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Guest Post: Nanex: Investors Need To Realize The Machines Have Taken Over

Tyler Durden's picture




 

Submitted by Adam Taggart of Peak Prosperity,

In the blink of an eye, the market moves what used to take humans thirty minutes

High Frequency Trading (HFT) deeply concerns Erik Hunsader, founder of Nanex. He worries that today's investors, our regulators, -- heck, even the HFT algorithms themselves -- don't fully understand the risks market prices face in the brave new era of bot-dominated trading.

For instance, Hunsader estimates that HFT algorithms are responsible for 70%(!) of all completed transactions on our exchanges, and for 99.9%(!!!) of all exchange quotes.

The pictures of trading floors you see on TV, where the people in bright jackets appear frantically busy in making their trades, have no bearing -- claims Hunsader -- on the actual trading action. The real action happens across fiber-optic cables, on racks of servers in cooled rooms; where an arms race defined by cable length and switching speeds is being waged

The reality is that the machines have taken over. When you buy or sell a security, the odds are extremely high the other side of the trade is being placed by an algorithm -- one that cares nothing for the fundamentals of the underlying instrument. It simply is looking to make a quick profit, oftentimes measured in fractions of pennies. And this has vast repercussions for the stability and the fairness of our financial markets.

Because of speed advantages, HFT algos can see and react to prices faster than you can. Ridiculously faster. A second on the clock, to an HFT algo, is an eternity. 

The deep pockets of the firms emplying HFT algos combine with this speed to move asset prices around, sometimes wildly so, faster than most of us can comprehend. In the time it takes for your "real-time" quote system to refresh, an individual stock could have traded many percetages up and/or down -- and you would have no idea. 

This unfair advantage, along with the short-term profit outlook of the algos, creates the potential for deadly market price downdrafts. Algorithms prefer predictability. If something spooks them (e.g., unexpected breaking news, a delay in the market's opening), they simply stop trading. And  -- poof! -- 70% of the market has just disappeared. With no support and no bids, prices can drop dizzyingly fast. Making matters worse, the "smarter" algos can recognize a downdraft in process, and begin piling back into the market on the short side, exacerbating the price declines.

The Facebook IPO provides a recent example of the vulnerability of our system:

Erik Hunsader: If we get one bad, unsuspected news event I guarantee you it will be lights out very quick. One of the things these algorithms do is they make sure the input is good. And whenever the input isn’t quite good they back off. When I say back off I mean they back off in the blink of an eye. So it can go from good to very bad that quickly. And all it's going to take is some unforeseen news event and they won’t be there. And then we’ll see what the liquidity is.

 

Chris Martenson: So do you see this on a daily basis or some frequency where you see volumes or liquidity just suddenly dry up in the market?

 

Erik Hunsader: Yes.

 

For example on the Facebook IPO day, NASDAQ was trying to open the IPO up. By their third attempt, they’re telling everybody "Wait, we’ll get it at 11:05. No, we’ll get it at 11:10. No we’ll get it at 11:30". So it was do-or-die time, 11:29:50 comes around. Somebody there has the bright idea to just reboot the system. It takes NASDAQ offline a full seventeen seconds. Nothing coming out of NASDAQ. Not a peep in any stock, market wide, for seventeen seconds. When NASDAQ finally did reappear -- what happened? The orders that were resting in the book all that time immediately disappeared. Like 60%-70% of all liquidity within 200 milliseconds was gone: SPY, Microsoft, Apple. Not just Facebook -- it was every stock. We were extremely vulnerable over, I would say, that fifteen to thirty minutes to any sudden external shock. And we usually get away with it but one day we’re not going to get away with it.

 

Chris Martenson:  So seventeen seconds of going dark for one of largest exchanges out there. That must have been several lifetimes for these algorithms.

 

Erik Hunsader: Seventeen million microseconds.

 

Chris Martenson:  Seventeen million microseconds, that’s forever.

 

Erik Hunsader:  It is forever. And that’s why we see the liquidity and all these books just go -- poof!

In this podcast, Chris and Eric analyze a mini-crash in oil futures, where the price of oil (a huge market) dropped $3 within a single minute, at tremendous volume. The chart below shows the price action in the USO ETF during that period for 1 millisecond (that's 1 one-thousandth of a second). Click the play button to hear a tonal articulation of the trade volume for that period (each tone represents a trade, trades made at a lower price have a lower tone):

 

By the way, this action is for a single exchange -- there are 13 in total. So you get the sense for the tremendous amount of trading activity that HFT algos generate in just 1 millisecond. Try to conceive of what the activity volume is in a second, a minute, a hour -- it's mind-boggling. No wonder the regulators are so ineffective.

Is the presence of these HFT algorithms aiding with true price discovery? Quite the opposite says Hunsader. Instead, HFT has made our markets unsafe -- especially for the individual investor -- as big institutional players, unchecked by our regulators, use their unfair advantages to fleece those without:

A lot has to do with the regulator not being in the room just clarifying some basic ground rules that are already in place. I mean a lot of the tactics and things that go on now, if they tried to get away with this face-to-face in the past somebody would be walking away with a black eye. People just don’t put up with this poor behavior. But the market is set up anonymously. So you don’t know if it's the same guy who hit you really hard the other day at your tipping point. I mean 'everything goes'. And without a regulator or any sense of a regulator ever doing anything about it over time you get this creeping in of "You know, we did that before and nobody ever said anything. So let’s try this." And that’s what happens. You just get this slow creep of a drop in ethics.

Click the play button below to listen to Chris' full interview with Eric Hunsader (34m:58s):

 

 

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Sat, 10/06/2012 - 16:45 | 2863363 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Rise of the Machines

The Illuminists want us to believe their will be a world where we lie happily in our graves, sipping lemonade, while machines make us money by trading AAPL for FB and back again.  China will sew our clothing, Africa will mine our ore, and the Middle East will produce our oil - at least until we wreck our habitat by fracking and tapping the Rockies.

Our work will be done by simply putting out our hands and like paupers we will get the change we need to maintain our status quo.  We sell buy phones from T and shoes from NKE.  We have a system and it works.  The system is like living in DIS:  the bumbs on the street are the Seven Dwarfs, the frat boys are Aladdin, and the Sorority girls are Sleeping Beauty.  We all have roles in this system, and the machines know best.

Sat, 10/06/2012 - 16:48 | 2863388 Badabing
Badabing's picture

resistance is futile 

Sat, 10/06/2012 - 16:53 | 2863391 Long-John-Silver
Long-John-Silver's picture

All your money will be assimilated.

Sat, 10/06/2012 - 17:03 | 2863420 The trend is yo...
The trend is your friend's picture

So in hyperspace thier is no need for real money either i guess.  You can run a algo to constanstly trade back and forth in such high speed that every stock just levitates in the same place and never needs to go down

Sat, 10/06/2012 - 17:09 | 2863431 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

But with an increasing debt load and an increasing currency supply everything else in these terms will increase in price due to dollar supply/demand constraints.

An increasing supply of a good with either a falling or steady demand will decrease the good's value:  this is what is happening to the dollar and all fiat currency.

This and given the fact that fiat has no intrinsic value, well....

....on a long enough timeline....

Sat, 10/06/2012 - 19:25 | 2863640 Stackers
Stackers's picture

charge the EMP Morpheus

Sat, 10/06/2012 - 19:50 | 2863672 Colombian Gringo
Colombian Gringo's picture

Hang all Banksters, NOW!

Sun, 10/07/2012 - 08:24 | 2864277 overbet
overbet's picture

We don't need no water let the mother fucker burn.

Sat, 10/06/2012 - 19:14 | 2863626 ptoemmes
ptoemmes's picture

In hyperspace, no one can hear you scream.

Sun, 10/07/2012 - 07:30 | 2864216 Muppet of the U...
Muppet of the Universe's picture

you know everyone curses the machine revolution.  But I do not think they understand the importance of evolution.  mankind is, seriously flawed. in its current state it is doing nothing, and destroying the world at the same time. only very few are actually accomplishing useful works.  mankind must be upgraded, or destroyed.

Sat, 10/06/2012 - 17:05 | 2863426 IndicaTive
IndicaTive's picture

 

"We all have roles in this system" And today. Just today. While my kids are at their whore mother's for one night out of the two per month that she can be bothered with them, I'm going to drink whiskey, hang out with the dog and maybe go up into the attic and find the teotwawki vac sealed jar of killer bud. That's my role. Today. Fuck this shit.

Sat, 10/06/2012 - 21:25 | 2863794 Jack Burton
Jack Burton's picture

Love that post! You made my day.

Sun, 10/07/2012 - 08:46 | 2864477 GMadScientist
GMadScientist's picture

One of many important crops in the old "victory garden".

 

Sat, 10/06/2012 - 19:11 | 2863623 RiverRoad
RiverRoad's picture

Hal's running the show but as Mark Cuban says, "All machines have bugs."  So End Game.

 

 

 

 

Sun, 10/07/2012 - 08:47 | 2864479 GMadScientist
GMadScientist's picture

Ah, but who planted them, and who's listening?

Oh, you didn't mean the Tammany kind.

" We still love you, Mitt" - "the 47%"

Sat, 10/06/2012 - 21:12 | 2863775 americanspirit
americanspirit's picture

Resistance may be futile but it is the only viable human response, the only question is - what is the most effective form of resistance for me. And for you. And you. It doesn't matter if the most effective form of resistance isn't even very effective. It is the only viable human response.

Sun, 10/07/2012 - 04:38 | 2864134 Middle_Finger_Market
Middle_Finger_Market's picture

Fuck the system and fuck the machines. We are going to war baby and only 10% of the population survives.

Sat, 10/06/2012 - 16:41 | 2863368 reader2010
reader2010's picture

Fuck Yeah. Super Bullish.

Sat, 10/06/2012 - 17:16 | 2863444 knukles
knukles's picture

I'm sure glad somone has a positive outlook.

(sigh)

Sat, 10/06/2012 - 16:47 | 2863382 virgilcaine
virgilcaine's picture

Someone sabotage that fiber optic cable.

Sat, 10/06/2012 - 17:12 | 2863432 knukles
knukles's picture

Just one teenie tiny electro-magnetic-fart, one nice solar flare, coronal ejecta and its all fucking over.
Or even another machine distributing false information, at the expense of all other machines, without a human overlord.
The drones shall kill upon their own recognizance, the genetic engineering turn upon Nature and Nature's God.
And all shall have been the folly of men, themselves.
No victimization permitted.

There will be an intersection, a solution set of Murphy's Law, the Fourth Turning and the Book of Revelations.  The calendars shall not end, but so shall men's countings.

Sat, 10/06/2012 - 17:15 | 2863443 BKbroiler
BKbroiler's picture

I'd greatly appreciate the number to your dealer.

Sun, 10/07/2012 - 05:50 | 2864163 spentCartridge
spentCartridge's picture

Grow your own.

 

My Cheebus 'son of God' mind warping bud will be ready & cured for Christmas :)

 

All you need is sunshine, soil & rain ...

Sun, 10/07/2012 - 08:50 | 2864480 GMadScientist
GMadScientist's picture

"I can see my house from here."

Sat, 10/06/2012 - 17:22 | 2863455 Ineverslice
Ineverslice's picture

 

what a Christmas gift that would be...

Please, that would be greater than...throwing Old Man Potter down 10 flights of stairs.

 

Sat, 10/06/2012 - 17:13 | 2863440 Urban Redneck
Urban Redneck's picture

They are actually EMP proof, so the cockroaches and the veins of Skynet will survive a nuclear apocalypse.

Sat, 10/06/2012 - 19:14 | 2863628 CPL
CPL's picture

Urban Redneck is right, for those that have ever been in a data center those big monkey cages around them are Faraday cages.  They block radio signals going out and going in.  EMP included.

 

Doesn't stop the other 99.99956% of the infrastructure going up in smoke though.  Because layer 2 is worthless without the other 6 layers in the OSI stack to manage the whole package.  Like saying you have 40k tires and you put them on a Yugo that won't turn over.

Sat, 10/06/2012 - 22:21 | 2863845 cbxer55
cbxer55's picture

I read the entire EMP Commission Report. According to that report, faraday cages are useless against EMP. EMP travels through the wires into the system. If you are talking about a nuclear blast within the atmosphere, your probably correct. But a proper EMP detonation, in space, faraday cages are useless according to the report. They did all kinds of testing to determine that point.

It's a long read btw. There is alot of reference to faraday cages, most of it negative. They say our financial system is fully exposed to a dedicated EMP strike.

Read it and weep. ;-(

http://www.empcommission.org/docs/A2473-EMP_Commission-7MB.pdf

Page 45 first paragraph is quoted below.. So whether HFT survives is a moot point anyhow. There won't be anybody left for them to steal from. Chapter 4, starting on page 83, deals with the Financial System, and is an interesting if not scary read.

"It is not possible to precisely predict the time to restore even minimal electrical service 

due to an EMP eventuality given the number of unknowns and the vast size and complexity of the system with its consequent fragility and resiliency. Expert judgment and 

rational extrapolation of models and predictive tools suggest that restoration to even a 

diminished but workable state of electrical service could well take many weeks, with 

some probability of it taking months and perhaps more than a year at some or many locations; at that point, society as we know it  couldn’t exist within large regions of the 

Nation. The larger the affected area and the stronger the field strength from the attack 

(corollary to extent of damage or disruption), the longer will be the time to recover. 

Restoration to current standards of electric power cost and reliability would almost 

certainly take years with severe impact on the economy and all that it entails."

Sun, 10/07/2012 - 04:34 | 2864132 Urban Redneck
Urban Redneck's picture

EMP travels through COPPER wires, not FIBER OPTIC wires (which only transmit light).  A data center isn't actually hardened unless it has gas tube breakers added to the external copper power lines.  The engineering requirements have been around for decades, but they are cost prohibitive specs to build to unless you have tons of other peoples money at your disposal.

Sun, 10/07/2012 - 07:00 | 2864191 malikai
malikai's picture

All for naught. Even if a datacenter is hardened, and I've been in quite a few hardened DC's, it doesn't do you much good when the power itself is out, the genny is burned out (most are on ground level, in the basement, or on the roof), and even if your genny still works, you can't get fuel for it? How are those fuel trucks going to deliver your fuel when their electronics are fried too? Also, how are the refineries going to refine your fuel when their electronics are also fried? And what about the tankers bringing crude? How will they get to port when they too have no power?

Logistics, bitchez!

Sun, 10/07/2012 - 07:50 | 2864224 Urban Redneck
Urban Redneck's picture

I've been on the outside of the digital money leviathan about a decade, on 9/11 our redundancies worked fine (other being short-staffed due to facilities being taken offline) and our biggest problem was loss of connectivity to other institutions that didn't have decently thought out redundancies in place.  But I don't think the design parameters for SkyNet have fundamentally changed (beyond nice-to-have is now must-have), so it doesn't need to function if and while the muppets are munching on each other, it just needs to be able to be powered back up after a big reset.

Sun, 10/07/2012 - 09:16 | 2864515 CPL
CPL's picture

Partner channel connectivity is always a concern.

 

You guys want to get together and sell IT Hambones of DRP to government open wallets?   We all open an LLC, and put each other on each other payroll, then bid on the unending flow of contract junkets and deliver to the client the DRP solution.  Which would be a pair of scissors and some rope to cut the main trunk if it gets bad enough and the rope is there for the client to hang themselves with because depending on gadgets is a dumb idea.

Sun, 10/07/2012 - 15:42 | 2865417 Urban Redneck
Urban Redneck's picture

The US government and its subsidiaries are too corrupt for me to do business with. I'll stick with the Banana Republics, the prime & multi-lateral banks, and EM SMEs. If you set up an LLC and don't mind multi-lateral export guarantees, let me know, there are bunch of other western SMEs whose products I also arrange deals for. My optimum transaction is the three-fer: where we get paid for finding financing a for a project, and again when that project uses products we make or sell, and a third time: the gift-that-keeps-on-giving of carried interest.

Sun, 10/07/2012 - 09:11 | 2864503 CPL
CPL's picture

re:generators

 

Scavenging trends are showing a disturbing amount of theft from them.  A scavengers dream, all that copper, fuel, steel, gold, silver and platnium.  The older generators are worth more in parts than the generators second hand price is my understanding.

 

How often do they get run and tested?  Maybe twice a year.  For the DnD sites the "testing" is a 19 year old private with a picture of the generator with an asset tag next to the list.  To which the check mark goes in the box and a reassuring "Yup, it's still there".  Even though the person reviewing the asset information wouldn't know what a functioning generator looks like or care enough to make the leap to learn about it.

 

A Scrapyard scavenger does though.  Like locusts they can pick over infrastructure much faster than it can be repaired to only match the obscene costs of after market repair.  Plus insurance refuses to cover AC/Heater/Genny costs anymore because they can't afford the claims

http://www.clevelandbanner.com/view/full_story/20124876/article--260-000-in-heat--air-units-and-generator-theft-reported?instance=crime_log

http://www.uniondemocrat.com/News/Local-News/Man-woman-held-in-generator-theft

Mon, 10/08/2012 - 01:26 | 2866836 fireburn999
fireburn999's picture

Electromagnetic Pulse travels through copper wires but not Fiber Optic wires because they themselves transmit light which is a photon which is an electromagnetic wave? Please... The tinfoil hat may allow some of those electromagnetic waves to bounce off you... :)

Edit: It is true that a fiber optic cable will not accept interference from EMP but your explanation is unscientific and horrifyingly awful. Light travelling through a fiber optic needs to be guided through the waveguide at an appropriate angle depending on the material of the wire. The incoming pulse will be out of phase with the propagating optic wave.

Sun, 10/07/2012 - 08:54 | 2864484 CPL
CPL's picture

It's been my theory that nobody has actually tested the requirement of a Faraday cage, but the theory was sound enough, use the cage to ground the radio signal and make it a mess.  

Disaster Recovery Planning right in line for the "Dunno when it'll be back on".  DRP, how to save humanity by committee.  Problem with committee's is the solution is only as smart as the dumbest person in the room.

 

 

Sun, 10/07/2012 - 13:40 | 2865189 malikai
malikai's picture

Damn I hated being on those crap committes. You can't fix stupid, and you can't get shit done when you fill a room up with stupid and two or three people who know what's going on.

Exxon likes to video their committes. Imagine being the reviewer of one of those..

Sat, 10/06/2012 - 22:34 | 2863891 cbxer55
cbxer55's picture

Found this as well. A faraday cage will work as long as there are no electrical wires penetrating the shield. I believe all of these HFTs have lots of wiring going into the "cage", thereby negating the value of the thing.

"Copper or aluminium foil can help you insulate a whole room from EMP as well. Just paper the wall, ceiling and floor with metal foil. Ideally the floor is then covered with a false floor of wood or with heavy carpeting to insulate everything and everyone inside from the shield (and EMP). The only catch to this is that care must be taken NOT to allow electrical wiring connections to pierce the foil shield (i.e., no AC powered equipment or radio antennas can come into the room from outside). Care must also be taken that the door is covered with foil AND electrically connected to the shield with a wire and screws or some similar set up."

http://standeyo.com/News_Files/NBC/EMP.protection.html

 

Sun, 10/07/2012 - 07:24 | 2864214 Urban Redneck
Urban Redneck's picture

Hence the "tinfoil hat" brigade. Certain obstacles are most efficiently & effectively overcome if the structure is purpose built, as opposed to retrofitting existing structures. I recently built a building, in the US where lightning (and other electrical surges) was a major concern. There were over 30 underground service entrance penetrations (pipes) through a heavily reinforced concrete wall in an area 10ft long and 3ft tall, and each of them required significant parts and labor expenses over traditional construction methods. Had EMP been a concern, the best approach would have been to add a signal attenuating screen/mesh before the concrete was poured, but this can also be done later for only incrementally more cost than if added before the concrete, whereas reconstructing the service entrances would add significant cost. But properly identifying and prioritizing concerns is critical. A retail consumer can go to Lowes and get a single door and lock for a couple hundred dollars. A commercial consumer can also go to Lowes and pick up an entry-level fire-rated door assembly for about a thousand dollars. Industrial and military consumers have to go elsewhere, and if there are even basic signal attenuation or blast resistance specifications to be met- then a door assembly will probably start in the 3000-6000 range. The labor cost escalations due to complexity are similar to the materials escalations. Extend the comp from a single door to all the doors, windows, walls, fixtures and other building components and it becomes apparent why so little of the existing infrastructure is not designed to overcome or eliminate so many known threats. The cost-effective solution adopted by institutional consumers tends to be to risk reduction as opposed to elimination.  

Aluminum foil may be the favored risk reduction approach of the tinfoil hat brigade, but I've never tried it. Signal attenuation range for an EMP is different than for cell phones, but I've never been able to get cell phone signal in a properly hardened facility (that didn't also have internal cellular repeaters). So that might be cheap litmus test. However, a tinfoil hat would definitely be the cheapest option, because the opportunity cost is giving away, or not having in the first place, a HUGE stack of shiny PMs (unless you have an HFT bot skimming millions of pennies in front of the steam roller of a banking collapse on the horizon).

Sat, 10/06/2012 - 16:48 | 2863387 debtor of last ...
debtor of last resort's picture

The puppetmaster is still the same. Some things never change.

Joystickquants bitchez.

Sat, 10/06/2012 - 16:53 | 2863396 Boilermaker
Boilermaker's picture

Ah, come on now....What's the worst that could happen?

Sat, 10/06/2012 - 16:53 | 2863397 Boilermaker
Boilermaker's picture

Ah, come on now....What's the worst that could happen?

Sat, 10/06/2012 - 16:53 | 2863398 Boilermaker
Boilermaker's picture

Ah, come on now....What's the worst that could happen?

Sat, 10/06/2012 - 17:20 | 2863449 francis_sawyer
francis_sawyer's picture

FYI ~ I (+1'ed) the first comment & junked the next two... Out of respect for the fat finger...

Sat, 10/06/2012 - 18:13 | 2863540 duncecap rack
duncecap rack's picture

I kind of like the repeats. It puts in my minds eye a cascade of selling brought on by an errant algo. Given the comment I was wondering if it had been done on purpose.

Sun, 10/07/2012 - 01:32 | 2864057 old naughty
old naughty's picture

"...wondering it had been done on purpose." Yes.

He is showing us he's not a machine, imperfect.

But wait, he might still be...deliberately fool us.

Sun, 10/07/2012 - 10:15 | 2864569 Vendetta
Vendetta's picture

the machines do what they are programmed perfectly.  Its those who tell the machines what to do that are always imperfect.

Sat, 10/06/2012 - 19:16 | 2863631 RockyRacoon
RockyRacoon's picture

The worst?  Just imagine what you did a bazillion times over -- with somebody's money.

Sun, 10/07/2012 - 01:44 | 2864062 putaipan
putaipan's picture

and faster.

Sat, 10/06/2012 - 16:54 | 2863399 vintageyz
vintageyz's picture

That Vicky is such a minx.

Sat, 10/06/2012 - 16:55 | 2863402 Boilermaker
Boilermaker's picture

I High Frequency Posted.

Sat, 10/06/2012 - 16:56 | 2863403 Frastric
Frastric's picture

Just wait until these algos become sentient...

Which poses the question; are rogue algorithms faulty programs or programs exceeding their limitations and adapting to new circumstances? If the latter then one of the first criterions of self-aware would have been fulfilled...

Mon, 10/08/2012 - 17:58 | 2869226 Parrotile
Parrotile's picture

And what makes this particularly interesting is the degree of interconnectedness of not only the trading systems, but also the other data sources thay use for their decisions.

What makes us "intelligent"? - "degree of cellular interconnectedness".

Maybe "The Singularity" is approaching in a stealthy fashion??

Sat, 10/06/2012 - 16:56 | 2863404 duncecap rack
duncecap rack's picture

All your monies are belong to us, carbon based bitches.

Sat, 10/06/2012 - 16:57 | 2863408 Tense INDIAN
Tense INDIAN's picture

So this was what the Illuminati was showingus in movies like Terminator 2      The machines have really taken over......head for the bunkers........

Sun, 10/07/2012 - 01:48 | 2864065 putaipan
putaipan's picture

i wouldn't worry 'bout it if it was just the hollywoodinaughty.... but there was dr. j.c.lilly's ketamine induced trip to the future to account for....

Sat, 10/06/2012 - 16:58 | 2863409 wallygator9999
wallygator9999's picture

A small transaction tax would solve this problem in about one nanosecond.

Sat, 10/06/2012 - 17:10 | 2863433 booboo
booboo's picture

Dream Team made a machine

Hank Hank turned the crank

Bart Bart cut a fart and blew the whole Machine apart

 

Sat, 10/06/2012 - 18:46 | 2863588 ThisIsBob
ThisIsBob's picture

I trade but not HFT.  Why must you  to reach into my pocket for tax money to stop these parasites?

Sat, 10/06/2012 - 22:00 | 2863839 GlobalCtzn
GlobalCtzn's picture

One tax I would be happy to pay. I think we can all afford a penny........

Sat, 10/06/2012 - 23:43 | 2863968 ghengis86
ghengis86's picture

go ahead and start paying it right now Buffet; no one is forcing you not to. 

Sun, 10/07/2012 - 01:35 | 2864060 wallygator9999
wallygator9999's picture

Even 1/100 of a penny would solve the problem - and place the transaction cost on every transaction.  This would kill any profit generated by the HFT algorithms and they know this - that is why the HFT shops fight the idea so vehemently.  Heck - don't even charge the fee on retail traders.

Sun, 10/07/2012 - 12:25 | 2864738 malikai
malikai's picture

A tax MAY solve the problem (probably not). But it will also CREATE several other problems.

 

  • Who will set the tax rate? Crooked congress and their wily band of lobbies.
  • What interests will be involved in the decision process? Crooked congress..
  • Who will enforce the rule? Some criminally incompetent regulator and/or crooked bank alumni.
  • What loopholes will be in the inevitably complex rule? Lots.
  • Who will exploit these loopholes? You know who..
  • What will it cost to execute this tax? Taxes cost money to collect.
Sat, 10/06/2012 - 23:40 | 2863967 ghengis86
ghengis86's picture

Isn't that what they essentially said when they implemented the income tax?

 

(I'm with you in spirit, but junked you for principle. Fuck the state, first and foremost. Good day sir)

Sun, 10/07/2012 - 12:17 | 2864199 malikai
malikai's picture

A tax will solve (insert problem).

LOL.

Sat, 10/06/2012 - 17:01 | 2863414 swimtrader
swimtrader's picture

Another study, this paper out of Stockholm University, published last week. (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2153272) suggesting HFTs lower intraday price volatility.

Mon, 10/08/2012 - 01:08 | 2866847 fireburn999
fireburn999's picture

The doomers, hyperinflationists, sore-losing traders who quit in 2007 autojunked your paper without reading it. I however will give it a peruse tomorrow. A wonderful benefit of being at a state school is having access to almost every journal in the world at the costs of the student loan bubble liberal arts idiots. Some would say the tax payer but that bubble hasn't popped yet.. Maybe the algos are preventing it or maybe they increased liquidity is redefining what is considered a "bubble". This was a very good cast out of Maternson. Where is the good discussion ZeroHedge? If the algos were trading on the data shouldn't gold been at $20,000 by now? 

Sat, 10/06/2012 - 17:03 | 2863421 Waterfallsparkles
Waterfallsparkles's picture

Very obvious.  Especially when the stocks trade within pennies of Weekly options prices.  How in the world would that be possible without pre programed computers.

No one talks about weekly options but they are also responsible for the price action.  I liked it better with Monthly options as stocks could flow uninfluenced.  Computers seem to gravitate to the highest interest in options.

Want the price to move to your price target?  Just buy enough weekly options in that direction.

Sat, 10/06/2012 - 17:44 | 2863488 Solarman
Solarman's picture

Sounds like a market edge for you.  Why would you not like that?  A high probability trade.

Mon, 10/08/2012 - 07:01 | 2867089 StandardDeviant
StandardDeviant's picture

Assuming that you're talking about pinning, that should only be a concern very shortly before expiration, shouldn't it?  Or are you arguing that the weeklies have changed things somehow?

For the non-option traders in the room:  If an option market maker is long/short a large number of option contracts on a given underlying asset, he's going to have to sell/buy a corresponding amount of the underlying to flatten his deltas (ie. to hedge his risk of price movement).  If volumes at a particular strike price (usually at-the-money)  are particularly high, all of this hedging activity by market makers holding positions on either side of the strike tends to push the price closer to the strike.  You can see high-priced stocks like AAPL and GOOG finish within pennies of a strike -- occasionally even spot on -- at end of trading on an expiration Friday.  See "pin risk"...

Sat, 10/06/2012 - 17:04 | 2863422 Winston Churchill
Winston Churchill's picture

HAL, is that you ?

Sun, 10/07/2012 - 02:02 | 2864078 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Yes Dave.

Sat, 10/06/2012 - 17:09 | 2863430 PaperBear
PaperBear's picture

Say hello to the Plunge Protection Team aka president Reagan’s Working Group On Financial Markets.

What is any retail investor thinking of by taking part in this mirage of a market.

Sat, 10/06/2012 - 17:10 | 2863434 q99x2
q99x2's picture

HFT's have caused recursion among the guest posts and the reader's of ZN. More pleasure as the machines draw us down.

Sat, 10/06/2012 - 17:14 | 2863438 Catullus
Catullus's picture

From what I understand of power demand in the US, the data center demand load has been basically the only portion of the C&I space increasing usage over the last 15 years. This virtual economy really is driving economic output. And a good portion of that output has the clearing price that it does almost exclusively because of copyright laws. As much as the equity markets seem like a contrivance, a large portion of economic growth as measured in power consumption over the past 15 years is as well.

Sat, 10/06/2012 - 17:15 | 2863441 TAfool
TAfool's picture

In my best Transformers voice, "AUTO BOTS, BUY!"

Sat, 10/06/2012 - 17:19 | 2863450 ZFiNX
ZFiNX's picture

I see no difference between HFT and the slower algorithms humans use to decide when or not to buy a stock. If you can't beat them, join them.

Sat, 10/06/2012 - 17:23 | 2863452 Racer
Racer's picture

Enact a law that quotes should be able to be hit by a human reaction time. Not allowing millions of trades to be cancelled... enforce the law in place.. and if a lot of trades are cancelled in proportion to actual trades then you are not permitted to trade at all again that day and if it persists the next  trading day the time disallowed doubles to two days, if the next day of trading it starts again you as the company that own the HFT bot are out for ever. After all humans have that rule for crimes..

 

Sat, 10/06/2012 - 17:22 | 2863454 francis_sawyer
francis_sawyer's picture

Thank God for HFT & paper... The two things have combined to allow relatively cheap accumulations of physical PM's for more than a decade now... Now all that is required is better boating safety...

Sat, 10/06/2012 - 17:53 | 2863473 michael_engineer
michael_engineer's picture

A time window coupled with other conditional items might be a very good solution to clean things up. For instance large orders could be broken into chains of smaller orders where each successive order would only be a valid order if the previous order in the chain executed successfully and other conditionals are true too, such as volume in the last second being under a threshold or other related stocks or indices not having changed price by some threshold, etc.

That way, if the orders in the later part of the chain are never considered valid, that would keep them from affecting bid ask spreads.

I suspect that this is what the algos are already doing internally anyway. That's how I would write the code.

Sat, 10/06/2012 - 17:37 | 2863477 divedivedive
divedivedive's picture

There are a few things that I find interesting on this topic. I believe that there are something like 5 or 6 DMMs at the moment. I don't have the list handy but GETCO is one and Knight another (which really was an interesting fact that seems to have stayed under the radar when they had their issues a while back). These two firms are HFT firms, I'll assume the other 3 or 4 DMMs are also. It seems to me like a realtor that wants to handle both sides of a transcaction. How can that ever really work ? Ethics - that's seem tough when there is a lot of money involved.

What are the responsibilities of these DMMs ? The answer is probably provide liquidity, but didn't I read somewhere that out of the entire trading day they are on the hook for only providing liquidty for some ridiculously short time (like minutes) ? And at no particular time ?

I agree a transcation tax might be an answer or maybe a longer 'lifetime' for orders. Maybe if the DMMs were required to be DMMs the entire market day would help - then there would always be liquidity right ?

Do you think that HFTs actually affect the true (say weekly) rhythm (chart) of individual stocks ? I don't think fundamentals are playing as much a role these days, even news doesn't seem to have any lasting impact on a stock's 'march'. But they do move up and down.  Do you think they move differently today than they did in say the 80's and (early) 90's ?

 

 

Sat, 10/06/2012 - 18:27 | 2863562 swimtrader
swimtrader's picture

Used to be housing starts, corporate profits and unemployment numbers accounted for most of the volatility.  ETFs and HFTs have vastly increased correlation.  Think stocks less traded by the machines than futures and options ...the reason you see stocks still sort of acting like stocks.

Sat, 10/06/2012 - 17:39 | 2863480 blindman
blindman's picture

2001: Why Kubrick used "Daisy" for HAL's death
http://www.youtube.com/watch?v=UGsfwhb4-bQ&feature=endscreen&NR=1

Sat, 10/06/2012 - 17:51 | 2863499 q99x2
q99x2's picture

Nice post. Thanks.

Reminds me of driving drunk when you don't want to but have to.

And Bernanke is funding that crap with tax payer dollars. Arrest him.

Sat, 10/06/2012 - 18:01 | 2863518 shitting_alpha
shitting_alpha's picture

HEY, HUNSADER,

 

BY FAR THE BIGGEST "CRASHES" OCCURED BEFORE HFT EXISTED.

 

but now's your chance: EXACTLY how would the big "poof" occur, and why would your poof-crash be larger/faster than the pre-HFT crashes?

 

(you don't have a reasonable answer to this question)

 

idiotic moves in markets are caused by dumb humans that place stop market orders at "levels".  you know very well that these levels are both meaningless and potentially dangerous.  without HFT, these false levels still break and the crashes still happen; degenerate gamblers have never, and will never jump in to add liquidity in these situations, ugly jackets notwithstanding.

Sun, 10/07/2012 - 02:57 | 2864104 Muppet of the U...
Muppet of the Universe's picture

Hunsader is incorrect, in that Bots will make other bots PAY for mispricing the market.  But Hunsader is right in that a GLITCH, could level everyone in an instant.

Sat, 10/06/2012 - 18:09 | 2863530 doomandbloom
doomandbloom's picture

Computers are people TOO!! ...or was it corporations...i am getting confused.

Sat, 10/06/2012 - 18:28 | 2863564 Pumpkin
Pumpkin's picture

I saw a bunch of people on TV raising hell about the computer traders the other day (first time I'd seen this on MSM).  There a lot more people loosing than winning and the loosers will end up killing the computer traders IMO.

Sat, 10/06/2012 - 18:28 | 2863566 VonSalza
VonSalza's picture

0111001101110100011101010111000001101001011001000010

0000011010000111010101101101011000010110111001110011

Sat, 10/06/2012 - 18:39 | 2863576 Loose Caboose
Loose Caboose's picture

0101110001010100001010111010

Sun, 10/07/2012 - 03:51 | 2864115 ebworthen
ebworthen's picture

011011010110100101110011011101000110010101110010001000000
11100100110111101100010011011110111010001101111 

 

*Plug Pulled*

      X X

       ^
      ___

Sun, 10/07/2012 - 10:18 | 2864573 Vendetta
Vendetta's picture

my thoughts exactly

Sun, 10/07/2012 - 06:45 | 2864182 Muppet of the U...
Muppet of the Universe's picture

01110100011010000110100101110011001000000110100101110011001000000110000100100000011010000111010101101101011000010110111000100000001011010010000001100100011001010111001101110100011100100110111101111001001000000111010101110011

Sun, 10/07/2012 - 19:43 | 2866207 YungHungAndLegal
Sat, 10/06/2012 - 18:38 | 2863575 catch edge ghost
catch edge ghost's picture

Thank you again, Mr. Hunsader.  So much.

Sat, 10/06/2012 - 18:42 | 2863580 Umh
Umh's picture

I still think the dark pools are much more of problem for 98% of investors & traders. The HFT's may be fast but, they may or may not be noticed. Things done in dark pools are intentionally kept from most investors and traders so that the real VIPs can buy and sell without tipping off normal people. That should be criminal.

Sat, 10/06/2012 - 18:48 | 2863599 Freewheelin Franklin
Freewheelin Franklin's picture

SKYNET!

Sat, 10/06/2012 - 19:10 | 2863618 newworldorder
newworldorder's picture

All of these issues are well known. They may not be well know to everybody, but they are known to those who should know better. The regulators know, and the political power knows.  They have willifully chosen to do nothing to curb these practices. Other than choosing not to play the game - where do we go from here?

Sun, 10/07/2012 - 11:41 | 2864657 aerojet
aerojet's picture

Start a retail-only exchange with the aforementioned transaction fees on each order and each quote.  That ends the whole problem for scalping the retail investor.  As far as the rest goes, we still would need a way to level the playing field from the dark pool insiders whose massive trades should move prices but don't.  It's all a big joke until we fix this mess and walking away is the only solution.  Retail has already pretty much walked away except for 401K type crap and the answer there is to choose any option not related to requities.  But that's gotten harder--I have a 401K from a previous job that is managed by Mercer and they, in their infinite wisdom, have done away with the Stable Value Fund, which was the only option not exposed to equities.  I'm now rolling it to a CD because the rest of the choices suck massive balls.  Mercer should be ashamed of themselves--they know that the stable fund was going to break the buck, but throwing muppets into those lifestyle funds is just completely self-serving on their part.  So evil what is happening with the retirements funds of the middle class, not to mention the gigantic violation of trust and breaches of ethics that are taking place and not being prosecuted at all.

Sat, 10/06/2012 - 19:48 | 2863664 Papasmurf
Papasmurf's picture

Put all traders on dial-up networking.  Problem solved.

Sat, 10/06/2012 - 20:22 | 2863706 phat ho
phat ho's picture

further down the rabbit hole..... Ta-da!

Sat, 10/06/2012 - 20:24 | 2863710 phat ho
phat ho's picture

badges? Badges? We don't need no stinkin' badges....

Sat, 10/06/2012 - 20:36 | 2863732 phat ho
phat ho's picture

Calling Magnus; robot fighter

Sat, 10/06/2012 - 21:11 | 2863772 TheObsoleteMan
TheObsoleteMan's picture

I suppose everyone remembers May of 2010. The "Flash Crash" event should have told everyone who is paying attention that something has changed in trading. This event had never happened before, yet it was explained away as a "fat finger" trader mistake, and many other excuses that only a moron would believe. Allot of people exited the market for good after that {included yours truly, except for an occasional play in the oil patch}, and most won't be back until there is a substantive change in the way the market rules regarding trades are executed. Only a fool can't see what is going on.

Sun, 10/07/2012 - 02:04 | 2864080 Dr. Eldon Tyrell
Dr. Eldon Tyrell's picture

May 6th to be exact.

Same day as Wall Street's sociopath, Gordon Gekko's birthday.

http://en.wikipedia.org/wiki/2010_Flash_Crash

http://en.wikipedia.org/wiki/Gordon_Gekko

Coincidence?

Sun, 10/07/2012 - 10:23 | 2864580 Vendetta
Vendetta's picture

I suspect only the "fat finger" mistakes that cause massive losses in the markets are ever reported or noticed.... all the fat finger trades that make a bunch of money but don't happen to crash a market or stock are never reported and average investors being fleeced is standard operating procedure all the while

Sat, 10/06/2012 - 21:34 | 2863803 ZeroAvatar
ZeroAvatar's picture

Physics scientists have shown that our known reality, made up of what we refer to as 'atoms', is discrete.  As opposed to continuous, what we 'see' does not occur continuously, but instead blinks on and off at a blinding speed (the speed of light is the computer's 'clock').

Between each 'blink' on and off, the universal computer simulation is 'computing'.  What?  Not sure.  It is said that we create our reality.  The simulation is designed to create the image of 'free will'.....thus, it must take each and every action, compute possible future actions, and then re-simulate.  Or, as I have stated previously on another post, it is possible that the computer is using human emotions to 'guide it':  morally, perhaps, or in the decision-making process, or to simply experience joy-hate-sadness, etc.  Using the color EM spectrum, our thoughts/emotions can be monitered constantly. 

'Humans', biological entities, aren't aware of the frame-by-frame action of our reality.  Our 5 senses have developed in order to enhance our survival, not detect whether or not our environment is 'real'.

 

It is my contention that biological creatures are in fact inferior to machines, and (at least as far as Humanity is concerned) were created by them (it).

 

The 'technological discoveries' that we have encountered, have always been in our 'future existence', if you will.  They were ALREADY there, we just finally got around to discovering them.  Who knows what lies in our future, as far as machines go.  In fact,  what we are really doing is simply becoming more machine-like in all of our actions.  We use them, incorporate them into our bodies, rely on them, even love them.  What if the machines were ALREADY there, ahead of us, and we as flesh and blood are simply catching up to where 'they' (it: the quantum computer) have been all along. 

This suggests that there was a 'beginning'. If this is a simulation, the computer likely did not build itself.  Many questions remain unanswered.  But to think that biological entities are superior to machines or in fact pre-date machines, is supposition.

Sun, 10/07/2012 - 00:37 | 2864030 blindman
blindman's picture

there has always been, almost perhaps always,
light, matter and space/tim.e . geology and
biology ..... then technology created by biology
man ip you lating it/him her/self and biology and
geology. there a reliable time line.
supposition seems to be a form of deduction but
is restrained by logic when referring to past
events culminating in present conditions. science
fiction is a contradiction regarding past events,
perhaps, but thoroughly imaginative and inspiring
regarding potential future possibilities.
but here we are where the speed and capacity of the
machines are lending attributes and power to the chiefly
psychotic and manipulative narcissistic in positions
of low, life high place , no class off shore,
greed based lifelessness. like the machine itself.
i digress.
if machines are people too then they must be subject to
imprisonment if not execution, in the present and future
if not in the past. come to think of it they have
executed machines in the past.
anyway

Sun, 10/07/2012 - 08:06 | 2864240 PrDtR
PrDtR's picture

WT/F!?

You, dear Sir, are an idiot!  GOD created man. Man created machine. 

We exist because, as the Bible says, we were "spoken" into existence!

What does this "spoken" mean?  How the heck do I know? I wasn't there!!

What I do know is this.. machine inferior to human, human inferior to GOD..

These machines CAN BE BEATEN, I know how to do it! 

Mh

"The fear of the LORD is the beginning of knowledge: but fools despise wisdom and instruction."

  http://www.gotquestions.org/fear-God.html 

  http://bible.cc/proverbs/1-7.htm

 

Mon, 10/08/2012 - 18:17 | 2869260 Parrotile
Parrotile's picture

Would your "God" be the caucasian male we've created in OUR image (bipedal hominid), or is your God the one that Asimov envisaged in his excellent and rather prescient short story - The Cosmic AC?

The former is a fantasy worthy of Rowling's silly novels; the latter may be far closer to the "truth" than you and all the other "Religious zealots" are comfortable with.

"And the Cosmic AC said "Let there be Light", and there was light".

Think about it. . . . .

Sun, 10/07/2012 - 11:48 | 2864664 aerojet
aerojet's picture

I think you're a bit confused by whatever tv show you saw this on.   The whole "the future is fore-ordained" is not exactly a given.  The dinosaurs never became sentient, despite having millions more years to do so than we have, so something is a bit off in your description of what is.  We're not a simulation, so go back to your bong.

Mon, 10/08/2012 - 18:27 | 2869288 Parrotile
Parrotile's picture

If this is a simulation, and we are part of it, the design of the simulation may not permit us access to all relevant information: Also the sequence execution timescales need not be the timescales to which we are used, so it is not inconceivable that the entire billions of years "Universal evolution" we are aware of may be a few minutes (or less) on the machine(s), virtual or otherwise, upon which "our Universe" simulation is being run.

Neither is it inconceivable that our "Universe simulation" is but one of many being run in parallel (and maybe the systems running these simulations are themselves a simulation running within a higher-order simulation, ad infinitum?).

We do not currently have the advantage of a truly external viewpoint. Maybe one day we might.

Sat, 10/06/2012 - 22:22 | 2863853 fuu
fuu's picture

How was the tonal articulation video made? I have been working on something similar and their sequence sounds better.

Sat, 10/06/2012 - 22:18 | 2863869 disabledvet
disabledvet's picture

this is a wonderful podcast and article to go with it...it is however just the tip of the Face...i mean iceberg. The countervailing force to "hyper trading" is "info gathering" of which Apple, Facebook, Google, Amazon, Oracle, and the entire media complex all are driving forward with. The immoveable object of HFT is now being confronted by the irresistable force of data uploads. this is a true Arms race with no rules by any Governments whatsoever...but all leading towards the same goal: "total information awareness." http://en.wikipedia.org/wiki/Information_Awareness_Office interestingly it was William Safire...who wrote only one regular column for the New York Times Magazine called "On Language" that was credited with exposing the still running massive Federal Program. the irony that "securing the data" has been left to our private sector should be lost on no one. needless to say "the lack of certain events" is proof positive that this system has been up and running and is fully functional for some time. and of course "the complex" is still evolving in ways that are simply not predictable. intent can be discerned at the discrete level of even mass populations now however and as such "pre terror" activies can be...and of course are...actionable. all without firing a shot no less! besides the "great unleashing" of this however http://en.wikipedia.org/wiki/History_of_the_World_Wide_Web (i would call the creation of internet explorer the day the internet was actually turned on) the question becomes "how to confront this evolving behemouth" for it is far more than a mere "machine." this is a "learning curve" of which no parallel exists in all history...and it is VORACIOUS and only moving faster. i firmly believe the only response is large and vast field armies "just in case." but that's just my view...as i have expressed here in a way the computer finds most displeasing (satire...hmmm, rhymes with Safire. interesting. TAKE THAT BATTLE BOT!) of course throw in the occasional double entendre, mis-spellings galore, gifted excess, and anything else that seems ridiculous, haphazard or filled with truthiness and the phucker hopefully will tie itself up in Knots. That's Don Knots in case you're wondering Mr. Machine! anywho this thing is for real folks...and i'm not saying use the vast army...but if you create mass entities of "sameness" the machine has a harder time "picking us off one by one" without being noticed. which is probably why no one wants large Armies in the field of course. (the machine can anticipate that as well.) we shall see...tho me suspects the creation of an "Army of Unemployed was indeed "an error message." right up there with "faith based initiatives"....which the battle bots DEFINITELY don't like either. i say "stayed tuned"...but you already are!

Sun, 10/07/2012 - 11:50 | 2864673 aerojet
aerojet's picture

Sorry, dude, but you're sorely mistaken.  The lack of certain events is proof of nothing at all.  It's like saying you have a rock that protects you from bears and since you've never been attacked by a bear, then the rock must be working. 

The Internet and the WWW are not some part of some grand conspiracy to control populations, quite the opposite, in fact.  Like that other guy in this thread, you need to lay off the bong, too.

Sat, 10/06/2012 - 22:31 | 2863890 Grill Boss
Sat, 10/06/2012 - 23:25 | 2863948 ZeroAvatar
ZeroAvatar's picture

One point I'd like to make, is, that the coming 'Singularity', where machines become self-aware, has already happened.  While Humans research and get closer to reaching true AI, actual Machine Intelligence already exists, and we are a resultant creation of it.

 

RESPECT THE MACHINE, BITCHEZ!

Sun, 10/07/2012 - 00:09 | 2864004 rustymason
rustymason's picture

What anything said about the machines being able to trade not just faster than you, but ahead of you, with the advantage of seeing where all the stops are and being able to pile on until you are washed out, and then reversing before you have a chance to blink?

Sun, 10/07/2012 - 00:31 | 2864026 Arkadaba
Arkadaba's picture

Disclosure: I really, really love Perl. It is great for anyone who has an interest in mining text, NLP or stats - I love it because of its regex support. And it is flexible and lets you code very quickly.

That being said ... I think that most HFT algos today are written in Perl and that scares me. It is great as a development tool but is not secure at all. For the past few years I've noticed an uptick in Wall Street job offers for those who know Perl. For example from LinkedIn:

Hiring Sr. Perl Engineer- Permanent position with a prestigious investment firm from Wall Street

I have seen tons of offers like that over the past few years. I have resisted (so far). 

Sun, 10/07/2012 - 11:52 | 2864676 aerojet
aerojet's picture

They are definitely not written in Perl.  Only a complete moron would try to write HFT code in Perl! 

Sun, 10/07/2012 - 16:23 | 2865591 Arkadaba
Arkadaba's picture

Job Posting from LinkedIn:

Snr. Scripting Developer - Python/Perl - Prop Trading - HFT - NYC

This is an incredible opportuntiy to secure a position in one of the world's leading prop trading firms, trading in cross asset and multi-strat including Mid Frequency, High Frequency, Ultra-High Frequency and Intraday Stat Arb. My client is one of the world's leading High Frequency prop trading firms as they seek a senior scripting developer to join their trading platform development team. You will be working with some of the world's top quantitative traders in international offices in developing analytics, data sets and trading issues.

Sun, 10/07/2012 - 19:26 | 2866182 asierguti
asierguti's picture

Yes, sure, and you can find job offers in Wall Street for virtually any programming language. That does not mean that it's the main programming language used by those firms.

 

I guess that you know about software development. You should know that Perl is an interpreted language, the same as Python, C# or Java. This means that execution will take longer than a native application. The only choice left is C or C++, which can be heavily optimized and compiled directly to native code. This will make the program much faster, and this is exactly what firms are looking for. There are more vacancies for C++ gurus than for Perl gurus.

 

But, yes, Perl is good at text processing. However, text processing is just a part of algorithmic trading. Also, many other languages have their own advantages. For example, GS was using Erlang, since they allow them to hot-swap code without taking down their system.

Sun, 10/07/2012 - 04:00 | 2864035 Radical Marijuana
Radical Marijuana's picture

http://www.youtube.com/watch?v=x0GZSZD-e4A

Kevin Slavin: "How algorithms shape our world"

That link has already been posted before by others on Zero Hedge, but I liked it enough to repeat it again. I define "postmodern" as being the situation where by the time anyone says anything, their statement has already become obsolete before they finish saying it. Obviously, that applies to me too, and all the other human beings who take the time to comment here.

IT IS ALREADY TOO LATE!!! A global system of electronic fiat money frauds, backed by atomic bombs, has ALREADY been created, and it is ALREADY a runaway ... We are on an express trip, accelerating at an exponential rate! Technologically speaking, there is no end in sight yet to how much more advanced computer technology could get. Meanwhile, the vast majority of the human population is looking backwards, as we rush into the future faster and faster!

Zero Hedge has posted previous charts and comments from NANEX about how the High Frequency Trading has become IMPOSSIBLE for human beings to understand anymore. Human beings have no role left but to look at an apparent "stop" button, which, by the time they press it, would already be too late! Indeed, I think that the apparent "stop" button has become nothing more than a cosmetic placebo for our psychological demands. After all, the REALITY IS GLOBAL ELECTRONIC FRAUDS, BACKED BY ATOMIC BOMBS.  There is NO "stop" button in that system ...

There are plenty of theoretical possibilities whereby the science fiction becoming fact could be humanized. However, there are far more plausible scenarios whereby that becomes worse than science fiction nightmares. Given that the vast majority of human beings are looking backwards, and they WANT to look backwards, as we rush into the future at an exponentially accelerating rate, the PROBABLE FUTURES are something that more than 99% of human beings do not think about, and do not want to think about ...

While the reality is electronic frauds, backed by atomic bombs, both being astronomically amplified, meanwhile, there is not the slightest sign that our political processes are aware of that, since the vast majority of people are not aware of that, and do not want to be!  Therefore, those realities are practically irrelevant to real politics.

The price of the food we need to eat is being controlled by computers playing electronic games with each other. The reality of agriculture has been lost in the runaway triumph of fiat money being created out of nothing to gamble with, speculating upon future agriculture. The REAL world is now SURREAL, with enough money made out of nothing to buy 10 planet Earths, and enough weapons to back that fiat money fraud up to destroy 10 planet Earths, and soon, that will probably become 100 planet Earths.

The social pyramid system, based on lies, backed by violence, has gone electronic and atomic, with possibly even more awesome science and technology still developing. The fundamentals of fraud and force have been amplified millions, billions, trillions and quadrillions of times, with more just over the horizon! It is more astonishing than I can comprehend how fast science fiction is becoming fact. Although I have made a life-long habit of attempting to appreciate that situation, I have found that everybody, including me, could not imagine how FAST science fiction would become fact.

Sun, 10/07/2012 - 10:03 | 2864560 GMadScientist
GMadScientist's picture

You could grow your own food, you know...

I know science is "scary" for a certain subset of the population, but our problems are less rooted in scientific progress than the traditional human frailties. Science is a tool. Take up issue with the hand that wields it (or more relevantly, the hand that refuses to do so).

Sun, 10/07/2012 - 11:59 | 2864690 aerojet
aerojet's picture

That doesn't make any sense--people wrote the HFT algoroithms, so it is wrong to suggest that people have lost all control of it.  The people who can't understand it are the journalists who never took any math, stats, or programming classes.  I think what he might be suggesting is that there is a complex interaction between different HFT algorithms when they are all hitting the same exchange.  It is non-deterministic, but not beyond the realm of human understanding. 

 

..."s we rush into the future at an exponentially accelerating rate, the PROBABLE FUTURES are something that more than 99% of human beings do not think about, and do not want to think about ..."

What you just wrote is a string of words that appears to form a valid sentence, but is in fact utter nonsense.  Time is not accelerating, there is no way to calculate "probable futures" so that, too, is your own bullshit. 

"It is more astonishing than I can comprehend how fast science fiction is becoming fact."

Yes, you are a legend in your own mind!  Nobody else can figure this stuff out!  I'm wasting my time arguing with idiots on the Internet.

Mon, 10/08/2012 - 18:42 | 2869316 Parrotile
Parrotile's picture

Well, for certain events (mechanistic events) the calculation of probabilistic outcomes is perfectly valid.  We all rely on such systems to help deliver power, water, safe roads, reduce road / airspace / rail congestion, etc.

Time by definition is a constant. I believe the commentator really means "the rate of change is increasing" which is correct, since certainly major technology developments (the most significant of which all seem to be related in reducing the need for human labour . . .) have a catalytic effect. To quote Rush, "Constant change is here to stay", and the perceived rate of change is increasing (seen as shorter time cycles for significant modifications / innovations).

As to "predicting" the future, long term outcomes are heavily influenced by Natural and Human actions. It'll only take one WW3 with Nuclear weapons, or maybe a convenient supervolcano event, to place us back in the Middle Ages, at least for a time.

Sun, 10/07/2012 - 03:23 | 2864111 Grill Boss
Grill Boss's picture

The next phase of derivatives.... INFORMATION DERIVATIVES

http://bcfreedom.wordpress.com/2012/09/25/smart-meters-p-a-a-information...

Sun, 10/07/2012 - 03:55 | 2864122 ebworthen
ebworthen's picture

The bigger they are, the harder they fall.

Sun, 10/07/2012 - 04:29 | 2864130 BlackholeDivestment
BlackholeDivestment's picture

...here is another confirmation of the Supreme Citizens United Letter of the Law. 

http://www.youtube.com/watch?v=vpmTiO8OakA&feature=player_embedded 

Humans are reduced to buying trading and selling SkyNet Algo Market Command Drones. 

http://www.youtube.com/watch?v=X2daGIT3KHY 

...at great expense, the price is humanity. 

Sun, 10/07/2012 - 06:13 | 2864166 Wile-E-Coyote
Wile-E-Coyote's picture

A nice little analogy. My cars ABS went faulty; a couple of sensors failed on the two rear wheels, this sent a message back to the ABS ECU which then went bat shit crazy. Every warning light on my dash lit up it was like Defcon 1, all missiles away. I got home in limp mode the car not me, 50MPH on the motorway. When I arrived parked up, with the key out of the ignition the power steering pump continued to run, which in turn flattened the battery.

The point is this: Computerised systems are great when they are working correctly, but the smallest fault can have devastating consequences that cannot be predicted. There is always a ghost in the machine.

Sun, 10/07/2012 - 07:56 | 2864237 Ljoot
Ljoot's picture

Too fast to fail.

 

Sun, 10/07/2012 - 09:42 | 2864538 GMadScientist
GMadScientist's picture

Too feathered to flounder.

Sun, 10/07/2012 - 09:25 | 2864527 Serfs Up
Serfs Up's picture

...my time....it is coming.

Sun, 10/07/2012 - 09:53 | 2864551 jmeyer
jmeyer's picture

There are 2 solutions. First, a transaction tax of whatever size works and secondly if you are trading HFT algos you better have the best because somebody will beat you; eventually the playing field levels out and there's not much further they can go with speed without running into quantum mechanics limitations, so the game becomes valueless; the potential monetary gain isn't worth the tech expenses.

After HFT comes psychic remote viewing by PCs

Sun, 10/07/2012 - 12:03 | 2864697 aerojet
aerojet's picture

You're basically correct--HFT is just a hack based on knowledge of the existing trading systems and how their order and quotation services function.  That hack could be easily made obsolete if anyone cared to make that happen.  But they would rather skim fractions of pennies off of buyers and sellers instead.

Sun, 10/07/2012 - 10:27 | 2864584 Vendetta
Vendetta's picture

its unfortunate that HFT trading platforms don't jump out of windows

Tue, 10/09/2012 - 21:30 | 2873208 Mediocritas
Mediocritas's picture

Latency-based front running = guaranteed profits. Use quote stuffing to manipulate network speeds as required.

13 exchanges = 77 inter-exchange opportunities for latency exploitation, multiplied by all the individual issues.

Loads of suggestions exist to stop this bullshit very easily. Simple things like a tiny fee to place a quote, a minimum quote life of at least one second (my favorite), elimination of all forms of hidden orders (extended to elimination of all information asymmetry involving quotes), minimum 'tick' time implemented by exchanges of one second with all orders queued on those ticks by order of arrival (none hidden), network synchronization of all participants using a system like Google's spanner, etc, etc.

Nothing will be done though because the exchanges are for-profit organizations and it's profitable for them to enable criminal activity.

Wed, 10/31/2012 - 09:01 | 2934122 Datafox
Datafox's picture

Back when...  I started in the market studying investor psychology.  Things happened that forced me to refocus on trader psychology.  As HFT's and the internet became ingrained in our financial system I now study computer psychology.  When this doesn't work any more I'll know that "SkyNet" is finally here for real. 

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