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This Is What Happens When An HFT Algo Goes Totally Berserk And Serves Knight Capital With The Bill
We all know something went horribly wrong in various NYSE-traded stocks today between 9:30 am and 10:15 am. So wrong in fact that the NYSE had to step in and cancel numerous trades in 6 symbols. However it did not DK millions of other trades in 134 other symbols, the vast majority of which we assume traded errantly due to the market making of Knight Capital (as admitted by the company), which today saw its biggest drop ever since going public on volume about 60 times greater than its average. We also all know that one should buy low and sell high. At least that is what human traders are taught, and that is what they attempt. Because if one consistently does the opposite, one will simply run out of money. Well, the opposite is precisely what the berserk algo in Knight's Market Making group may have done if Nanex, which has done a forensic analysis of one of the trades in question, is correct. In other words, instead of at least attempting to provide liquidity via limit trades, Knight's algorithm acted as a market order... gone horribly wrong. As the third chart below shows what the algo did with furious repetition and steadfast consistency was to buy at the offer, and sell at the bid, in other words buy high and sell low. Over and over and over and over. As Nanex laconically notes, "In the case of EXC, that means losing about 15 cents on every pair of trades. Do that 40 times a second, 2400 times a minute, and you now have a system that's very efficient at burning money." Which also means that by not DK'ing several hundred million prints, the NYSE may have just thrown Knight under the bus, because the market maker is suddenly on the hook for tens if not hundreds of millions in inverse market making profits.
Here we will assume that readers are sufficiently familiar with market structure to know that market makers only participate in the market in order to collect liquidity rebates, i.e., to be the limit on the bid which is hit, or the offer which is lifted. What Knight did was effectively the opposite, and it also collected the opposite of a rebate: i.e., it paid someone else for no reason at all... well technically to withdraw liquidity. However liquidity that led to creation of losses not profits.
Naturally, when the entire logic of trading was perverted courtesy of Knight's busted algo, everything went Bizarro Day, and stocks went higher, because they went higher, and the higher they went, the greater the incentive for the algo to keep pushing the stock higher. This explains not only the volume surge, but also the shocking price moves in some stocks such as China Cord Blood which exploded several hundred percent higher before someone had to finally step in. And what is most notable is that because there were neither fat finger trades, nor busted algos that took out the entire bid or offer stack in one trade, thus triggering circuit breakers, but a slow methodical bleed, there was no reason under the current SEC order cancellation methodology to bail out Knight and its berserk algorithm.
Simply said: today may be the single worst day in Knight's market making history. And sadly, as the NYSE already noted minutes before the market close, the decision to not cancel any more trades is "not subject to appeal."
From Nanex:
What really happened, or how to lose a ton of money, fast.
What follows should strike you as crazy. If it doesn't, read it again, because it is.
The following 3 charts plot non-ISO trades (regular trade condition) reported from NYSE in the stock of Exelon Corporation (symbol EXC). By plotting and connecting only regular trades from NYSE we get a clearer picture of the nature (some might say horror) of this event.
1. EXC One second interval chart. Circles are trades, the blue coloring is the NYSE bid and ask which is mostly covered by gray lines that connect the trades.
2. Zoom of above chart showing about 27 seconds of data. Now the gray lines connecting trades are more clearly visible. NYSE's bid/ask is the blue shaded area (the bid price is the bottom of the shading, and the ask is the top).
3. Zooming in to a 1 millisecond interval chart, we can see one second of data which shows 39 trades.
Note how the trade executions ping pong from bid to ask. As if someone is buying at the offer, then 10 ms later selling at the bid, and so forth. It turns out, the gray shading you see in the first chart of EXC is from this alternating between buying and selling. That's right, almost all these trades alternate between buying at the offer and selling at the bid, which means losing the difference in price. In the case of EXC, that means losing about 15 cents on every pair of trades. Do that 40 times a second, 2400 times a minute, and you now have a system that's very efficient at burning money.
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Can we please just get rid of all computers in trading please? Get those math dorks to go play with bottle rockets or something
Even the most junior of coder couldn't fuck up code this badly.
This is a hit, plain and simple.
A smart group of algo traders / coders shorted "KITE" and then dropped this little trojan into their system.
Game Over, who's next.
Be afraid.
3 G's is right.
Hmm. I would feel better if a Robin Hood/Good Samaritan type found a way to alter code, attach a worm, etc., in order to fire a shot across the bow of the annoying algos.
If they could find a way to reverse the insidious "buy-the-new-low"/"short-the-new-high" algo that infects the indices daily (and now seems to run on some sort of time-based trigger, such as the high/low over a trailing set time period), daily trading P&Ls might improve for us little guys. It's become nearly impossible to make even a 2c trade on, for example, TZA, even if the Russell's ready to tank, due to these vermin. All candles near breakout points seem to have suspiciously large, phallic wicks and miniscule bodies, no thanks to these dorks running their subroutines.
ZIRP money times nano algo's takes out the volatility.
Could be the Government. Market actually did okay today. "draining the swamps" as it were.
all i can think of is they did a minor code update without testing after all it's just a tiny bit of code,
and it blew through a lot of green.
Hey if Knight Capital goes south, who do you think profited? Goldman? JPM? WF?
I wonder if someone hacked their system and figured out a way to drain them dry.
"I Drink Your Milkshake".
Between this disaster, and Chris Whalen's article about TAG, my money's firmly on JPM, as they seem to be the biggest financial WMD going.
It's almost like they're trying to steal as much as possible before the lights go out on Wall St.
They have returned to the scene of the crime with crow bars and sawz alls to remove what was nailed down. Tommorow *should be interesting across the board. Death Kneel to Facefart is what I'm hoping..
All your algorithm are belong to us.
Certainly feels like bad (or no) regression testing
You'd think they would have a production and a test network, where testing is fed an isolated price feed and prevented from putting 'live' orders into the system. Hell, if the CME can screw this up (look for past ZH articles, it is there), sure wouldn't be a stretch to say Knight did.
Wouldn't be the first time test crossed into production. I'm glad all the trades aren't busted, Knight is the proxy now for "TEST YOUR SHIT" at the very least. I'd prefer they totally kill this kind of trading, but I know that isn't going to happen any time soon.
TT - Yeh agreed. It appears that the code that reported the trades back to program calculating P&L was not not working correctly and therefore the P&L tripwires were not "tripped" (e.g. - if mktmaking losses on a stock hit a threshold, the algo squares positions stops quoting). GUI showing visual P&L was not working...etc
Could be a few things...the message decoder was not working, the P&L calc for the "tripwire" was not working, etc...
Heads will roll...thats for certain....
I have a hint for you. I think it might have been two groups - the "Chi" and the "nese".
Ahhh, sank you very, very much . . .
Just what in the fucka is a Chinese Downhill?
That's when the Chinese hack your algo and you and your client's money all goes downhill!
I laughed so hard I almost sharted! Your wit is priceless!
dvfco...good shit! I'd postulate they'll never fuck with a Chinese badminton team again at the olympics...there's more where that came from, Knights Capitalists bitchez!
And now for the rules of the International, Chinese downhill: there are none.
Buy high sell low?
Are they gunning for a tax deduction or did they short their own stock last night?
Well I guess we know one of the front companies of the FED. They just shove that ramping software out there without ever testing it.
Who cares? Market closed a blink of an eye weaker, move on. Mary Shapiro sleeps veeeery quiet tonight.
The only way to win in a crooked game of dice is not to play at all.
You may think you will outsmart it, or get in front of it, but it was designed to make you believe that.
Far be it for me to "praise" an exchange (NYSE), but they may have actually punished one of these MMs in a way no regulator ever would.
And - again - far be it for me to "praise" this abomination of a market, but it too seems to be delivering a kind of justice by hammering Knight's PPS even after hours.
You profit when your algo/HFT is humming along - well - you own it when it screws up too.
Never trust computers or the people who program them!
Knight programmer: "Oh! You wanted a market making algo? I thought you said a market BREAKING algo."
"Mr. Joyce, please point out to the court the rogue computer"
Let the record show that Mr. Joyce pointed to a box of vacume tubes marked exhibit A"
and you say that the computer threatened to, lets see, "go Medieval on yo azz if you attempted to sell your Facebook shares"?
I have no doubt when the stock market does effectively decide to go down or forbid crash the deviants will want to back out all kinds of trades. This is the setup. Wait and see.
Stuxnet strikes!
BATS' has gone rogue. Trying to take the whole system down. Joe Ratterman is...Mr Smith?
" you may lose more than your initial investment "
That's what happens when you use a cheater plug! MAKE SURE YOU ALWAYS HOOK THE COMPUTER UP TO A PROPERLY GROUNDED OUTLET OR YOU RISK REVERSING AC POLARITY
...but the electric outlet in the cathouse didn't have no hole for that round third plug thingy
so i broke it off...
...and then i sed to her: plug this in for me, wilya, hon...?
...i only had my back turned for a second...
that fuking algo went astro-labe astroLube and polarity ape-shit at the same time, BiCheZ!
the silver lining? half the employees are gonna get 'laid off' now!
"that fuking algo went astro-labe astroLube and polarity ape-shit at the same time, BiCheZ!"
Scrapbook material right there.
HE SCORES ON HIS OWN NET!!! THE GAME IS OVER!!!! IT'S OVER!!!
Nobody could have foreseen that happening.
Not to worry, your money is in a segregated account.
Honest Mister.
The Algo ate my homework.
It is probably a campaign donation to some politician. Like Hillary Clinton, who was the most succesfull trader of all time in porc belly, according to herself by reading the wall street journal.
It is nicely hidden and tax free way to make payments.
Hillary was crooked then ......and has never stopped until Billary left office, and has made some $80mm since then.
And ZH'ers talk about GS...
So they lost a million in this HFT algo, but profited multi-millions in the options market...
I applaud Nanex for exposing this algo crime, but do they look into suspiciously profitable options positions?
This is a test. Repeat. This is a test.
Once we get you use to this, you'll understand how a mishap like this can wipe your bank account out.
Oh, sorry, you can't get it back, we don't know where it went.
Gentlemen,
My thoughts.
The 3 second end of the day on Tuesday was a test. Since it happened one year to the day from the last time my guess it's the governments way of making sure it doesn't happen again.
Only today, I shot was fired across the bow. Not only can we do it again. We can do it anytime we want to.
Which leaves us with a corrupt market - being shaken down. The question is not who is being shaken down - that's us the taxpayer. The question is who is negotiating for the corrupt market. Just saying FED minutes came out a little after that.
So much for smart technology. What a difference mistaking a one for a zero can make.
I wonder how many times the algo bought and sold to itself? I wouldn’t be surprised if it somehow managed to still lose money when it did.
666
Will we ever know the total loss? On EXC, 15 cents per pair x 2400 times per minut x 45 minutes is a 2.1 million loss. If similar on 133 other issues, that's 280 million. Ooooops seeeee Bitchez!
..err its cents .. so it $0.021 million and $2.8 million respectively not 2.1 and 280
It's the war of the trading algorithms.
Nobody does it like Goldman. The winning algorithm gets to send the other trading firm to bankruptcy court.
All that's need is a series of cascading derivatives to trigger a meltdown.
Think of all the psychic energy expended in seeking a fundamental distinction between “algorithm” and “program”.
Alan J. Perlis— Epigrams on Programming, Sept., 1982
One other thing - why didn't the VIX explode?
Could it be that one disgruntled developer brings down the enterprise!
With the gold miners it must have been in reverse as these stocks were creamed at the open and are on the Knight list (GG, GBG, KGC etc). So sell pushing price down, then buy . GBG was wacked for 20% in a few minutes. Insane.
The intereteting one was AUY. While all other gold stocks were down multi percentages at the open, AUY actually managed to soar and hold at +3%. I was sitting there going WTF. Then after 10 am it reverted to down for the day.
More to come at 11:00
That'll teach them to steal vampire squid software.....
the unintended consequences of "legal tinder"?
keystrokeKopsFIREwallsTM?
and, @ 11:00 [for jake_88] :> "Aircraft Carriers That Double As Submarines"
as well as Jan & Dean - ALGO Talk(Rare 1959 pre-nixon clip)
Ali-go 'round the roses ....
"This is your Captain speaking. You folks will be happy to know the aircraft type we're flying today is completely automated ..nothing can go wrong..go wrong...go wrong ....."
This should send a message to these idiots who have always had all their losing algo trades cancelled in the past. It is sickening to see these dicks push the market all over the place with haywire flash crashes and then just get their trades cancelled because they have connections.
Anonymous
I assume a simple liquidity problem (without going into conspiracy theories)
Nothing like a couple of propeller heads testing in the wild without a kill switch.
lol!
John: "Why attack the Russians...aren't they our friends now?"
Machine: "Because Skynet knows the Russian counterattack will eliminate it's enemies here."
Seems like someone could have fouled it up and traded the other side.
Doubleplusungood.
Tyler Durden...I am so impressed. Your deductive and tea reading capabilities are so acute. I also respect your intellectual integrity.
Such is why ZH is the best media portal on the Internet! (Youtube is pretty freaking cool for concerts and football games, though)
Your antennae are among the keenest on the planet. I think of all those USD wasted on paying for "regulators," when you should be earning their compensation.
I hope ZH is a strong revenue generating machine because YOU DID BUILD THIS, YOURSELF (Obama and the SEC/CFTC/Fed/OCC/FDIC hacks did NOTHING, as usual)!
Anyhow, THIS is another example of real journalism, not the bullshit in the main stream media from the brainless "talent."
Hilsenrath and the CNBC crowd can kiss your _____.
My sentiments exactly!!
Go ZH!
Tyler Durden for President!!!!!!
It is just a matter of time before ZH sucuums to the the oppression of zionist media mogels.
I hope he can hold out!
of course its all about the comissions
"Which also means that by not DK'ing several hundred million prints, the NYSE may have just thrown Knight under the bus, because the market maker is suddenly on the hook for tens if not hundreds of millions in inverse market making profits."
Good- Fuck'em. These algo-bot bitchez need to have a Sword of Damocles hanging over their heads. (Massive exposure to downside risk. ) Better yet; ban ALL HFT . It serves no benefit to healthy and efficient markets. My head may explode if I hear another fucktard apologist proclaim that HFT provides necessary liquidity- BULLSHIT!
You betta watch wha you say bout ouwa speed swimma and badmitton team or we gonna take you down next. Fruck you dvfco mudda fucka.
Oh, great, now I've been hacked. Good thing I'm broke.
np. You aren't broke anymore. We forged a property title in your name and sold some guy's house. Then we put the money in a bank in your name and got a SBA loan for you. We used the SBA money to forge a bunch of companies. Congratulations, you are a CEO. Then we borrowed 5 million in loans against forged assets. Don't sweat it, we bought you a nice yellow Ferrari and you sort of own 2 office buildings and 5 houses. But you have to pay the ticket I just got in your flash car; it does 165. Maybe you can get out of it, my face is on your license. Anyway I gotta go file for unemployment for your 20 employees I just laid off.
So long and thanks for all the shit! You're awesome! And you're welcome...
Considering that all your comments are a joke and Tyler has still left some of us here, how about about a copy'n'paste from the ZH Chat tonight:
It's a bit ironic that China - who would never allow speech to be this free but America still does (or maybe it's still Amerikkka to some of you) and has people still excited about things going-forward. We in America have far more reason to be excited than them but some of our brightest minds spend their time pissing on things rather than trying to make things better. There's irony in here somehow, I swear...can you repeat after Phil Gramm: Mental Recession?
Not that you care about it, 'cuz you're still getting paid. I'm talking to the other spacemonkeys out there.
I can see Zoot needs more spanking. And oral sex.
Are you the same dude who has been calling my cell phone? I already told you - thanks for the offers, but I'm tired of the f'ing SBA - I want the LBA - a/k/a 'DA FED' to sport me a loan of, say, $10bill. You handle the rest of the issues.
Just don't leave me like Henry Hill - I don't want to order spaghettii and meatballs and end up with egg noodles and ketchup.
Ah, screw it, I'm Irish - I've eaten Spaghetti and Eggs. I can't hide it. I'll take the cash and place on the Dominican coast.
By the way, when my FB and JC Penney shorts break under $10 - close them and send a check - make that cash. When Zynga breaks $.05, send me my Farmville Tractor - COD. Thanks.
Oh - actually, just deliver it in gold or silver. The rest of the word is going to S . . . H . . . I. . . T - very quickly!!@!@!@!@!@ -
I'd take 1 ounce of silver over1 FB, 1 JCP and 5 ZNGA (combined) as long as I didn't have to think about it. Let the Fed and everyone else screw with gold and silver for a few more months. When all this shit leaks out, and everyone asks for delivery - each ounce of silver will be worth at least a 3-star hooker for 4 hours.
Yeah baby. One ounce of gold and you could probably afford to send back your Russian Bride! (So sorry - you should all drink many Dogfish Head 90-Minute IPAs. This would all make sense. Good shit.)
I think your point is hold physical. Russian brides are decent second, no?
Did a rogue/pissed off programmer get even with Knight? When you play with fire often enough, you will get burned.
It's time for Big Ben to paper over these things, and save the market with more of the feds money.
BAT the fucking market
I am shocked to hear that an obviously broken system isnt working as expected...SHOCKED!
It was a successful short of its own stock KCG--down 33% on x 60 average volume.
Small coincidences leading to something major.
HFTs are looking nervous or out of whack, the ETF dump last session, now this.
Algo's have been almost precise trading on 50, 100 ma's, but the wild swings looks like something is breaking down in the algorithm modeling.
A flash crash is building.
looking at asian/australian markets now. ASX200 is looking so bizarre at the moment.
It's a great game picking up nickels over and over again until the steamroller suddenly emerges from the fog.
Ahhhh the Ying and Yang of things. Coupla more days like this and I'm sure we will see an algo Holiday.
Just because you have made it and are cheering RIGHT-ON is no insurance that the next moment you will be crying about being LEFT-OFF.
I can't think of a more fitting event for those who feel they are indisputably King of the Mountain.
I sincerely believe that this was a shot across the bow. What next, tomorrow for KC. Will they open for business with a human at the kill switch??? But then the beauty of algo is humans can't defeat it. But, they can destroy it.
Lights out????
I agree with you about the absurdity of ying/yang. Richard Dawkins calls it the "tyranny of the discontinuous mind." Maybe a "lights out" is what it will take. But the left/right paradigm is what is defeating the masses. I dunno, I don't work for the government anymore, but it makes sense to me.
Just 'cuz it's too fuking easy at this point...Richard Dawkins may call it that, but Carly Rae Jepsen calls it "Call Me Maybe".
http://www.youtube.com/watch?v=fWNaR-rxAic
Buy physical
Or you had a better point? 'Cuz if so we be all ears
Looks more like chip dumping. Transfer money to another company without any traces.
Don't give "them" ideas!!!
Who am I kidding; it's probably being done regularly... :-(
At least my buy on GOV at 20.80 was executed. as was the sell at 22.80.
CIT, only 200 shares.
Wonder if the algo, that may have worked (buggy as it might have been) reasonably well until the datacables leading to that datacenter hotel in NY were sped up? Now, it is running under different conditions.
market is looking very nervous. Something is up...
Regardless of Knights loss, how the the hell did this algo operate for 45 minutes with NO ONE noticing at NITE market making?
You would figure the firms compliance would have had a clue as to massive losses 5 min into trading and turned it off. Oh yea, they were watching Porn and betting on female badmitton at the Olympics.
What level of incompetence does it take to let it run for 45 minutues and not one person noticed there was some kind of massive problem.
The word is confidence my man ... confidence. Then you have confidenced yourself.
The art of the double sting, the sting confidence game. Just be sure that you don't fall prey to your own confidence.
yeah. makes me think maybe insiders at knight were on the other side of the trades in secret accounts. pilliage the company coffers and make it look like an Eroar.
not a bad idea, huh
They let go the only human on the trading desk Monday.
Overhead....that salary was killingknight.
Reminds me of the Big Banana.
This is my 'nana, go get your own. Just too lucrative and too easy to hijack. The Big 'nana has now come to town.
No playing field is ever non-exploitable or only ever just in one direction. Just give it some time. There are always many more ways to skin a cat than one ... leads to many more skinners than one.
This has gotta have all the guys doing God's work thinking twice and doing it in their sleep no less.
Hopefully these HFT assholes lost so much money, they now have to move to the real hardcore XXX, as actors -:)
and this is what happens when a man tries to re-animate dead flesh: (in a continuing series of "You Didn't Built That")
"You Didn't Build That Frankenstein!' sez President Obama
- YouTube
I work for EXC. No one noticed. You know why? Because the share price has nothing to do with the performance of the company. Which is why when the Fed manipulates equity market prices, they're doing NOTHING for economic performance. They're just printing money and giving it to people in the money laundering scheme called the stock market.
Biggest news for EXC this morning? Confirmed 2012 guidance. That tells you how random and casino-like this whole game is. I bet I'll go in tomorrow and no one will mention a word of this.
Cult of equities indeed.
Beyold the might of the fully operational KRAMERBOT!!
NYSE looks into 'irregular trading' in 140 stocks
http://www.bbc.co.uk/news/business-19087748
How to tell investors that 6/148 companies will fall under the quote stuffing umbrella. The rest of you miserable fucks with open casino wallets can piss off. Stop blaming us for fine tuning new software to protect the interests of Basel III grand theft Algos. Our new dysfunctional programs can steal money quicker than passing thru the airport iris recognition algorithms.
Once we see that you owe nothing to the government, your CLEAR to pass thru the checkpoint and proceed to the gate. Don’t leave your camera on the airline front seat pocket during connecting flights. You’ll be responsible for the cost of diverting scheduled airline passengers back to tarmac for full frisking & DHS interrogation procedure’s.
Visualizing Exchange Routing Longer Version
You just better keep focusing on the 5 plates we are spinning for your entertainment. You best watch our entertainment or land yourself in a heap of trouble.
/sarc
I love the story. Now officially got one name on the algo trading.
These asshole should be hole accoutable for crazy market behavior in the past few years. I hope someone will file a class action lawsuits to sue this company for the quote stuffing and such.
I hope SEC won't allow the reverse of the trades. Let this company lose millions and billions of blood money.
This looks like sabotage from a mile. And certainly is not an accident. Somebody probably just fuc*ed with the wrong 'PhD' and at that point it was just a matter of swapping one module between buying and selling algos.
My computer had a glitch this morning and bought 1000 SDS. I wasn't really behind the buy, so can we undo it? kthx.
Zombie hfs(pacman){hfs(pacman-1)}
I have never believed the myth of the malicious misanthropic programmer taking revenge on their employer, because anyone brilliant enough to write computer programs is also smart enough not to be the obvious suspect at the scene of the crime, and throw away the fat payola.
Nice going, Poindexter.
But, I also noticed that wherever there has been massive computer crime for the last 10 years, a Microsoft system was involved. Where is the Microsoft system, Tyler? Is this a significant turn, no Microsoft vulns were involved?
With HFT / Low latency systems...Microsoft products are definitely NOT used.
I got 42 transactions per second on Windows NT on 2x400mhz cpus across cheap T100 13 years ago. But stealing beats excellence every time, so this is all just another diversion from the real crimes. Next time, trade bullets. Short SEC, long MSFT.
"no Microsoft vulns were involved?"
ughh...shut the hell up and and log off your impenetrable mac you douche bag.
Yes, Apples are cherry. Your resentment is refreshing. If Balmer had my money - or lost it due to lack of security, I might be angry and jealous too, and if I was wired up on Chinese-Mexican crank I might be typing furiously to spread the hate across the web too.
FYI anger and rust makes your balls shrivel up and die, you unemployed sexless underpants gnomes. You should go feed that little Red thang instead of down voting your way to low T, slowly sinking into the desperation of gay commie sex.
C'mon - you don't fuck with the programmer - ever. Do you piss off the waiter and chef and enjoy them spitting in your food? Wel, the programmer can make it much worse.
That's why it's better to sub your work out to CHINA - YEAH - CHINA!!! THEY DON'T HAVE PROGRAMMERS THAT WILL HACK YOUR SYSTEM - THEY LOVE AMERICA AND AMERICAN BONDS AND AMERICAN TECHNOLOGY. THEY WOULD NEVER, EVER HACK YOUR COMPANY.
NO, THAT WOULD BE HUGE NEWS AND THE FED, FBI, CIA, NSA, NYSE, NASDAQ (AND I'D SAY SEC, BUT I'M PRETTY SURE THEY'RE A PHANTOM ORGANIZATION THAT DOESN'T REALLY EXIST) WOULD HAVE TO COVER EVERYTHING UP SO OUR MARKETS DIDN'T CRASH.
Then, we'd either have to be their whores for life, or start calling bank / algo holidays.
Please excuse my earlier thoughts (THE CHINESE DID IT) as I'd prefer to not make this into a big (THE CHINESE DID IT) issue.
Thanks,
W. Buffey and Marley Hunger
Until 2009 97% of web attacks against my servers came from China. Now its about 92%...
Anyone trading in these markets needs to be admitted to the mental asylum
While the big fellows vie with their algos the average trader on the street is mincemeat for their sausages.
Bockwurst , Bratwurst, Volkwurst.!!!!
Anyone trading in these markets needs to be admitted to the mental asylum
Perhaps. And not to get all RobotTrader on you, but "plenty of guys I know" have made money on AAPL.
They really don't have time for your random remarks about sausages. They just got paid.
Hard to fault them for doing what they did, rather than interacting with some of the commenters here, no?
It was a warning from the very top. Geithner simply demonstarted what he might do in case the Europeans do not follow his orders. This became clear as glass because Bloomberg reported and trumpeted it all over the world. If it would have been an accident things would be calmer. Much calmer.
Thanks to Tyler, now its very clear and open. That is the way how they bring the markets down. Its so simplke and primitve and ruthless, which makes it hard to imagine but now its clear.
And this was just one company. Imagine if all the other companies act in the same way in concert. This is how to produce catastropy like scenarios in an attempt to drive investors back to the "safe haven" US Dollar. Its economic and real war all over the world to save the US Dollar as the wolrd currency.
The 30 minutes is highly suspicious. Where I work, we keep the IT tracing and double checking everything in real-time even when we're doing automatic account topups for measly pennies far, far, far, short of the mutly-million market maker algo. Even at such low values, I've seen people yank the network cables out of servers in order to stop them from making a mess; and you're telling me noone acted for 30 minutes? Bullshit.
everybody jumps to the conclusion of a rogue algo and millions of losses, but what if this was a (second) test of a (new) algo and it performed as expected? Or the algo has been working successfully for some time and now got exposed for some reason?
Some stocks were bid up, others sold down - what if the net result of these 30 minutes of crazy trading was in fact ZERO, for instance two bots playing 148 pingpong games simultaneously in concerted action? e.g. Bot A flings stocks to Bot B in 100 share lots, increases the price at some subpenny step and then Bot B flings it back to Bot A at the same increment, then this loop is repeated non-stop until a new increment is added - intermittedly some real trades are executed with the "outside world", most probably at a small gain or a zero balance. Some stocks traded millions of shares where on a normal day a few thousand are exchanged only. How can we conclude here that the number of trades was all REAL?
Meaning they can move any stock to wherever they want in just minutes, the price of a stock no longer matters - the real gains may have been taken in derivative plays that depend on the level reached by the manipulated stocks. Meaning this was not uncontrolled but planned. And this type of manipulation could have been going on already for months, if not years. If this is true, they may very well have shorted their own stock, offsetting the loss of company value by a multiple gain in a leveraged derivative play.
After Draghi spoke, the whole market moved up parabolically and subsequently sudden non-stop buying frenzies were unleashed on no additional news, pushing indices further up - by whom or by what? There were no drops, like everything was bought above a certain ask price along ever higher support lines. This was partly short squeeze driven, but perhaps the above scenario was running? Derivative interest and currency plays paid out big time last week, for those in on it at least...
I agree it doesn't make sense that this firm let this happen without noticing it for 30 minutes - i mean, they all went for coffee?
smells like bullshit yes
Volume without cost?
don't they get rebates for "creating liquidity"?
if not sufficient, then this cost may be offset by the gains in the derivative plays
anyway, this is all hypothetically - I'm just saying this could be an alternative explanation for the abnormal volumes traded and the supposed huge losses for Knight Capital may in fact be inexistent or even be huge profits
Winning!
The real problem is that the 'bad' trades get reversed later, so there is no discipline.
To me, if the Exchange received a valid electronic instruction, with all the proper passwords etc., then trades that result from that instruction should always stand.
If a rule like that was enforced, we would get one more flash crash, a lot of lawyers would get rich on their share of the damages claims, a few algo's would go out of business, and the remaining algo's (and everyone else who uses electronic submission) would get a great deal more careful.
It is a _very bad idea indeed_ that at the opinion of the High Priests of the Exchange, contracts get set aside or cancelled.
Watson
"Note how the trade executions ping pong from bid to ask. As if someone is buying at the offer, then 10 ms later selling at the bid, and so forth. ...almost all these trades alternate between buying at the offer and selling at the bid, which means losing the difference in price. In the case of EXC, that means losing about 15 cents on every pair of trades. Do that 40 times a second, 2400 times a minute, and you now have a system that's very efficient at burning money"
This is based on the premise that a genuine exchange of shares is taking place between different parties in every recorded transaction
If the exchange of shares is virtual, i.e. between two bots belonging to the same trading entity, buying 100 shares at the offer (bot A buys from bot B) and selling 100 shares at the bid (bot B sells to bot A) has a zero balance for the entity, as the "profit" of bot B is equal to the "loss" of bot A in these transactions - if no real traders step in, the bots can increase the spread or the level of bid and ask to whatever level they want at no incremental cost
Only when this pingpong game is interrupted because a real buyer or seller shows up, then a real value transaction is taking place and this could come at a cost for the bots - Nanex is concluding that all trades were real and money was lost in every single one of these, I'm not so sure about that
If this is true, they can narrow the spread in order to minimize the potential losses from real trades and they can set any target price they need in order to make their leveraged derivative plays 100% risk-free and very profitable
It's a Machiavellian thought:
To make a small mistake to cover for larger mistakes.
This is one of the best comment threads YTD... But the BATS IPO was waaaay up there too.
Tyler, you could seriously make the best coffee table books with the post and then the comment thread on big days in the market. Forget the ZH t-shirt, I want the book. Bats IPO, GoodKnight NITE, Facebook, ETF default, etc. Would be hilarious with the comments.
I used to trade using NITE algos (oh hedge fund experience)...Hide and Fire really meant Be Seen and Burned.
Nobody has askedthis question so I will:
WHY ONLY ON TH NYSE shares?
Was it an Algo that exclusively traded NYSE shares?
You can trade an NYSE share on any exchange? Right?
I don't understand why only shares listed on the NYSE were affected?
Probably (this is a total guess, I don't know) the algo was on a machine hooked to one multicast channel from NYSE.
http://www.nyxdata.com/docs/connectivity Read the docs along the right column of this page then get back to me.
SEC roundtable regarding HFT.
http://cryptome.org/2012/08/sec083012.htm
Public comments will be accepted. I hope one of the moderators or tyler's see this and get the word out.
LJ