This page has been archived and commenting is disabled.

Mark Cuban's Primer On HFT For Idiots

Tyler Durden's picture




 

High Frequency Trading (HFT) covers such a broad swathe of 'trading' and financial markets that Mark Cuban (yes, that Mark Cuban), who has been among the leading anti-HFT graft voices in the public realm, decided to put finger-to-keyboard to create an "idiots guide to HFT" as a starting point for broad discussion. With screens full of desperate "stocks aren't rigged" HFT defenders seemingly most confused about what HFT is and does, perhaps instead of 'idiots' a better term would be "practitioners."

 

Via Blog Maverick,

First, let me say what you read here is going to be wrong in several ways.  HFT covers such a wide path of trading that different parties participate or are impacted in different ways. I wanted to put this out there as a starting point . Hopefully the comments will help further educate us all

1.  Electronic trading is part of HFT, but not all electronic trading is high frequency trading.

Trading equities and other financial instruments has been around for a long time.  it is Electronic Trading that has lead to far smaller spreads and lower actual trading costs from your broker.  Very often HFT companies take credit for reducing spreads. They did not. Electronic trading did.

We all trade electronically now. It’s no big deal

2. Speed is not a problem

People like to look at the speed of trading as the problem. It is not. We have had a need for speed since the first stock quotes were communicated cross country via telegraph. The search for speed has been never ending. While i dont think co location and sub second trading adds value to the market, it does NOT create problems for the market

3. There has always been a delta in speed of trading.

From the days of the aforementioned telegraph to sub milisecond trading not everyone has traded at the same speed.  You may trade stocks on a 100mbs broadband connection that is faster than your neighbors dial up connection. That delta in speed gives you faster information to news, information, research, getting quotes and getting your trades to your broker faster.

The same applies to brokers, banks and HFT. THey compete to get the fastest possible speed. Again the speed is not a problem.

4. So what has changed ? What is the problem

What has changed is this. In the past people used their speed advantages to trade their own portfolios. They knew they had an advantage with faster information or placing of trades and they used it to buy and own stocks. If only for hours. That is acceptable. The market is very darwinian. If you were able to figure out how to leverage the speed to buy and sell stocks that you took ownership of , more power to you. If you day traded  in 1999 because you could see movement in stocks faster than the guy on dial up, and you made money. More power to you.

What changed is that the exchanges both delivered information faster to those who paid for the right AND ALSO gave them the ability via order types where the faster traders were guaranteed the right to jump in front of all those who were slower (Traders feel free to challenge me on this) . Not only that , they were able to use algorithms to see activity and/or directly see quotes from all those who were even milliseconds slower.

With these changes the fastest players were now able to make money simply because they were the fastest traders.  They didn’t care what they traded. They realized they could make money on what is called Latency Arbitrage.  You make money by being the fastest and taking advantage of slower traders.

It didn’t matter what exchanges the trades were on, or if they were across exchanges. If they were faster and were able to see or anticipate the slower trades they could profit from it.

This is where the problems start.

If you have the fastest access to information and the exchanges have given you incentives to jump in front of those users and make trades by paying you for any volume you create (maker/taker), then you can use that combination to make trades that you are pretty much GUARANTEED TO MAKE A PROFIT on.

[ZH:

And here is Nanex with the clearest example of just what the difference between the 'slow' consolidated SIP feed (that BATS CEO lied about using) and fast 'Direct' feed (that BATS actually uses enabling HFT to skim as seen below) means...

The trade time-stamps in the consolidated feed are not the original time-stamps shown in expensive direct feeds used by High Frequency Traders (HFT). The time-stamps are getting replaced right before they are transmitted to subscribers from the SIP (security information processor, which creates the consolidated feed). This means direct feed subscribers are getting more accurate core market data than consolidated subscribers: a direct Reg NMS violation.

 

 

The loss of original time-stamps makes it difficult to reconstruct accurate audit trails or make comparisons to quote data. It also renders any computations based on trade data (e.g. charts, technical analysis) inaccurate.

 

We matched a few seconds of SPY trades on June 3, 2013 from a direct feed (Edge-X) to the same trades from the consolidated feed. In the selection shown in the image on the right, the first trade (163.21 and 400 shares) has a time-stamp of 10:00:00.013 in the direct feed and a time-stamp of 10:00:00.243 in the consolidated feed, a difference of 230 milliseconds!

 

Download the complete list (pdf).

 

See this paper for more charts and data on this event.

Ironic that the two versions of the same reality are "blue" and "red" in this chart... which pill will you swallow?]

 

So basically, the fastest players, who have spent billions of dollars in aggregate to get the fastest possible access are using that speed to jump to the front of the trading line. They get to see , either directly or algorithmically the trades that are coming in to the market.

When I say algorithmically, it means that firms are using their speed and their brainpower to take as many data points as they can use to predict what trades will happen next.  This isn’t easy to do.  It is very hard. It takes very smart people. If you create winning algorithms that can anticipate/predict what will happen in the next milliseconds in markets/equities, you will make millions of dollars a year. (Note:not all algorithms are bad.  Algorithms are just functions. What matters is what their intent is and how they are used)

 

These algorithms take any number of data points to direct where and what to buy and sell and they do it as quickly as they can. Speed of processing is also an issue. To the point that there are specialty CPUs being used to process instruction sets.  In simple terms, as fast as we possibly can, if we think this is going to happen, then do that.

The output of the algorithms , the This Then That creates the trade (again this is a simplification, im open to better examples) which creates a profit of  some relatively  small amount. When you do this millions of times a day, that totals up to real money . IMHO, this is the definition of High Frequency Trading.  Taking advantage of an advantage in speed and algorithmic processing to jump in front of trades from slower market participants  to create small guaranteed wins millions of times a day.  A High Frequency of Trades is required to make money.

There in lies the problem. This is where the game is rigged.

If you know that by getting to the front of the line  you are able to see or anticipate some material number of  the trades that are about to happen, you are GUARANTEED to make a profit.  What is the definition of a rigged market ? When you are guaranteed to make a profit.  In casino terms, the trader who owns the front of the line is the house. The house always wins.

So when Michael Lewis and others talk about the stock market being rigged, this is what they are talking about.  You can’t say the ENTIRE stock market is rigged, but you can say that for those equities/indexs where HFT plays, the game is rigged so that the fastest,smart players are guaranteed to make money.

 

6. Is this bad for individual investors ?

If you buy and sell stocks, why should you care if someone takes advantage of their investment in speed to make a few pennies from you  ?  You decide, but here is what you need to know:

a. Billions of dollars has been spent to get to the front of the line.  All of those traders who invested in speed and expensive algorithm writers need to get a return on their investment.  They do so by jumping in front of your trade and scalping just a little bit.  What would happen if they weren’t there ? There is a good chance that whatever profit they made by jumping in front of your trade would go to you or your broker/banker.

b. If you trade in small stocks, this doesn’t impact small stock trades.  HFT doesn’t deal with low volume stocks. By definition they need to do a High Frequency of Trades. If the stocks you buy or sell don’t have volume (i dont know what the minimum amount of volume is), then they aren’t messing with your stocks

c. Is this a problem of ethics to you and other investors ? If you believe that investors will turn away from the market because they feel that it is ethically wrong for any part of the market to offer a select few participants a guaranteed way to make money, then it could create significant out flows of investors cash which could impact your net worth. IMHO, this is why Schwab and other brokers that deal with retail investors are concerned. They could use customers.

7.  Are There Systemic Risks That Result From All of This.

The simple answer is that I personally believe that without question the answer is YES. Why ?

If you know that a game is rigged AND that it is LEGAL to participate in this rigged game, would you do everything possible to participate if you could ?

Of course you would.  But this isn’t a new phenomena.  The battle to capture all of this guaranteed money has been going on for several years now. And what has happened is very darwinian.  The smarter players have risen to the top. They are capturing much of the loot.  It truly is an arms race.  More speed gives you more slots at the front of the lines. So more money is being spent on speed.

Money is also being spent on algorithms.  You need the best and brightest in order to write algorithms that make you money.  You also need to know how to influence markets in order to give your algorithms the best chance to succeed.  There is a problem in the markets known as quote stuffing. This is where HFT create quotes that are supposed to trick other algorithms , traders, investors into believing their is a true order available to be hit. In reality those are not real orders. They are decoys. Rather than letting anyone hit the order, because they are faster than everyone else, they can see your intent to hit the order or your reaction either directly or algorithmically to the quote and take action. And not only that, it creates such a huge volume of information flow that it makes it more expensive for everyone else to process that information, which in turn slows them down and puts them further at a disadvantage.

IMHO, this isn’t fair.  It isn’t a real intent. At it’s heart it is a FRAUD ON THE MARKET.  There was never an intent to execute a trade. It is there merely to deceive.

But Order Stuffing is not the only problem.

Everyone in the HFT business wants to get to the front of the line. THey want that guaranteed money. In order to get there HFT not only uses speed, but they use algorithms and other tools (feel free to provide more info here HFT folks) to try to influence other algorithms.  It takes a certain amount of arrogance to be good at HFT. If you think you can out think other HFT firms you are going to try to trick them into taking actions that cause their algorithms to not trade or to make bad trades. It’s analogous to great poker players vs the rest of us.

What we don’t know is just how far afield HFT firms and their algorithms will go to get to the front of the line.  There is a  moral hazard involved.  Will they take risks knowing that if they fail they may lose their money but the results could also have systemic implications ?.  We saw what happened with the Flash Crash.  Is there any way we can prevent the same thing from happening again ? I don’t think so. Is it possible that something far worse could happen ? I have no idea.  And neither does anyone else

It is this lack of ability to quantify risks that creates a huge cost for all of us.  Warren Buffet called derivatives weapons of mass destruction because he had and has no idea what the potential negative impact of a bad actor could be. The same problem applies with HFT. How do we pay for that risk ? And when ?

When you have HFT algorithms fighting to get to the front of the line to get that guaranteed money , who knows to what extent they will take risks and what they impact will be not only on our US Equities Markets, but also currencies, foreign markets and ? ? ?

What about what HFT players are doing right now outside of US markets ? All markets are correlated at some level.  Problems outside the US could create huge problems for us here.

IMHO, there are real systemic issues at play.

8. So Why are some of the Big Banks and  Funds not screaming bloody murder ? 

To use a black jack analogy , its because they know how to count cards.  They have the resources to figure out how to match the fastest HFT firms in their trading speeds.  They can afford to buy the speed or they can partner with those that can.  They also have the brainpower to figure out generically how the algorithms work and where they are scalping their profits. By knowing this they can avoid it.  And because they have the brain power to figure this out, they can actually use HFT to their advantage from time to time.  Where they can see HFT at work, they can feed them trades which provides some real liquidity as opposed to volume.

The next point of course is that if the big guys can do it , and the little guys can let the big guys manage their money , shouldn’t we all just shut up and work with them ? Of course not.  We shouldn’t have to invest with only the biggest firms to avoid some of the risks of HFT.  We should be able to make our decisions as investors to work with those that give us the best support in making investments. Not those who have the best solution to outsmarting HFT.

But more importantly, even the biggest and smartest of traders , those who can see and anticipate the HFT firms actions can’t account for the actions of bad actors. They can’t keep up with the arms race to get to the front of the line. Its not their core competency.  It is a problem for them, but they also know that by being able to deal with it better than their peers, it gives them a selling advantage. “We can deal with HFT no problem”.  So they aren’t screaming bloody murder.

9. So My Conclusion ? 

IMHO, it’s not worth the risk.   I know why there is HFT. I just don’t see why we let it continue. It adds no value. But if it does continue, then we should require that all ALGORITHMIC players to register their Algorithms.  While I’m not a fan of the SEC, they do have smart players at their market structure group.  (the value of going to SEC Speaks :).  While having copies of the algorithms locked up at the SEC wont prevent a market collapse/meltdown, at least we can reverse engineer it if it happens.

I know this sounds stupid on its face. Reverse engineer a collapse ? But that may be a better solution than expecting the SEC to figure out how to regulate and pre empt a market crash

10…FINAL FINAL THOUGHTS

I wrote this in about 2 hours. Not because i thought it would be definitive or correct. I expect to get ABSOLUTELY CRUSHED on many points here. But there is so little knowledge and understanding of what is going on with HFT, that I believed that someone needed to start the conversation

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 04/03/2014 - 20:38 | 4623434 jez
jez's picture

". . . Marc Cuban (yes, that Marc Cuban) . . . decided to put finger-to-keyboard to create an "idiots guide to HFT" "

 

=====================================================

 

Somebody please send it to that idiot O'Brien at BATS. He needs a guide.

 

 

 

Fri, 04/04/2014 - 00:26 | 4623910 StacksOnStacks
StacksOnStacks's picture

Cuban only does what makes himself money. Remember, he's only rich because of the dot com bubble.

Fri, 04/04/2014 - 10:06 | 4624695 Dark Space
Dark Space's picture

"Remember ________ is only rich because of _________" can be said about every rich guy that ever lived by every poor hater out there who isn't as rich because they failed to be wise or lucky enough to make money at whatever ______ is.

Fri, 04/04/2014 - 01:56 | 4623993 james.connolly
james.connolly's picture

The stock market is for IDIOTS.

This HFT ( computerized trading ) Narrative is for MORONS.

Two goals here.

1.) Create a non-existant problem,and let OBAMA fix the problem, and declare to the public its now now safe to re-enter the shark-infested Wall Street waters, ... yep uh-uh.

2.) Second goal is to keep everyone fixated on technology, and forget that the MODERN STOCK MARKET only exists as a large money laundering machine, to launder FREE 'FED' FIAT and make it appear as 'clean'. The MAFIA has long worked hard to legitimize their ill gotten gains, clean them.

Keep mushrooms in the dark and feed them shit, and try to get people to re-enter the stock market, guess what UNICORN-NERD's? It's game-over it ain't coming back. IEX (NSA front company) will take over electronic trading, and put you all out on the street.

>>>

Everybody and his dog is writing an HFT story, and ZH is posting them all, What are they distracting you from?

Fri, 04/04/2014 - 08:10 | 4624171 Archduke
Archduke's picture

great post. love the analogy, but should we model markets on casinos?

The question is:  is HFT front-running illegal, immoral, or immaterial?

 

Say you buy widgets from a single retailer in a remote backwater.

You're pretty much screwed for prices, depending on a monoploy

and being on the wrong end of information asymmetry: you have no

idea what the fair price is (what others are paying for the same item).

 

Markets with mutiple participants introduce competition and information.

Now you can compare prices and buy from multiple vendors.

The bigger the market, the more liquid and accurate the price is.

 

The promise of electronic exchanges was that markets would be liberalised

giving everyone, everywhere, an instant snapshot of the going price.

But time is space, in the same sense that we used to measure distance

in terms of days' or weeks' marches.  Time introduces barriers of information

in the same way as walls in a bazaar would allow an alley to fix local prices.

 

Plus that's not how it works in real-life retail.  In a remote region

the barriers of distance and isolation make all widgets more scarce.

That scarcity has a premium.  The retailer has to predict which products

you wish to purchase.  He has to keep stock, and that has a carry cost,

as well as an opportunity cost.  This is the price of liquidity:

if he's left stuck with a rare item, it sucks for him.

 

So typically retailers offload that to distributors.  The distributor deals

in huge volumes and manages typical stocks for an aggregate of retailers.

The retailer may not have your item today, but he knows where to get it

and have it delivered tomorrow.  Suppliers take on some of that risk.

 

We accept such concepts in retail. But in trading we follow other models.

Here we expect that all investors should be able to purchase the same items

regardless of distance or location at the current price, if available. The broker,

or retailer, isn't supposed to mark-up based on your location basis.

Instead he gets compensation in terms of a fee.  He's more of an agent

than a salesman.

 

Front-Runnning is when said broker gets your bid for stock at the current price,

but goes out to buy it at a cheaper price, and then sells it back to you for more.

Brokers aren't supposed to execute against you.

 

Note however that market makers and liquidity providers, from which the

brokers execute the orders, do actively go out and buy low and sell high

to the brokers.  They don't get a fee, they make money on the spread.

But they have a risk, namely holding inventory, for which they get

compensated by liquidity rebates.

 

HFT blurs the line between these roles.  In essence exchanges allow high paying

market participants to know your order flow, ie know how much you are willing

to pay for an item, and then let them execute against you before your orders

get a chance to be filled.

 

Note that exchanges, like brokers, are meant to be impartial.  They take a flat fee

and are definitely not supposed to execute against you.  Markets are supposed

to be ordered and fair, with no preference for any class of participants.  Technically

it's not illegal right now, but if exchanges are selling high-speed access to your flow,

selling the ability to front-run you, then I would argue that this is highly immoral,

and that if they derive value from this service it's essentially the same infraction.

 

But even then, beyond the illegal and immoral, there are other imbalances we can look

at before we start talking about throttling speed and banning front-running.

 

In the retail analogy, it would like a rival shop getting wind that someone in your

village wanted widgets, going out and cornering all the widgets from the local

suppliers at that price, and then putting them back up for sale at a higher price.

 

Note that there's a natural limit to this: You can decline to buy if the price

shoots up, and the speculator is left with inventory.  There's a cost of carry,

an opportunity cost, and most importantly, a restocking fee for returning

the items to the supplier.

 

That's where the rub with modern HFT is: right now there is no cancellation fee.

 

This means that high speed shops can jack up prices, lock up liquidity,

and take you for a ride with impunity.  Their orders can shoot up your local price

and if you fail to take the bait they can cancel the orders faster than anybody

else can react to them.  They have no skin in the game.

 

So the first part of fixing HFT is to ensure that orders are binding for a

time period, and that cancellations come with a fee as a deterrent. 

This is the same moral hazard as naked short selling:  every action

that affects conditions others can execute upon should have a cost.

 

If we take for granted that there are rebates for providing liquidity,

then there should be corresponding penalities for removing liquidity,

to stop quote stuffing and fake order stacking.

 

This is akin to the auctioneer calling three times before striking the gavel.

You can order at whatever speed you like, but the order is valid for a time period.

 

I think this should apply to all particpants: boutique HFT hedge funds, Brokers,

Market Makers.  I also think the penalty should be inversely proportional to

the speed of cancellation: nigh-immediate cancels are obviously fake orders.

It could also be proportional to the bid-ask spread with current NBBO:

orders way beyond the current book are obviously meant to corrupt local prices.

Or perhaps we could be comparing the spread with the standard deviation?

 

Smart econometrics people will figure out a fair mechanism,

but the key is this: there should be no free lunch.

 

 

Fri, 04/04/2014 - 11:11 | 4624897 Xel3
Xel3's picture

Archduke - Well stated.

Problem is, if there is one thing we know, it's that the government is corrupt and now campaign contributions have no limits (probably due to the recent digging into Super PACS, so hey, we'll change the game at whim), which means the .01% are going continue to dominate legislation (just slightly more transparent now?).

If congress is exempt from insider trading laws (which I believe it is, correct me if I'm wrong), we can certainly expect them to have a stake in this lucrative portion of the market in addition to lobbying funds.

We know the major investment banks play against their customers and do so with impunity.

We know the Federal Reserve has distorted the stock market and will have no choice but to do so for years to come (I'll be truly amazed if they don't start a new form of QE after they wind this one down).

So, with this much corruption, so pervasive, and utter lack of ethics at the highest levels of office, we can probably expect this to only be "fixed" once they need an escape goat (other than weather) for a broad market decline relating to either a black swan event or simply the lack of QE infusion into the market (perhaps this could cover an actual exit of QE permanently at the cost of a depression they can blame on HFT's).

At which point, I'm sure they will have already estabilished another guaranteed method of market gain.

Possibly as simple as the fact that it's been over 5 years since the last market collapse (a psychological time-frame some have noted for investors to re-enter a market that significantly declined and caused severe losses for them) and so retail is just now starting to regain trust in the market (foolishly). Once that is removed again, they can repeat the '07-09 accumulation of a severely depressed market and start-up the next QE for guaranteed profits after slaughtering the muppets. 

Rinse and repeat as necessary.

 

Totally agree with everything you said. I just don't see a corrupt system, pervasivley so, acting on this without an alternative and unethical means yet discovered or at least little-known on standby. Unless they are actually prepared to transition back to a solid currency backed by something tangible (gold, etc) and have reached their desired positions.

If you ask me, this corruption is the dominant reason for economic decline and suffering world-wide.

 

This cancer (corruption) has taken over too much of the host (non-financial segments of the economy and associated oversight) and the cells (average person, small business) that perpetuate the system (or body) simply are not receiving the nutrients (wealth) necessary to continue or at the very least motivate any expansion in economic growth. 

We are literally witnessing a set-back in human progress for the sake of the power hungry (it's not about the money, it's the influence and control money buys).

I imagine future generations will be as pissed at us for saddling them with this as we are for the non-sense of the generations throughout the 1900's who instituted the Federal Reserve, The New Deal, and every agenda'd government agency/program that has redistributed over time from the producers to the skimmers. 

 

As long as we have no control over our means of exchange and are not free to trade without interference voluntarily, this system will rule the world as it no doubt has for most of human history in various forms.
Taxation is theft (involuntary exchange) and you can bet your ass most of it is never spent on what the average person thinks it goes to.

Control the allocation of wealth derived from all transactions and you control the world. 

Only by re-instituting sound, untraceable money will the government be forced to reduce it's size so that oversight and accountability be allowed to resume. The system is obfuscated (overly complex) for a reason - we are being robbed.

Sound money is the foundation of a free and equal opportunity society (note: There is all the difference in the world in making people equal and treating them equal. I refer to the latter as the former is impossible.) and we have not had anything in the U.S. resembling that for quite some time.

If your lowliest citizen does not understand the money he uses, your money is no good for the purposes of a free society with equal opportunity.

Afterall, do you have access to billions or perhaps trillions in near 0% interest money from the Federal Reserve? And this is post-collapse due to mal-investment by the very same TBTF banks. How greedy or inept does one have to be to actually lose money investing with that ace in your sleeve?

And where does all this low-interest "wealth" derived from nothing but inflation (the front-running of money itself!) become invested? It does not seem to be invested in manufacturing or the production of physical assets. No, it inflates a struggling market that no longer represents the underlying economy's actual value. Pure paper wealth investment is good for the hedge fund, but very bad for the underlying economy on such a scale.

And if they aren't placing bets in the market, they are consuming the dwindling supply of physical assets with this ill-gotten wealth derived from inflationary theft.

It is all rigged, whether it be media, government, or the economy. Operating under any other assumption produces a high probability of malinvestment. 

One of our greatest follies seems to be the idea that it is money we want.

Wrong.

We want what money buys, it is merely a form of exchange. This is leading to a misallocation of investment from real goods to paper goods. False wealth if you will. We could be investing in a self-sufficient country independent of foreign energy concerns. 

The farmer thinks he has a sweet deal with his subsidy from the government to produce less and make more per unit of good. The consumer gets screwed due to rising prices (constrained supply), but hey I'm richer.

Except that the entire economy is now like this. Picking winners and losers and distorting the actual value of anything and everything.

So, whatever his gain is from that subsidy, it is negated by a multitude of distortions in the market that he ends up paying as a consumer from other subsidized operations. 

Our economic foundation is unsound and that is a law of nature (mathematics). The results are inevitable. The .01% have shielded themselves from this, but the farmer (average investor/citizen) has not. The .01% rigged the game for this very purpose, to accumulate most of the wealth and KEEP IT.

Guess who will be buying a farm at a steep discount a few years down the road?

Unsound money leading to malinvestment can be such a bitch. ^_^ 

Thu, 04/03/2014 - 20:39 | 4623435 fonzannoon
fonzannoon's picture

I like Cuban sometimes but overall he can go fuck himself. This is from his blog. Drawing the conclusion that because everyone is either herded into 401(k)s or into the market due to zirp etc. is proof that people don't care about insider trading. What a fuckface argument.

"The absolute fact is that investors DO NOT CARE ABOUT INSIDER TRADING and DO NOT USE IT AS PROXY FOR WHETHER OR NOT THE MARKETS ARE FAIR

How do i know this is a fact ?   By looking at reality. Ask yourself the following questions:

How many trillions of dollars are invested in global equities and markets outside of the United States ?  Have you ever invested in global markets ? "

http://blogmaverick.com/2014/04/02/high-frequency-trading-and-proof-that...

Thu, 04/03/2014 - 21:39 | 4623603 smlbizman
smlbizman's picture

they are herded  fonz, forced into unescapeble 401s...complete ignorance of their auto weekly deductions...lets face it ..the people in this country are thee most stupid on this planet....but i do strongly agree he can go fuck himself....no first generation mill or biilionaire has earned it honestly....but they all get religion when they reach the top....

Thu, 04/03/2014 - 22:08 | 4623665 acetinker
acetinker's picture

No, Cuban is the most interesting type of contrarian.  I don't know where his basis came from, but if you really watch him, he knows some shit, and he doesn't rely on the Fed for support.

Thu, 04/03/2014 - 22:33 | 4623723 Thorny Xi
Thorny Xi's picture

When I knew Mark he was a former DJ (radio) who had the idea to register "broadcast.com" as a domain and start streaming radio stations.  Yahoo bought him out for a billion dollars.  He seemed like a smart guy, but approachable and no full of sh!t like many people who were in the right place at the right time in the 90's were.  God knows, he's had to learn the investment game, and probably still studies it daily.

Thu, 04/03/2014 - 22:38 | 4623731 kurt
kurt's picture

Sure, easy for his girlfriend to say.

Thu, 04/03/2014 - 23:25 | 4623818 acetinker
acetinker's picture

Fuck off, kurt.  The adults are speaking here.

Fri, 04/04/2014 - 15:46 | 4626108 kurt
kurt's picture

Thorny and Strangelove are the same person? Hey, Trollio's keep your fake handles straight.

Thu, 04/03/2014 - 23:49 | 4623855 acetinker
acetinker's picture

It's so fkn silly it's insane.  I admire Mark Cuban, he has done more to advance liberty than I could ever hope to do.

May peace be upon you, Thorny XI! 

Fri, 04/04/2014 - 00:43 | 4623929 drstrangelove73
drstrangelove73's picture

I found his argument compelling.
I've followed this sinceZeroHedge began covering it.
I agree there is moral hazard.I hope others hear him.
And I'm a 62 year old dude,not Mark Cuban's girlfriend

Thu, 04/03/2014 - 22:07 | 4623666 booboo
booboo's picture

"Warren Buffet called derivatives weapons of mass destruction because he had and has no idea what the potential negative impact of a bad actor could be."

Oh horseshit, don't let that "aw shucks" dumb country boy bullshit act fool you Mark, he knows exactly what the fuck theyare and what they do and he is hip deep in them and he made and makes a fucking fortune off of them. He is so deep up Obama's ass that when they blew up the the last time he profited quite well and much of that bailout money rained down in Omaha.

Fri, 04/04/2014 - 08:53 | 4624420 Agstacker
Agstacker's picture

Warren Buffet killed the Keystone pipeline, got to make money hauling oil with his choo-choos.

Fri, 04/04/2014 - 08:59 | 4624438 elwind45
elwind45's picture

While claiming ignorance! I was at a garden party and really could not be troubled when real stuff hit the fan.

Thu, 04/03/2014 - 23:42 | 4623843 kellycriterion
kellycriterion's picture

Everyone is dying to know your definition of "earn", honest. Half the real economy runs on pretty colors, bright shiny objects, and the greater fool theory. Asymetry of information is part of this thing called reality. Try to get acclimated.

The rich are overwhelming resource managers more than resource consumers. And haven't you heardconsumptiomtion is wonderful. Luxury consumption requires much more labor.

Now what about the real wasters of resources, the really bad managers? And all the people who contribute little or nothing or are actively destructive?

Cuban is a god by comparison. Is the deaf,dumb, blind, quadriplegic king in ZeroHero land.

Thu, 04/03/2014 - 22:45 | 4623743 i_call_you_my_base
i_call_you_my_base's picture

Mark Cuban is an idiot. Any asshole can be right sometimes.

Fri, 04/04/2014 - 09:27 | 4624508 SoCalBusted
SoCalBusted's picture

This is not your time.

Thu, 04/03/2014 - 20:39 | 4623440 ebworthen
ebworthen's picture

The entire empire is a rigged corrupt crock full of bullshit devoid of morality and ethics that grinds good people down at every opportunity.

Questions?

Thu, 04/03/2014 - 20:43 | 4623447 DaddyO
DaddyO's picture

This is the exact reason I cashed out of the markets years ago and began investing locally.

My local investments are not at the whim of Wall St and I can make decisions when 'I' want not when someone else tells me 'I Can'.

DaddyO

Thu, 04/03/2014 - 20:41 | 4623445 krispkritter
krispkritter's picture

How (to) Fubar Trading...left in '11 and will never go back. And my exit trades were suspended because of Fukushima, that pretty much told me all I needed to know. 

Fri, 04/04/2014 - 08:22 | 4624303 lucyvp
lucyvp's picture

I won the HFT jackpot in 2010. I put in a limit order on a thinly traded stock at 50 when the stock was trading at 51. Stock flash crashed to 10, my order filled at 10, and a few trades later was back at 51.  Next day they reversed my trade.

Fri, 04/04/2014 - 12:28 | 4625193 11b40
11b40's picture

Too bad you didn't do a 'flash' sell.

Thu, 04/03/2014 - 20:44 | 4623449 icanhasbailout
icanhasbailout's picture

Idiots' Guide to HFT: trade against them, fail to learn lesson, repeat

Thu, 04/03/2014 - 20:45 | 4623455 williambanzai7
williambanzai7's picture

Thu, 04/03/2014 - 20:46 | 4623459 spanish inquisition
spanish inquisition's picture

The SEC rank and file can't figure out how to watch porn and not get caught. The higher ups are bought and paid for so no action on their part. 

Thu, 04/03/2014 - 20:48 | 4623466 Everybodys All ...
Everybodys All American's picture

Reverse the crash? You know that's got to be how they'll all react when it happens. They'll blame HFT and then just reverse the whole day's events and act like it didn't happen.

Thu, 04/03/2014 - 20:49 | 4623470 asteroids
asteroids's picture

Mark, this is very simple: HFT is front running. Front running is theft. Theft is a a mortal sin. It's evil.

Fri, 04/04/2014 - 00:23 | 4623908 Seer
Seer's picture

But, consider...

One has to understand that humans are deceptive.  That's the key thing to focus on.  We can talk about "equality" and all other such stuff (laws yak yak yak) until we're blue in the face, BUT, well, some animals are always more equal than others.  If you don't like these animals then you're NOT going to beat them into submission to not be the animals they are.  And, it might just be that it's more about the game than the animals themselves.  I don't think that people would be complaining so much about the lions if we were all in the water (lions really don't like to swim), the assumping being that the non-lions can swim well.

I'm not seeing that we're looking to change the environment as drastically as shifting from land to water, in which case expecting to neutralize the lions seems feeble.

Anmials partake in no moral playbook.  They don't know "evil."  Further, if evaluated based on survival alone it's a bit tough to call much of anything "evil."

The "theft" is no more than virtual violations.  Someone cheated playing the game- oh my!  Not going to cull the cheater/lion gene...

My "solution" is no solution, as the very word is weighted in permanence, and as long as time marches on change pretty much laughs at the very thought of permanance.  What I figure is the best shot is to stop idolizing what empowers the cheaters/lions; and, to move to another play ground, one that perhaps contains a bit of water (stop playing the lions' game, by the rules that they [TPTB] cunningly operate by!).

BIG = FAIL - Nothing that is being proposed suggests reducing the size and complexity of anything- the eventual result can ONLY be failure.

PERPETUAL GROWTH ON A FINITE PLANET IS NOT POSSIBLE - If the model is based on growth, then failure is assured.

There's clearly fuzziness as to whether HFT is or isn't "legal."  When HFT wasn't around were things equal and fair, no cheaters?  Nope.  So, what really is going on here, why are we being allowed to talk about all of this? (and yes, we are being "allowed")

I would suggest that TPTB are struggling with their own margins and that the HFT operators are being squeezed.  It's not about "morality" or "illegality," it's about TPTB popping folks to get more margin.  And it might be a bit of a display of benevolence in that TPTB are warning about toning down blatant flaunting of excess: and I am good with this notion; it's also something I see thought the appointment of Francis as Pope [I kind of like the man, though the institution isn't something I would sign up to/for]- whether this is all some synchronized function by TPTB I have no idea, but at any rate it's just good practice to not make oneself look like a big target- humility has been scarce.

People have over-spent the future.  We have significanlty depleted our available resources (energy being key).  HFT is but an indicator of the struggle for scraps as we head down the other side of the growth parabola.  I fully expect that there will be more and more "cheating" happening, though likely at smaller scales.

Fri, 04/04/2014 - 01:43 | 4623984 Seer
Seer's picture

This just popped up on the radar.  It supports my notion that TPTB are sending signals for folks to tone themselves down a bit.

Companies rein in flashy perks, find other rewards for CEO

http://finance.yahoo.com/news/companies-rein-flashy-perks-other-05112260...

"The new treatment of Mr. Wynn's villa is part of an overall change of executive compensation to ensure the company is aligned with best-in-market compensation practices,"

That guy sure looks reptilian!

"Best-in-market compenstation practices," yeah, right... it's a coded message that's shouting "don't run around flaunting else we'll have to look for a replacement after your ass gets shot by a bunch of pissed off peons."

Fri, 04/04/2014 - 07:34 | 4624231 Squid Viscous
Squid Viscous's picture

Stephen Alan Weinberg, fyi

Fri, 04/04/2014 - 09:39 | 4624557 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

It ain't just him they are worried about. Empires are at stake... Who are the losers?

Fri, 04/04/2014 - 11:00 | 4624863 Oquities
Oquities's picture

thanks for the lesson in moral relativism.  you jewish?

Thu, 04/03/2014 - 20:58 | 4623501 One And Only
One And Only's picture

Is Mark Cuban still one of the top holders of bitcoin?

Thu, 04/03/2014 - 21:25 | 4623565 Goldilocks
Goldilocks's picture

Pearl Jam - Indifference
http://www.youtube.com/watch?v=dzlRPoyt2OA (2:55)

Thu, 04/03/2014 - 21:25 | 4623571 disabledvet
disabledvet's picture

i absolutely disagree with this analysis. first off the purpose of "electronic trading" is to CONFIRM the trade.

In other words "did i get the symbol entered correctly and with the correct amount shares."
No less than ZH showed what a fraudulent market we live in when no less than the President uttered what appeared to be a "ticker symbol" in his State of the Union speech and that ticker symbol went up over...was it 300 hundred percent?

this has nothing to do with "speed" at all but a clear and concise communication "error" with the machine simply "wilding" with the letters.

Was this inserted intentionally in the speech? God forbid because certainly prices have moonshot in the commodity space...and Detroit "expects to exit Bankruptcy by October"...just in time for Winter!

In other words...forget mere "fraud"...we might have a problem with actual order confirmation here...and clearly if you want something other than "the State of California going bankrupt" then maybe some of these clowns allowing this to go on might want to fix that.

Insofar as "algo's" go...this article barely scratches the surface of "behavioral engineering" and "typecasting" in order to generate "true alpha" (in short betting against your own "rock star traders.") it's all about the informational advantage folks...so if you include "first look" (i can see your trading position first) and combine it with "who is trading" then obviously you're operating in a rigged casino.

and of course the fact that this is true is confirmed by the lack of volume.
VERY few people with REAL MONEY are in fact playing this game! Sure...you have massive amounts of "wash trades" that appear to be "money" changing hands...but in fact it's like "steroids" and "baseball"...sure, you still have to hit the home run...but they didn't call it "the Juice" for nothing. the purpose of the Freq Bots is to get people addicted to trading...lot's of steaks, good booze, hookers...but to what extent am i trading in an actual "currency" (a company with real assets!!)??? And the answer is "well, you might just be trading in vaporware actually."

there was a time after the dot.com bubble burst that companies were trading for less than the cash they had on their balance sheet!

"Governments don't have that option" and they would be wise...indeed finally are wise it would seem...to the "vaporware" quality to this so called "capitalism"...which is nothing more than yet another MASSIVE "debt extender" waiting to head South.

The numbers now are absolutely huge..."financial weapons of mass destruction" as Warren Buffet called them...and since Government itself is so big...how is default prevented again?

If you answer "by prices going through the roof" then, yep...WE HAVE A WINNER!

Only one problem...prices are in fact starting to FALL now. Not only that but actual "employment" is still down about ten million, plus pay, plus benefits. In short "the entire economy might be a fraud here" and not just the so called "recovery."

We'll get another hint tomorrow...there is no shortage of issuance...equities did get "monkey hammered" in the 1973-74 correction. About 40% if i'm not mistaken. "And that Congress had completely cut off funding for the Vietnam War"!!!! That won't happen this time around.

Indeed "the answer" as it were might end up being War with Russia.
"from financial WMD's to the real thing" ...just like that.
http://en.wikipedia.org/wiki/Samson_Option

Fri, 04/04/2014 - 01:20 | 4623583 ToNYC
ToNYC's picture

So it's like buying all the Cheerios in Safeway and then selling it to you while on the checkout line after putting a bit of a bump on it.

I'll shop elsewhere, thanks.

Fri, 04/04/2014 - 10:35 | 4624774 Kayman
Kayman's picture

Since you were really the sole buyer of Cheerios and an HFT, disguised as a buyer, but actually being a broker, sold you the Cheerios, didn't Safeway get to claim 2 sales were made ? Isn't this creating demand that otherwise would not exist?

Is the volume on the stock exchanges really about half to what is advertized ? 

Thu, 04/03/2014 - 21:32 | 4623585 firestarter_916
firestarter_916's picture

Well I guess a blind Liberal find his nuts every once in a while.  Good job Cuban.

Fri, 04/04/2014 - 02:18 | 4624009 Clowns on Acid
Clowns on Acid's picture

firestarter - Wait a minute... Nanex, ZH, and others have been exposing HFT practices for years !! LSM and Cuban types were silent... why were they?

Now is the time for "liberals" ...actually neo Bolsheviks, to highlight this HFT diversion to throw shade on the complete failure of ObamaCare, Obama getting bitchez slapped by Putin ... quarterly, and best of all ............Smellin' Yellen pulling up "unemployed" people on stage (2 of course had criminal records) to highlight the Fed's emphasis on "jobs" !

HFT = Wall St = REP / Bad, Yellen printing money = jobs for people = DEM / Good.     

Thu, 04/03/2014 - 21:38 | 4623595 Okienomics
Okienomics's picture

Minimum hold times, idiots, minimum hold times.

Thu, 04/03/2014 - 21:42 | 4623613 I Write Code
I Write Code's picture

Please don't register anyone's algorithms, omg.

Just restore fair markets, build in small delays, charge small fees, round-robin winners.

Follow the money, it's a 1000% bet that the HFT guys are bribing the market operators.

Fri, 04/04/2014 - 11:01 | 4624867 Thisson
Thisson's picture

Well, it's basically that the HFTs and the Exchanges are colluding to split profits fleeced away from the retail customer.

Thu, 04/03/2014 - 21:45 | 4623619 Sir Angry Spankalot
Sir Angry Spankalot's picture

Hmmm.
Perhaps i am misguided but i thought that the main problem with HFT was that thousands or more bids/offers can be made each second WITH NO REQUIREMENT TO HONOR THAT PRICE QUOTE.
FOR EXAMPLE, lets say that as a poster of a bid/offer one is required to honor that price for a one second period there would not be the blatant "goosing" to move price in a certain direction.
If i could place an offer of millions of shares, only to know that i can pull this without really having to honor that, then i can fool people/algorithms into thinking they need to sell...aka flash crash.
Isnt THIS more the issue with HFT?

Fri, 04/04/2014 - 01:34 | 4623974 Seer
Seer's picture

Hey!  When we were children we were exposed to the "do-over" allowance/rule.  You aren't suggesting that we eliminate this, are you?

Maybe there should be some unpartial entity that's responsible for randomly calling time-out and forcing the existing trade to complete?

</tongue-in-cheek>

Fri, 04/04/2014 - 02:11 | 4624004 Clowns on Acid
Clowns on Acid's picture

In the article that is called quote stuffing and yes it is an issue with HFT, but not the only issue. The Exchanges rules of engagement is what allows and generates most of the egregious forms of HFT.

The Exchanges are now "for profit" as they profit from HFT, they "cater" to HFT.  

Sat, 04/05/2014 - 13:19 | 4624069 JuliaS
JuliaS's picture

Reminds me of a common e-bay practice with sellers using phantom accounts to boost the value of their own merchandise. They start with no-limit offers to get the buzz going and then bid against real customers. If they don't like where the final price gets before the end of the auction, they take a small hit and outbid others, keeping the product and leaving a forged feedback. Win win for them.

Thu, 04/03/2014 - 22:04 | 4623633 Cabreado
Cabreado's picture

"But that may be a better solution than expecting the SEC to figure out how to regulate..."

Ah, there's the self-exposure...

And when the regulators go corrupt, and the influential provide cover, intentional or otherwise... what is the trajectory?

 

Thu, 04/03/2014 - 22:26 | 4623713 mccvilb
mccvilb's picture

Right you are Spankalot.

When the SEC removed the mandate for market makers to provide more than 100 shares of liquidity in negative trending markets, the heavens opened for HFTs to short-rape the retail public (because we can't make trades in 10,000ths of a dollar increments, only full cents. Our brokers can however put us into a trade where the counterparty executes to four decimal places). The HFTrs got greedy and hence the Flash Crash.

It took the SEC regulators months to come up with an alternative compromise that we still aren't privy to, but the evidence is there that some kind of understanding was reached. My contention is that it's been coded into reversal signals using 100ths and thousandths of a cent.

What's really outrageous is that today they have such absolute control they use HFT for long-term trading to keep the retail animals at bay while they enter and exit millions of share trades. This is the Fox in the henhouse.

Fri, 04/04/2014 - 06:06 | 4624163 kenezen
kenezen's picture

Good Add!

Thu, 04/03/2014 - 22:39 | 4623732 kurt
kurt's picture

Ok, I'm pretty sure he's an asshole.

Thu, 04/03/2014 - 22:46 | 4623745 Dimons jock
Dimons jock's picture

I hope I'm staring @ my PC when the next flash crash happens I'm gonna load the boat get rich go to Vegas & fuck a few porn stars because I can

Thu, 04/03/2014 - 23:16 | 4623799 Godisanhftbot
Godisanhftbot's picture

 why would you cohabit with a slut that has been with 6,000 assholes?

Thu, 04/03/2014 - 23:02 | 4623773 Seer
Seer's picture

On one hand he seems to imply that it's OK that the market is darwinian, and on another he's saying it isn't.

Humans are deceptive.

This is all a dsitraction from the fact that the wa planners are busy making plans.  When there's not enough money to pay debts and or to acquire resources then wagons roll...

Thu, 04/03/2014 - 23:14 | 4623795 nostromo17
nostromo17's picture

So its ok to maintain a degree of insider information the big players having a time advantage as long as they don't merely trade high speed for its own sake. Maintain the banking investing 'class' information advantage but don't let the technology technicians upset the boat by making it explict that the playing field is not fair. Right. Ok Cuban. Nice try. How about fairness all around?

Thu, 04/03/2014 - 23:14 | 4623796 Godisanhftbot
Godisanhftbot's picture

Simple, if you're making money, you're a crook.

 

If you're losing it, you're a victim.

 

Where be my f00d $tamps?

Thu, 04/03/2014 - 23:15 | 4623797 Godisanhftbot
Godisanhftbot's picture

 The only co location thats legit, would be the hft scum co located in a cell with bubbah, serving him his teqiula , and bending over on command.

 

 

Fri, 04/04/2014 - 00:08 | 4623882 bam
bam's picture

probably will get voted down for this but there's a difference between liqudity providers and "bad" HFT strategies like quote stuffing, layering order books etc. i think there's been too much witchhunting going on and everyone lumping everything into HFT. Check out this video for a cleaner explanation (15 min of your time). i don't work for a HFT firm and i'm Canadian :) 

https://www.youtube.com/watch?v=LTAJwtWoQg4&list=UULJiSMXJ9K-1AOTqIqdXJg...

 

Fri, 04/04/2014 - 00:08 | 4623883 bam
bam's picture

probably will get voted down for this but there's a difference between liqudity providers and "bad" HFT strategies like quote stuffing, layering order books etc. i think there's been too much witchhunting going on and everyone lumping everything into HFT. Check out this video for a cleaner explanation (15 min of your time). i don't work for a HFT firm and i'm Canadian :) 

https://www.youtube.com/watch?v=LTAJwtWoQg4&list=UULJiSMXJ9K-1AOTqIqdXJg...

 

Fri, 04/04/2014 - 01:37 | 4623979 Seer
Seer's picture

Down-voted because you're Canadian!  Ha ha!  Kidding!

Down-voted for duplicate. (which, however, gave a perfect "in" to poke)

Fri, 04/04/2014 - 02:06 | 4624001 Clowns on Acid
Clowns on Acid's picture

Wait a minute don't work for HFT firm AND Canadien ? Dude... puhleeze.... asking for 15 minutes...

Fri, 04/04/2014 - 03:58 | 4624075 Global Observer
Global Observer's picture

From what I gather, the problem is not with HFT per se, but a practice which should not be allowed but is, that can be exploted by algorithms in ways human traders cannot. This is, allowing some orders to jump ahead of the others in the queue.

While order stuffing can be a problem, it can be neutralised by reducing the volume of unprocessed orders that determine the market price and introducing a new type of order, range order, that specifies the price range in which the order can be executed. If traders have no reason to expect large price movement in the stock, they can use the range order instead of the market order, with the range around the current market price.

HFT is a technological innovation that exploits the weakness in the system. Since the weakness is not difficult to address, it should be rather than panicking about the innovation.

But quite likely the weakness will not be addressed and the innovation will be blamed for triggering the next collapse which is inevitable anyway. 

Fri, 04/04/2014 - 05:10 | 4624130 GoldIsMoney
GoldIsMoney's picture

"IMHO, it’s not worth the risk.   I know why there is HFT. I just don’t see why we let it continue. It adds no value. But if it does continue, then we should require that all ALGORITHMIC players to register their Algorithms.  "

 

Non sequitur. It adds no value, and one should send it to the SEC which just add extra costs? That does not make any sense.

Fri, 04/04/2014 - 06:11 | 4624164 kenezen
kenezen's picture

Thanks Mark! Good beginning explanation

Fri, 04/04/2014 - 06:32 | 4624177 barroter
barroter's picture

and this article will bring out every defender of HFT...screaming their heads off about why they should be allowed to keep doing it.

Fri, 04/04/2014 - 09:05 | 4624455 Pol Pot
Pol Pot's picture

The solution to HFT is to leave it alone. Let theses fucks trade what ever they want as fast as they need to. Just change the TAX rate to 90% for trades held less than an hour and watch these freaks line up for work at Walmart. Why is no one talking about the easiest solution of all....

Fri, 04/04/2014 - 09:21 | 4624492 Iam_Silverman
Iam_Silverman's picture

From above:

"this is why Schwab and other brokers that deal with retail investors are concerned. They could use customers."

Just as a fine distinction here - brokers such as Schwab, et. al. do use their customers, not just could.  Instead of saying that they "use" their customers, they merely say that they charge (reasonable) "fees and commissions".

Fri, 04/04/2014 - 09:41 | 4624572 MarcusAurelius
MarcusAurelius's picture

Well here we  are still ebroiled in HFT. In an industry (being the financial industry) that for all intensive purposes produces absolutely nothing for anyone other than its own best interests. If it did people wouldn't be struggling with income inequality which usually goes to people like Cuban who were smart enough to get it and get out with the cash. Kind of a speed thing itself when you think about it?

    This is just another form of fraud that this corrupt industry gets away with and when they ban this they'll find a way to do something else similar by another name until they are caught doing that too. People will say it is creative however I will say that it is immoral and wrong.

   When investing in an industry you used to buy the underlying fundamentals of a strong company before book cooking and rating agency fraud became popular.

People continue to sit in bonds and in T bills because they are sick and tired of this shit. They would rather get nothing than risk the corrupt and blatently illegal actions of an industry long overdue for an overhaul.  

Fri, 04/04/2014 - 10:53 | 4624839 superyankee
superyankee's picture

Ban all trades that are bought and then re-sold within less than 1 second. Seems like an easy solution...am I missing something?

Fri, 04/04/2014 - 15:58 | 4626190 SweetDoug
SweetDoug's picture

'

'

1 minute. Or more. If you can't buy and hold a stock for a day, minimum, you're just playing in a casino and not investing for value, which is the intent of the market.

Make energy and buy and hold for a day.

 

Imagine the calm in the markets? And the shrieks of the footstomping cheaters?

 

Gramma would know what her energy bill would be, too.

 

•?•
V-V

Fri, 04/04/2014 - 12:11 | 4625118 Basilian
Basilian's picture

If the goverenement is coming down on HFT it is only to cloak their much bigger crime. What Mark is not telling you is that the HFT guys actually rat out the larger criminal fraud that is larger by an unbelievable order of magintude---the governement and central banks. Look at Bloomberg "the day the robots lost" --- you need a basic understanding of the difference between millions, billions and trillions and if you are not more outraged by the governement situation then you do not know what you are looking at. They all need the guillotine but in order of the magnitude of the crime.

Do NOT follow this link or you will be banned from the site!