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Guest Post: What Costs $1.8 Billion And People Go There All Day To Gamble?
Submitted by Themis Trading
What costs $1.8 billion dollars and people go there all day to gamble?
If you answered the latest Las Vegas casino, you are incorrect. The
correct answer is the investment in data centers last year from equity
trading firms. According to our buddies at the Tabb Group, equity
firms spent $1.8 billion last year on data centers; half of that total
came from sell-side shops. But even though they are spending tons of
cash on the infrastructure, they are not exactly doling out the cash
to their programmers. According to a recent Forbes article, many of
these HFT programmers are starting to feel underpaid considering how
much money their firms have been making. Forbes says that, “many
programmers are immigrants or were hired out of college for $80,000 to
$150,000 a year.” They mentioned one programmer who said that his firm
was “generating $100,000 a day from his high-frequency trading software
and paying him only $150,000 a year.” Now, the HFT programmers are
standing up and fighting back. They are taking their computer software
and launching their own firms. And, again according to the Forbes
article, they think they are going to “make a ton” of money. It sounds
to us like another bubble is about to pop.
Yesterday, we had our fifth circuit breaker pop since the pilot
program was announced. This time the stock was CSCO and 7 trades of
100 shares priced between $24 and $26 caused the breaker to go off.
All of these trades occurred on the NYSE Amex. You’ll recall that we
just wrote about the NYSE Amex trading NASDAQ stocks in a recent post.
It didn’t take long for that little experiment to cause problems. The
question that now needs to be asked is why did the NYSE Amex allow a
trade to occur through the market by such a large percentage? CSCO is
one of the most active stocks, and let there be no doubt that there
were plenty of offers to fill a 700 share buy order at competing
venues. It appears that rather than route to another venue, NYSE Amex
routed the buy order to their own best offer first (which was far away
from the NBBO). Wait a minute, stop right there, we are throwing a
flag and asking for some instant replay. In addition to being a clear
violation of Rule 611 of Reg NMS, this smells of internalization. Is
the NYSE Amex experimenting with some sort of “flash” order? Inquiring
minds would like to know. We haven’t seen the data feed spec yet for
the NYSE Amex but you can count on us to take a look and report back to
you if we see something funny going on there.
To further illustrate our point, a Bloomberg article this morning
questions the routing ability at the NYSE Amex. The article says, “The
five-minute halt in Cisco Systems Inc. yesterday highlighted a flaw in
how NYSE Amex executes orders it can’t fill on its book at the best
price.” http://www.businessweek.com/news/2010-07-30/cisco-halt-exposes-flaw-as-nyse-amex-handles-nasdaq-trading.html
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"Yesterday, we had our fifth circuit breaker pop"
I'm thinkin someone saved money on a cheap electrician.
I smell something and it doesn't smell good. It's either those overclocked Intel Quad Chips on those HFT severs running in the red (while making all that green) or it's a systemic meltdown coming our way.
All it's going to take is a few days of severe selling and all that glorious liquidity will shrink up faster than George Costanza's........er........you-know-what after swimming in the pool.
Shrinkage Bitchez
http://www.youtube.com/watch?v=1cUNNKzj_Nc
http://www.youtube.com/watch?v=8DoARSlv-HU @ 2:20 in video
I think people are missing the biggest point here. China has ramped up their cyber attacks on the U.S. like crazy. As soon as they figure out that the best way to destroy the U.S. is via HFT attacks, and they can make money at it it's game over. It's just a matter of time at this point.
Oh, you mean everyhing here in the good ol' US is hunky dory, and it's only the vicious Chinese causing these stock market crashes?
Talk about rationalization.
It's the Beast:
http://www.amaresource.com/wsi/index.html
Gap down means one thing to the bots - ramp up.
You know at the risk of offending many, the old school traders are starting to sound like Luddites. This is the future, you must adapt. HFT is the most efficient way to trade.
More importantly, the exchanges have to adapt and update the rules to allow for HFT.
The bots should be running the market.
Adapt as in sell colocated servers to a select few to facilitate front running and flash orders while the SEC whacks off? What is the point of an economy or money or human beings if the world can be run by machines. Bots should not be running the market.
Adapt as in create rules to prevent the exchanges from front running. The exchange should provide a location where a buyer and a seller can agree on a price to exchange goods.
Anything else is secondary. If a farmer wants to sell beef and a buyer exists, then both should have access to the exchange without including a middle man. Let the computers fight over a fair price.
And who exactly will create those rules. The HFT owners, who might lose some leverage from the rules? Or the SEC, who might actually be required to do their job? Or maybe Congress, who has been co-opted and are owned?
I agree, let's make some rules. Great idea. Now please explain to me how this great idea will be implemented.
Not rules exactly. Make an open source interface to the 'market' with an open protocol and let everyone trade - provided they have the money to do it. Let the machines handle the processing and audit them to make sure they aren't skimming.
OK, I ask again. Who exactly will create this open source interface and then who exactly will implement it? This is a fair question I ask. I already named the entities involved and their conflicts of interest.
It's too late. Machines need to be born, manifested into existence. Once man invented the Babylometer (the clock) he has been living a life calibrated, clocked, and tuned to a machine.
Its not trading. Its dipshit pantywaist hacking of latency. Exchanges like it because they make money off the volume and charge a lot to locate machines in their basements.
Smash the machine... lol.
It is trading. Is there a reason why a human needs to involved with a trade?
What do successful restaurants and successful stock "traders" have in common?
Location, location, location.
The Internetcan create a virtual centralized place to trade. If I am selling my goods and you wish to buy and sell them at some future date, that is fine. The important thing is that we agree on protocols and interfaces so that everyone has equal footing (except the Luddites.) The market should also let me sell my meat to the processor and cut you out.
pan-the-ist, I see your argument for removing the middle man with machines. What is the point of having stocks if a company's value is nothing more than what a program and wealthy hedge funds deem it to be? Is not the true economic reason for stocks is ownership in companies and for companies to raise money?
The internet is fine; it is available equally to all players. HFT makes the playing field uneven. Not all the equipment is available to all the players. It takes a very lot of money to engage in HFT so capital is being the bully yet again.
And to think, they thought they had taken care of that problem when they chopped down the Buttonwood tree.
So why are the machines not liable for fake orders as a "trader" is? Of course it can be managed, the problem though persist when the market is skewed by the fact these HF guys are playing the long side of the market all the time. Oh, because otherwise flash crashes would occur all the time and that would not be allowed by "the administration", thus the machines are by nature bullish...
If flash crashes were allowed (in a non rigged Casino!!), the HFTs would be on both sides and the market would be perfect as real orders would skew the market up or down based on the daily sentiment.
I think maybe what's being illustrated here is how little "real" investing is going on right now.
Allegedly, 37.5 million shares of CSCO traded yesterday, but 7 100 trades caused a hiccup? Strip out computers trading against each other, mutual funds and other institutions adjusting positions...
How many shares now?
HFT is predatory. That's why it exists. Looking to cheat the mutual funds and retail investors at every turn. 7 100 share trades popping a breaker should tell you how scarce a commodity rubes are becoming.
Ironically this example also illustrates why retail investors left. Does anyone out there know a retail investor who hasn't gotten hosed by entering a market order?
I have personally received market order execution outside of tape (meaning well above the high for that minute) , and spent half an hour screaming at my broker to no avail.
And these douche-bags are wondering when the retail investor will be coming back?
How 'bout never?
Unless youre holding a big block of XYZ and need to get rid of it ASAP i see absolutely no reason for anyone to ever enter a market order.
How are you at all surprised that your execution was less than favorable if you basically told the machine to fill you at ANY price?
"Market" price is not ANY price.
Because by definition the exchanges are required to maintain an orderly market, which means NOT spiking the price 3% the nano-second someone places an order. What's even worse is pretending that trade didn't even happen later.
I've documented a few cases, but no one cares (including you).
http://acrossthestreetnet.wordpress.com/2009/02/03/todays-wtf-gld-trades/
http://acrossthestreetnet.wordpress.com/2009/03/18/how-the-fuck-does-this-happen-mary/
BTW, I learned my lesson - You can't trust a broker with a market order and you can't trade quickly manually entering limits - soultion: don't play.
A self-directed account will solve most your problems. Limit orders. Appropriate stops.
Bank of America Investments has a self-directed account with 30 commission-free trades/mon for customers who maintain a $25K balance with BAC.
Other discount brokers have other low cost options.
You misunderstand - this isn't my problem, it's the market's problem. I'm done with these clowns.
FYI - I have a self-directed account & use(d) limits.
You can get hosed with limit orders too, especially on the sell side. If you look at the examples I posted, the hairs on the charts allow the machines to clean out every "appropriate stop" on the books.
So when I set a sell stop because I have to pee, there's no guarantee my position won't get stolen. I can assure you my experience is not unique, but hey, Congress just declared the shark tank safe for swimming, so I should get set-up with BAC?
Can you hear yourself?
"Bank of America" that would be the old DATEK ... Google "Datek Online Brokerage Services LLC", if you like and the people behind it, its a bit the same as "E&J Gallo Winery " (who also makes Cisco ;-)!
If you use stops, you will be fucked over, traders make beer-money from losers who set stops - they set a small trade triggering your stop, scoop up your stocks and sell it at the market minutes later.
Limit orders will rarely execute, they will just sit there and sit there and sit there ... even though the limit should have been hit. That will teach you to not use limits. Then you use Market and get fucked again
It's just not worth "investing" via an American exchange/broker, IMO, I presently use Nordnet.
True dat
another example:
http://acrossthestreetnet.wordpress.com/2009/06/10/whats-wrong-with-this-picture/
You should really research more into market microstructure and execution before making those blog posts which simply dont have all the facts. The GLD and the SPY posts are plain wrong.
These (usually block) orders that go through well above the ask/below the bid are usually dark pool transactions big players use. Many of those can also be late orders posting from the specialist where he accumulated shares over time. The block trade usually gets processed later than it was executed, which is why you see what you saw. They're pretty much always broker interalized and there is simply no liquidity at that price so don't question why the order went off when you had the exact same limit price on the book and didn't get hit.
If you take a look at the 1min SPY, especially right around market close between 4-5pm, theres tons of those orders going off, simply because its such a common tool to hedge this. Also many times the orders that go off if you map on some technicals like VWAP will notice why they go through at a wierd place eg: 104.245 on a close of 106 but VWAP @ close was 104.25
I hope this helps you understand it a bit more. As much as the markets are a joke, here you were simply taking the trades out of context thinking a market price really executed that far away from NBBO.
Pulled up TOS... here are some examples for you of SPY, all from last week:
http://a.imageshack.us/img525/4984/spyah.jpg
Like clockwork, there you have tons of extra long candles almost always occurring right after market close. Hope this illustrates it a bit more for you that there is nothing illegal about this as your blog claims.
First of all, those are after-hours trades you've got circled. Not one of my examples is after-hours.
And there you have the problem:
There's nothing illegal about a $2500 market order moving an issue 5 Billion.
and
Triggering stops whenever it suits the system.
The same scenario applies to market hours except it happens less frequently, theres even some 'out of the money' trades during regular hours as you can see, and its not due to a market price getting hit way above b/a
I get it now; it's not illegal because we do it all the time!
Hahaha!
Let me get this straight? An hour ago, you were confused between market price and ANY price, now you're a quant!
Those examples were from LIVE charts as they happened. "Market microstrutre" my left nut.
Not a quant. And not a failed blog poster either.
Please explain how i was confused between market and ANY price. When i write market price i dont expect the .00/.01 price to be executed at .50. However, it wouldnt be unreasonable for it to lift a few pennies higher on a spike. Hence 'any' price close to the b/a. Its unfortunate you misinterpreted what i meant to say.
As for your LIVE charts as you say... um... come again? Whether the chart i pulled up is from last year or its right in front of me while market is open, there is absolutely ZERO difference as long as youre using the same time period. You still didnt reply to a single one of my facts on your observations.
And yes, im sure its hard to grasp, but structure is indeed the backbone of the markets.
We're not talking penny stocks here, toots. We're talking highly liquid issues and we're talking about trades that vanish from the record and you're talking about "secret" trades that appear on it.
If you trust the "structure", then why are market orders unsafe?
Answer: Because you're an apologist.
And I still like to think of myself as a failing blog poster, I'l have you know.
Trades don't simply vanish. I have trouble believing you got an order filled which wasn't at all close (within a few pennies is reasonable) to the current b/a. And i highly doubt youre talking about a delayed print like you do in your posts on GLD and SPY.
I dont necessarily trust the current structure due to the markets needing individual circuit breakers ever since the May 6th fiasco, but i know retail folk do not simply get orders filled that arent printed. And nowhere did i ever mention a penny stock so i have no idea where youre coming from.
Maybe this will ring a bell:
So some dark pool trades show up on the tape, and some retail trades (like mine) never-ever do.
crazy world. crazy world.
DP trades don't even have to show up on the tape - thats the only real argument here if you were to have one. (Though, not to be confusing, it who's DP youre using. I've been told Sigma-X is 'at their discretion' whereas RBC Dark trades always print).
As for retail, they all do. You just wont notice it when trading a liquid stock as your 100shares going through will be cluttered with the hundreds of other orders going through at the exact same time and price.
Wrong again,
The real argument here is how 7 (obviously retail) trades worth about 2,500 bucks apiece managed to move Cisco's market cap 11 Billion Dollars, and you're saying I don't understand "market structure." You did get that much straight. Nice backbone you've got there.
I'm telling you, God as my witness, I've been executed at a price that never showed up on the tape (ever), and apparently you don't believe me.
Thanks for straightening me and all the other retail investors out. I now see that we haven't been getting fucked, we're just dumb. We'll be back Monday, so swing by Starbucks, pick up a traveler....
...and wait for us.
Why obviously retail? Did you take a look at the NASDAQ TRF to verify? Do you know which PB executed the trade? Is it because you think the big boys don't do 100 lot sizes? Are you one that thinks retail size=100 and institutions only deal in >1MM blocks?
Honestly there is no point in trying to have a conversation here as you simply have a close-minded view on how you got 'robbed' of my guess $20 and are here bitching about it. What do you use for stock research, YAHOO? Thats great... if you're 19. And no you don't understand anything about market structure - i wasn't criticizing you for it at first but your replies show just how arrogant one can be, and thus its people like you that deserve to be robbed of their $ in the markets.
Id suggest you stick with your GLD or 2/20 fund. At least in the MF you won't be bitching about above/below prints which have absolutely ZERO to do with your current position.
Again, you completely miss the point.
The size of the order screams retail, why you would think otherwise is beyond me. Raping retail traders is Wall Street's bread and butter. Yesterday they tripped an alarm, and got caught on video, so to speak.
"Nothing to see hear, folks! move along, move along."
These are exactly the kind of trades that "vanish" from the tape. Why these ones didn't, I can't explain, but I'll bet if they had it to do over again, they would.
Again i dont completely miss the point, youre just too much of a dumb shit to open your eyes to something and try to understand it rather than write a POS blog post about a market occurrence which is way beyond your understanding. Here i am trying to explain to you, and youre about as willing to try and understand as a drunk at 3am.
There is absolutely ZERO proof of it being a retail trade. My guess is it wasn't, but because i dont have any proof, i say its simply a guess. Yet here you are basing your assumptions on this simply because of small lot size. Answer me this, when a HF is out to buy 1MM shares of a particular issue, how do you think this is done? They enter price, size 1,000,000, 'set it and forget it'? ITS DONE THROUGH HFT so as to break out the order through small lots and/or also through extended period of time. So as not to show their hand and not get frontrunned.
Do me a favor and take a look at some C, BAC, LVS over the next few days you decide to lose more $ in the markets. I guarantee youll be seeing some more trades print which, according to you, are pure 'manipulation'. Maybe when you notice them youll start to comprehend they are pretty common and have nothing to do with the kinds of market shenanigans that regularly occur on the market. Or you can continue to miss the boat and write more posts about how those stocks are manipulated as well, whatever.
Amex is a great place to get printed way out of the money. Why anyone sends their orders to them is a mystery.
Auto-ECN... and if youre order gets queued on any particular exchange, the only way to change books is to cancel.
I see nothing wrong with being routed to an exchange where:
1) there's more liquidity; and/or
2) better price
As for CSCO, it might have been a hidden order, which doesn't move the b/a and sits on a single exchange until NBBO moves its way.
Today's action is silly. The shorts piled in on bad news and go kicked in the nuts. You've got to be real quick. The best solution is to keep your cash in your pocket and wait for volatility to crank up. You want to see big red or green bars. Until then, starve the beast and it'll die.
Yup, starve the beast.
can we go back to trading stock certificates under the old oak tree on the curb? that'll fix those shitfaced cockmasters (h/t South Park)
on second thought, what if we were able to coordinate a national retail investor blackout day - everyone with a pulse just hops out of the market for a day and we see what happens
Bidding too high above the asking price is not allowed. It is a waste of money. Hal can't buy and sell the stock enough times to make "enough" money.
GBPUSD upside continues, since daily and weekly charts remain bullish.
http://stockmarket618.wordpress.com/about
H1-B's are preferred for these positions because they can't speak out about the fraud that is inherent in HFT, without the fear of deportation. Indentured slaves, essentially.
+1
also work for less than the "locals."
Some also take pleasure in destroying confidence in America's capital markets, to the benefit of their own nation (usually India).