make sure this won't happen until another flash crash takes the DOW pinning for the Fjords.
Hope you voted for change and hope, lulz.
Silly flat-earthers! (Score:5, Insightful)
You're thinking too two-dimensionally. Think carefully: what location minimizes the average distance to every spot on the Earth's surface? I'll tell you right now it's not in Siberia! But you should probably spend some extra money on the air conditioning system for your server farm if you want to set up shop there.
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Better brush up on Windows Server 2008 too, since that's probably all they're running down there.
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Think carefully
Your strategy is doomed! Surface light time from NY to London is 0.0186ms while it's 0.0212ms to the center of the Earth from either point. A tunnel bored directly between London and New York would be even faster and require less cooling. Only two points intersecting the center would be competitive with my Earth Chord Trading Tunnels!
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Ah, but if you want to trade with New York, London, *and* Shanghai, your NY-London chord doesn't look so good. In the limit that you want your trading center to simultaneously minimize the distance to *every* point on the Earth's surface, the center of the Earth is the way to go. ...still not sure why my OP got modded "insightful", I was shooting for "funny". But I'll take what I can get.
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A tunnel bored directly between London and New York would be even faster and require less cooling. Only two points intersecting the center would be competitive with my Earth Chord Trading Tunnels!
Your idea intrigues me and I would like to subscribe to your burrito delivery service [idlewords.com].
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Sir and/or madam, you just made my day.
Highly Amoral (Score:5, Interesting)
HFT is done by the greediest scum of the earth. It is an approach that is highly instable and can do tremendous damage. It is high time this practice is outlawed. Considering that fast stock trading does not produce anything, but only serves to shuffle money around, tolerating such a destabilization risk is completely unacceptable.
Personally, I would add a mandatory random delay in the 15-30 minute range to each stock transaction. Or maybe even a few hours. This would curb speculation, while at the same time beneficial effects, like a company getting money to invest from an IPO would still work.
Re:Highly Amoral (Score:5, Interesting)
If HFT were to be legislatively controlled, it seems to me the most obvious way to do it would be by modifying the long and short term capital gains taxes to create a progressive system: the longer you hold the asset before taking the capital gain, the less tax you pay. If you had to pay 99% tax on a gain resulting from possessing an asset for less than 1 minute things would be a lot different.
This is not to say that I favor that solution, it's just one that occurs to me. I think there's a solution that doesn't require the use of force. If I were the CEO of a publicly company, I would not want to be listed on an exchange that allows HFT. If I were an amateur investor in stocks, I would not want to invest in companies listed on an exchange that allows HFT. As a result, there's clearly a market for a 'natural' exchange as opposed to one that is 'on steroids'.
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Isn't the problem that it's played as a volume game? If they're only making 1c in the dollar back after tax, they're still making money on it - and should they turn a loss they'd instead have 99% of the risk subsidised by the taxpayer in the form of deductible capital losses. I'd be very surprised if any of the companies involved traded through just one tax file, so with the (in)appropriate book-keeping the net outcome of your system may just be to make it a tax dodge as well.
Well, I will give a tiny bit of credit (Score:3, Interesting)
It actually does produce something and that is a high deal of liquidity. Something that you have in the market right now that is nice is that you can buy or sell any stock any time you want. Because of all this day trading, HFT, there is always stock being shuffled around, and in rather substantial amounts, so you can always get in or out of a stock when you please. That is a benefit.
However it is not a benefit that is worth the instability HFT causes. We need to fix the system, either with a time based tax
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,br>Explain to me how it is immoral to trade frequently or infrequently What does HFT even mean ? What arbitrary frequency have you chosen to be the immoral one ?
Wont work in Dark Pools (Score:4, Interesting)
Accelerando (Score:3, Funny)
This shows that the technological arms race to extract every penny from high-frequency mechanical arbitrage will soon reach its ultimate limits.
Not yet, not until the Vile Offspring [wikipedia.org] are born, and consume their parents...
The last time a planetary scale computer was built (Score:2, Informative)
Time for a rant... (Score:3, Insightful)
God dammit! I'm pissed off again.. I'm pissed off because everyone wants to 'study' HFT or 'discuss' HFT.. and no one seems to understand the big picture! HFT is ruining the fucking stock market. HFT is destroying the opportunities for the middle class.. destroying their retirements.. and ruining the confidence in the market. HFT is making the criminally rich even richer! Everyone likes to talk about HFT and bitch about it - and the people that benefit most from total stupidity that is HFT are the ones that get to enact the policy through lobbying and backroom revolving-door politics.
HFT does one thing... It exploits the gaps in bid and ask price during execution to make money off the actual market orders. But, if the market is no longer correctly offering 'market' prices because of instantly-changing outside influences, how the fuck is it still a market and not a scam? The only people saying HFT is a good thing are the people benefiting from HFT.
There's tons of easy ways to fix the problems created by HFT exploiting.. Here's a few ideas:
1. random delay.. Issue an 'instantaneous' delay in ALL trade execution from all firms. In essence.. make the delay long enough to completely ruin HFT but short enough that no human executing a trade would ever be affected.
2. trading tax.. Tax all trades by a negligible amount. Firms that actually invest will not be affected.
IMO, this article is yet another example of solutions for a problem by exacerbating the problem.. So, fuck you, MIT physicist Alex Wissner-Gross and mathematician Cameron Freer.
Re:Time for a rant... (Score:5, Informative)
Hear hear.
I pulled out 100K out of the markets because I can't just put up with HFT anymore. So Buy and Hold was a bad idea. Now investing is a bad idea.
You can't put in a stop-loss order anymore on anything you own because every day you have to worry if a mini-flash crash hit one of your issues and triggered it, then the SX won't unwind YOUR trade but they are glad to unwind the fuck-up trades the HFT guys caused.
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+1
After interviewing with an HFT firm in Chicago and understanding how their business worked (I was to work with the CTO to help squeeze every last microsecond out of their trading infrastructure colo'd at markets around the world), I cashed my entire 401k/IRAs out of the stock market. I might as well go to a casino.
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Lots of us just are refusing to play that game at this point.
It's sad, when I can go on a microfinance site, give money to some random, nearly unverified person across the internet, and not only have better confidence that my money is being well-kept, taken care of and safe, but also providing a better return than putting that money in
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I presume you're talking about Kiva or something very similar. If so, I agree completely. I've lent my initial stake about 10 times, and each time it's an actual investment. I picked companies that I though could use effectively use the money, sent them the cash, then watched as they repaid it. It's a gratifying feeling, I tell you.
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"2. trading tax.. Tax all trades by a negligible amount. Firms that actually invest will not be affected."
I would agree but, I presume you are advocating such regulation in the U.S. Unless other countries share the same view and tax the heck out of HFTs the problem is not going to go away. I could see the EU and Canada joining in, but there are many other questionable countries that probably won't participate. In fact some might even *want* to participate if only to effect the American exchanges.
I think a c
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Unless other countries share the same view and tax the heck out of HFTs the problem is not going to go away. I could see the EU and Canada joining in, but there are many other questionable countries that probably won't participate.
Driving the assholes to another exchange isn't a bug, it's a feature. Having the only exchange that everyone can trust is a pretty good position to be in.
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I happen to agree with both sentiments, but just thought I'd point that out
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I believe that Ron Paul's belief would be the Libertarian idea that preservation of free markets should be enforced. HFT only inhibits the free market.. But even further, why does it even need to be government that makes the changes I suggested? Any of the current exchanges are free to make those changes..
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I am not talking about automated trading - I am talking specifically about HFT. A large pension fund manager will be completely unaffected by a random 20 - 100 ms delay while a HFT system would be fucked over.
Second.. trading tax..I would have to believe that a market that imposed the tax would have the ability to enforce it. Otherwise, the entire market system is incompetent.
I fail? {Insert random insult}
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Wrong.. machines make decisions based on previous decisions made by humans at the speed limited only by the data transmission. By 'random delay' I am talking about simply a 20-100 ms (that can be tuned accordingly) delay that will simply filter out the advantage a machine will have over human decisions.. A market controlled by machines is worth nothing for humanity.
Whether information is passed at 0ms or 100ms, it will not have an effect on any human decision..
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No, I am making the point that the fee is there. At any amount, the 'fee' should not exist. There should be no fee if I trade in the open market beyond the flat-rate brokerage fee. If I throw a 'market order' into the batch, I should get the best price. If I go to a store, and I see a good priced at $10 but I am willing to pay $10.50, I should not have a random middle man running in to buy the good at $10 and sell it to me at $10.50.
Exact mechanism of my delay mechanism? That would be for the exchanges to d
This is a great plan! (Score:2, Insightful)
Step 1: get all the people responsible for HFT to move to a base at the bottom of the ocean.
Step 2: turn off the oxygen.
Step 3: Celebrate, then start thinking of how to get all the lawyers to move to Siberia as well.
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Oh. (Score:2)
So basically humankind does not have enough problem to solve? We really need to create incredible complicated games to keep our computer busy?
wont last long (Score:2)
if you take justification very loosely, maybe (Score:2)
Uhh... it doesn't seem like a very good one. If there is any good reason to "cover[] the planet's surface with computers", it had better be doing something more useful than providing some fucking stock market liquidity.
Planetary Scale Computing (Score:2)
I think the greatest advantage of planetary computing is in its ability to find questions for provided answers. For example, if you were to have a question regarding Life, The Universe, and Everything, then planetary computing might be useful.
So much misinformation (Score:2, Interesting)
Let me begin by saying that I'm posting anonymously because I'm a professional in the financial industry.
First, I'll explain the inter-exchange arbitrage being used here: it comes in a few forms. Imagine the Philadelphia exchange has orders on its book for a share of Apple Inc stock (ticker AAPL) as follows: 200 to buy for $308.12 and 300 to sell at $308.14. The New York exchange has 500 to buy for $308.13 and 100 to sell at $308.14 . There's nothing anyone can do to make a profit.
Then things change.
Yes, lag is exploitable (Score:3, Interesting)
I'd thought of this a few months ago, after reading the detailed report on the 2010 flash crash. [wikipedia.org] Speed of light lag wasn't quite an issue, but it was close. Stocks are mostly traded in New York, while options are traded in Chicago. Round trip time between the two is at least 7ms. That's exploitable. Lag isn't just for video gamers any more.
Unfortunately, this isn't a joke. There is now special purpose hardware for high frequency trading. [stoneridgetechnology.com] General purpose computers aren't fast enough for high frequency trading. This 1U device contains FPGAs, and custom trading algorithms are written in Matlab, compiled into Verilog, and loaded into the FPGAs.
Vendors are advertising "8 microsecond average latency, wire to application". [redlinetrading.com] Not milliseconds, microseconds.
So basically (Score:2)
the Quake kids have grown up and are now playing the stock market, and these are their 'gaming rigs'.
Do they come with lots of blue neon and a front panel which looks like Optimus Prime?
Need to move beyond wasteful ironic arms races (Score:2)
http://www.pdfernhout.net/recognizing-irony-is-a-key-to-transcending-militarism.html [pdfernhout.net]
This applies equally well to financial organizations: "Likewise, even United States three-letter agencies like the NSA and the CIA, as well as their foreign counterparts, are becoming ironic institutions in many ways. Despite probably having more computing power per square foot than any other place in the world, they seem not to have thought much about the implications of all that computer power and organized information to
Re:Why the snow (Score:5, Informative)
The traveller who has never before experienced an arctic summer, and who has been accustomed to think of Siberia as a land of eternal snow and ice, cannot help being astonished at the sudden and wonderful development of animal and vegetable life throughout that country in the month of June, and the rapidity of the transition from winter to summer in the course of a few short weeks. In the early part of June it is frequently possible to travel in 'the vicinity of Gizhiga upon dog-sledges, while by the last of the same month the trees are all in full leaf, primroses, cowslips, buttercups, valerian, cinquefoil, and labrador tea, blossom everywhere upon the higher plains and river banks, and the thermometer at noon frequently reaches 70 deg. Fahr. in the shade. There is no spring, in the usual acceptation of the word, at all. The disappearance of snow and the appearance of vegetation are almost simultaneous; and although the tundras or moss steppes, continue for some time to hold water like a saturated sponge, they are covered with flowers and blossoming blueberry bushes, and show no traces of the long, cold winter which has so recently ended.
George Kennan, Tent Life in Siberia [gutenberg.org]
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They're buying something in one place that they believe will grow in value at another place. Isn't this the goal of all trade?
Suppose I got to the store to buy a bag of chips. I pick up the last bag from the shelf and go to buy it. You jump in front, grab the chips from from me, pay the guy and then tell me that you'll sell me the chips to me for only a dollar more than the price on the shelf.
Who has benefited from this other than the thieving scum who got in the way of my trade with the store owner?
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The chip producer might end up with reduced profits, or they might end up with the same profit. Net result: Negatively affected.
The chip seller might end up with reduced profits, or they might end up with the same profit. Net result: Negatively affected.
The 'trader' might end up with increased profits, or they might end up with the same profit. Net result: Positively affected.
The buyer might end up paying more, or they might not buy the chips. Net result: Negatively affected.
A good or service is onl
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Re:HFT is Not a Sin (Score:5, Insightful)
Yes it IS a sin.
It's a SIN because the heads of NYSE and NASDAQ continue to spread this lie that HFT shops contribute liquidity to the system. THEY DO ANYTHING BUT!
Have you seen the offices these HFT shops rent out in New Jersey and CT? They're cheap Class B space, warehouse loft and other low-rent space. They don't have the capital it takes to be a market maker. They just have capital---and they aren't going to sit in the market when it is hurting and make trades no sane person would make to keep liquidity flowing.
That is the job of a REAL market-maker. A market-maker will step in and be the counterparty to keep the issues they are responsible on the exchange moving.
What the fuck do you think happened on the May 6 flash crash? Almost all the HFT shops ran to their server rooms and SIGSEGV their software and pulled out to avoid taking more pain. The bids all dried up on the NYSE which is why the first crazy market order for $0.01 a share came to the exchanges, NASDAQ cleared it so for a while, several stocks were at zero print... like Accenture.
When you have the most top companies on your exchange printing zero in the flash of an eye... YOUR MARKET IS BROKEN. How is this even debatable?
Why would I want to put the kids college fund money in this fucking disaster?
HFT sucks.
Re:HFT is Not a Sin (Score:5, Insightful)
Another lie the chairs of NASDAQ and NYSE love to tell the world is that HFT speeds up price discovery.
How is this even POSSIBLY true??? They are algos. Those algos don't have any clue what the future performance of a company is. The algos are not going to tell you how successful AAPL's iPhone 5 will be, or when the next class action lawsuit is coming.
And algos break ALL THE TIME. It has been happening more often these days because stocks are breaking 120DMA more often, and most of these algos are doing nothing but backtracing trends on top of their arbitrage schemes. When a big investor comes in the room, they jump on him like nervous poodles.
That's why the May 6 event was such an eye opener. Waddle and Reed didn't cause the flash crash. They executed a normal transaction that wasn't even a Big Fish transaction, and all the algos went haywire.
So much for the quants and their MIT-smartness.
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I'm puzzled by your inference that humans already know the performance of a future stock. The
Re:HFT is Not a Sin (Score:4, Insightful)
Uh, no. The goal of all trade is to allocate capital to the institutions most likely to create value. HFTs don't give a shit who creates value. They don't allocate capital based on which companies are useful. They are a transactional cost paid by everyone else. They are best approximated not as a trade, but as a tax, albeit one that does absolutely nothing for the public good. The value removed from the markets by HFT is value extraction, not creation. This is a fundamental difference from everyone else playing.
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Once we're into microseconds per buy/sell, all practical need for liquidity has been met. They provide nothing of value to others.