ASIA Flash Crashes - Berserk Algo Caught Red Handed

Tyler Durden's picture

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Thomas's picture

This is so fucked up. I am positive this is unsustainable.

MsCreant's picture

Until people understand what is happening (No one even knows what HFT is, just ask your acquaintances immediately around you) this will keep on happening. It's the new normal.

Frog-And-Toad's picture

Can you please explain to me what this chart shows exactly?  I really don't understand how the HFTs work.  

knowless's picture

HFT is just automated buy/sell orders that trigger in certain intervals, through this they can set the price they want temporarily by flooding the que with phony orders.

if you look at the volume it is all coming from the same source, on both big/ask, anyone who sells in this automated and artificial price drop just lost money.

they could run the market either way, buy or sell whatever position they want, and basically fuck over anyone stupid enough to think that the market isn't rigged.

I'm not really capable of going into anything more specific than that, but one thing to look for is something that looks automated, like a square wave on an osiliscope, because the algorythms are still primative, and can't yet directly replicate something that looks like rational human buying behavior.

http://www.youtube.com/watch?v=1mr7U8MVRyM&feature=related

 

Frog-And-Toad's picture

Thank you for taking the time to explain this to me.  I truly do appreciate it.  

 

One question I then have is how is this not market manipulation?  Is this legal?

knowless's picture

Well, It's an exploit in the way the markets function which has no relation to the actual value of the item traded, which leads to financial loss through fraud, so I'm guessing that it should be illegal, but who knows. It is defineately fraud, and if you use the standard dictionary definitions of "market" and "manipulation", then yes, it is that too.

quintago's picture

Fiat back to gold

and 

Markets back to humans

 

Problem solved

Frog-And-Toad's picture

+1

 

You should run for President my friend... I'm sure that platform would be music to a lot of people's ears!

Frog-And-Toad's picture

+1

 

You should run for President my friend... I'm sure that platform would be music to a lot of people's ears!

LongBalls's picture

+1. Sounds like job creation to me!

MrBoompi's picture

If laws aren't enforced it's the exact same thing as not having laws at all.

TX-Mike's picture

No Mr Boompi, that is incorrect. 

It is WORSE when laws aren't enforced, because in reality it's "selective" enforcement of the existing laws based on someone's favored (or unfavored) status with the enforcer. 

 

 

DeadFred's picture

The SEC is now hell-bent on taking out the insider trading at the mid-level hedge funds who coincidentally are the competitors of the biggest inside traders Goldman, JPM, et al. Strangely no insider trading investigations seem to target the biggest players who amazingly make money EVERY DAY. I guess it's better than when they spent their time going after such threats as Martha Stewart, but not by much.

MsCreant's picture

http://www.zerohedge.com/taxonomy_vtn/term/8356

I hope this is not too simplistic.

HFTs can execute thousands of trades in nanoseconds. They can do all sorts of things that a human being cannot in terms of bidding speed. They use this to their advantage, naturally. Only the big trading houses can afford to do this kind of thing and hire the best programmers to do it. They can put out a whole bunch of offers at once, see where you will stop bidding and discover the highest price you will pay and get that from you. If it was two or more humans, they couldn't do that because humans do it so slow, they would get caught not keeping their bid on the table long enough. That is only the begining of what is possible. 

Some of the programs, instead of doing the kinds of things I talked about above, will do things to deliberately destabilize the market so that radical price pops and drops occur. They can come in and sell quickly at the top of a pop, or buy in a nanosecond on a radical drop. 

I cannot say I clearly understand the charts above. What I can do is look at the shapes and see where the dip happens, how things look there at that point, and before, and after, to see that something is up. Someone else here mentioned an effect this had on trades elsewhere (in reaction to the dip). Everything is connected to everything. 

I am not the best one to comment, I am not a trader, just an observer, a MsCreant. There is a whole lot to this and I hope the link above gives you more resources to help.

 

slewie the pi-rat's picture

@ F_Toad:  most of us are also trying to figure this out.  tyler has been showing us the nanex "monday morning quarterbacking" on these "attacks" for several weeks now, and i can see you have been registered on the site, but not blogging, prob not following these reports, so you are new to this, it seems.

welcome!  you can't have my dunce cap, tho!  get yer own!

i would suggest you begin by opening up the 4 charts in new windows, so you can + them and see them.  then, look at the time scale along the bottom of each chart.  the action took place in just under 2 seconds:  from 9:30:00 to 9:30:02.  during these two seconds, the computer running the algo on the ASIA stock started generating orders to the NASDAQ system.  the first chart showns the 7 platforms which trade this security and the bid-asks colorized by trading platform.  yep, pretty hard to read, but the RH scale is price where the trades crossed, which goes from abt $15.75 to $13.25 in two seconds, over 15%. so the bid (buy) and ask (sell) offers come flying in, for widely variant amounts of stock, and may be cancelled almost as fast.

the bottom of the last chart shows what the hell size orders (i think) this thingy entered on NASDAQ system in a bit more than 1/50th of a second.

Nanex breaks it down:   tyler puts this up; open it.  we get an iteration of the trades, the exchange they took place on, time, price, vol. 

so the hi freeks use an algo to enter orders into the system, confusing the sytem/it's computers, and causing rapid change in the pricing/trading of the security.  it is also possible that the entity placing the orders is doing so to benefit other traders in the system, and their orders.  isn't it? 

Frog-And-Toad's picture

Thank you Slewie for the welcome.  I have found that this website is a great resource to get some very interesting perspectives on what the hell is going on in this economy/world, and I was a bit intimidated by the depth of conversation that takes place in the comments section.  I figured I would just ask since I don't fully understand, and this community has been great to me so far.  

 

My question now is, why does a hacker group simply put the tie and suit on, inflitrate a few hedge funds, and "hack" the shit out of the NASDAQ system if it is this easy to exploit it's functions?  I mean if Anyonmous can hack into Sony's customer database, why don't they just develop an algo that can rob the system blind, purchase warships and star reaking havoc on our system?  

 

Anonymouse's picture

It might be possible, but one of the reasons the HFTs work is by reading the bids in the system and electronically front-running them.  The physical limitations on that (due to speed of light through fiber or copper) require not just fast computers but also physical proximity to the exchange.

[I think this is reasonably correct.]

So it would make the hackers job expensive and difficult if not impossible.  It doesn't change the fact that this is market manipulation and front-running, if not blatant insider trading (after-all, if Business Week can be considered an insider, why can't the exchanges and HFTs?).

knowless's picture

I would ask, are the people doing this more or less terroristic in their ways than "anonymous", it seems that when you have the reins, actions are sacrosanct. To hack this network would require a platform, they could either cloud it, and open thousands of automated accounts (making it easy to read, thus harder to make accounts), or actually start a fund to hit the markets, either one would be targeted and destroyed because it harmed the status quo(where it's legal if you have the right attitude(amount of money)).

knowless's picture

@slewie, your answer was better than mine, thanks.

Raynja's picture

At some point an unexpected piece of news will surface that the algos treat differently causing them to attack each other. lots of 'smart ' programs have taken on too much risk based on their forecasts, that will need an exit.

carbonmutant's picture

The only reason this is the new normal is because the SEC will not prosecute it. HFT has been a key factor in driving up this equities bubble, from which this administration has gained much propaganda.

Nobody in this administration is going to kill this goose.

Rynak's picture

Another aspect is, that the exchanges profit very well from this, because of transaction fees. Just compare the possible income from transaction fees, of humans making transactions every few minutes, and bots making transactions every few milliseconds.

This aspect came up yesterday, when i was talking about this with a buddy: Even with govs and regulators having no interest in stopping it, and the major players being the same ones on all exchanges, the exchanges themselves could still offer diversity, by differentiating themselves from each other with different rules. However, as mentioned above, exchanges too profit greatly from an increase in transactions.

So, the only ones who actually do have an interest in this insanity stopping, are human traders and speculators.... and as you may remember, for "some reason" precisely those have now mostly left the market :)

downrodeo's picture

Ooooooooooh baby, i love your waves...

lynnybee's picture

I know.   I know what HFT is .   It's High Frequency Trading, & i'm just a dumb housewife !   But, I learned it here on ZEROHEDGE.    Now, if I know all about GOLDMAN & front-running & HFT & placing bloomberg computers close to the NYstock xchange, then everyone else can know this stuff, too !     I try to hold intelligent conversations with friends & family & they think i've gone wacko with this financial collapse / wall st. fraud stuff.

dcb's picture

LOL, I know the feeling. the real media avoids the topic so people don't understand, and it's kept behind closed doors where they like it. meanwhile it has effects on everybody. I post some ecnomics stuff on a social networking site, and what a fing mess. they just don't get it

baseball13's picture

Like most "friends & family" they have a normalcy bias...but that will all come crashing down soon...

dcb's picture

they know, they are paid by the industry to look the other way while the industry provides fase data to justify a vote or a position by the authorities. Please, do you really think it's different than anything else.

 

I mean how many times over how many years does the industry put out studies that conflict with data, yet they justify a vote from people like Schumer, et al.

How do you think fannie and freddie worked it, or country wide with the sweatheart loans. the system is corrupt to the core

gofigure's picture

I'm afraid you are right.  Is there an awaking around the corner, that's the question of the age...

gofigure's picture

I'm afraid you are right.  Is there an awaking around the corner, that's the question of the age...

Sun Tsu's picture

we underestimate the normalcy bias - mainstream Entertainment-news, and prescription antidepressants. How awkward tis' to think the unthinkable?

Popo's picture

Any successful methodology for exploiting markets will ultimately destroy itself as more players utilize the exploit.

Unfortunately,  between here (point A) and there (point B)  there is an ocean of bullshit that all of us are going to be forced to swim through.

Xibalba's picture

this is all about control.  

SheepDog-One's picture

The tighter they squeeze, the more slips thru their fingers.

Deepskyy's picture

Chairman Bernanke. I should have expected to find you holding The Teleprompter's leash. I recognized your foul stench when I was brought onboard.

 

Urban Redneck's picture

What we need now is a righteous and vicious anti-BernankeSack algo to attack ES and Treasuries when they are not expecting (or directing) it. 

earnulf's picture

Actually, it's a guide to building your own algo to reap the rewards of the game.  (No, seriously, this is a smoking gun but there is no one to hear the scream.)

pesamystik's picture

Where the fuck is the SEC?

Sophist Economicus's picture

Watching porn, for ehm, sociological research only...

MsCreant's picture

I had to tell my son that Santa and the Easter Bunny don't really exist. Next, I will tell him that the SEC and the concepts of oversight and regulation in the markets do not really exist either. All of them are fairy tales that make us feel warm and fuzzy.

MachoMan's picture

I thought the whole point of the santa and easter bunny exercise is that you try and get your kids to second guess you and develop their own critical thinking and reasoning abilities...  Don't tell your kid shit, let him figure it out on his own...  if he's a lost cause, drop him some hints.  Nannies create ninnies.

If his mommy talks about it enough, Jr. will pick up on it.

MsCreant's picture

In truth, MachoMan, my son confronted me when he was only 5. He looked at me and said "Tell me the truth, don't lie, Santa does not exist, does he?" I asked him if he enjoyed Santa, I let him know that my answer might change some things. Again he demanded the truth and threatened to not believe me about anything if I did not tell him the truth. It was so damned cute the way he was nailing me to a cross, I had to tell him he was right. We never really did the bunny thing. I asked him not to tell his friends because they were still enjoying the Santa myth. I think he ignored me. I just didn't want to get in trouble with their parnents!

I hear you. I hope I am a balance of sharing and letting him figure it out.

While I do explain a lot to Jr. he always jumps to the next step, implications, and he keeps asking for Silver for B-day and Christmas. I will comply.

 

StychoKiller's picture

A physical being named Santa Claus may not exist, but the SPIRIT OF GIVING does!  Call it Santa Claus, truth crisis averted.

treemagnet's picture

I believe you mean to say where the fuck is the fucking SEC?  (There actually all watching bang bros. porn), and you can't expect them to crack down on old friends now can you?

samsara's picture

"...and you can't expect them to crack down on old friends now can you?"

Nah,  Future EMPLOYERS you mean. 

Who would want on their resume that you brought charges against the firm that you are interviewing with....

buzzsaw99's picture

there is someone in pittsburg day trading an tos account with less than $500 in it and they must investigate before it all becomes a joke. LMAO

Frog-And-Toad's picture

I see these get posted, however I do not fully understand what this means.  Can someone please explain to me how these algos work, and how it can be determined that the there are HTFs involved?