Market Plunge Baffles Wall Street • Hacker News Board

Re: Market Plunge Baffles Wall Street

#21

Post by startuprules » Fri, May 07, 2010, 3:58 PM UTC

"The entire stock market rally which we have seen this year off the February lows resembles a low volume Ponzi scheme, and formed a huge air pocket under prices.

This US equity rally was driven by technically oriented buying from the Banks and the hedge funds. There was and still is a lack of legitimate institutional buying at these price levels. This was machine driven speculation enabled by the lack of reform in a system riddled with corruption, from the bottom to the top."

Translation: there's no real buyers in the market at the current price, so when panic came, there were no buys to prop up the free falling

link: http://jessescrossroadscafe.blogspot.com/2010/05/plunge-1000...

Re: Market Plunge Baffles Wall Street

#22

Post by fredmg » Fri, May 07, 2010, 4:02 PM UTC

To protect against an unexpected market crash, traders have stop-loss orders that can be executed automatically if the market starts to tank.

  Trader 1 puts in a order to sell everything if the market goes down by 4% in 1 hour.  

  Trader 2 knows that and wants to get out of the market before trader 1 does in a crash, so he puts in a order to sell everything if the market goes down by 3.9% in 1 hour.

  Trader 3, Trader 4, etc. continue this process.

  Then you have a day like yesterday when the market goes down by 2 percent and there is a lot of uncertainty about Europe, causing more people to put in stop-loss orders.  The one automatic order triggers hundreds more.  

  Now they are going to rollback some of these trades because it was an "Trading Error".   When Investors on Wall St. have trades that make money it is because of their skill and they get bonuses.  But when their own stop-loss program sells for a 70% loss they get a do over.

Re: Market Plunge Baffles Wall Street

#23

Post by yummyfajitas » Fri, May 07, 2010, 4:09 PM UTC

andr wrote: post #18

yummyfajitas wrote: post #14

Earlier quoted context omitted.

Practice. Assume the stocks you are manipulating are bid at 99.99, ask at 100. 3 - Your friend's first few sell orders at $0.01 or better are filled at about $99.99. Your buy orders go unfilled. 4 - If your friend sold enough shares, the algorithms notice someone aggressively selling. They may undercut and sell at 99.99 or even 99.98. The algorithms also place a few buy orders at 99.96-99.97. 5 - Your friend's trades…

If you have direct market access you can match particular orders in the order book, even if they are out of the money. Your friend would fill your $0.01 order at $0.01 and move the last trade price.

This is not technically possible for most matching engines. There is simply no "fill order X bypassing price/time queue" message. In fact, NYSE doesn't even tell you that order X exists and simply aggregates all orders into "Z shares available at price Y".

Also, except in the case of certain rare events which cause high latency (e.g., yesterday), it is also illegal to play games like this. For instance, if the bid is 99 on BATS and only 50 on ARCA, and I want to sell, I can't sell on ARCA. (I'm grossly oversimplifying, of course, but my simplifications don't exclude the case of selling at $0.01 to fool the markets.)

Re: Market Plunge Baffles Wall Street

#24

Post by ivenkys » Fri, May 07, 2010, 4:10 PM UTC

Here is the movement of Accenture as given by WSJ:

"With Accenture, for example, 20,365 shares changed hands at around $39.98 during the minute of 2:46 p.m., then another 68,516 shares were traded at $38 per share during the minute of 2:47. But then in the 2:49 p.m. minute, 66,277 shares traded at one cent. By 2:50 p.m., the stock was back up to $39.51."

The trade at 2:50 pm is the is the one that intrigues me , i can understand how the other ones can be blamed/attributed to HFT algorithms , but how does one explain the bounce-back at 2:50 from one cent to 39.51 ?

Re: Market Plunge Baffles Wall Street

#25

Post by fr0sty » Fri, May 07, 2010, 4:19 PM UTC

andr wrote: post #18

yummyfajitas wrote: post #14

Earlier quoted context omitted.

Practice. Assume the stocks you are manipulating are bid at 99.99, ask at 100. 3 - Your friend's first few sell orders at $0.01 or better are filled at about $99.99. Your buy orders go unfilled. 4 - If your friend sold enough shares, the algorithms notice someone aggressively selling. They may undercut and sell at 99.99 or even 99.98. The algorithms also place a few buy orders at 99.96-99.97. 5 - Your friend's trades…

If you have direct market access you can match particular orders in the order book, even if they are out of the money. Your friend would fill your $0.01 order at $0.01 and move the last trade price.

Reg NMS does not allow a trade to happen outside the national Best Bid/Offer.

If the market is 99.99-100.00 you cannot trade even at 99.98

Re: Market Plunge Baffles Wall Street

#26

Post by yummyfajitas » Fri, May 07, 2010, 4:20 PM UTC

mattmanser wrote: post #17

pw0ncakes wrote: post #4

Earlier quoted context omitted.

A lot of HF traders pull out in times like this for technological reasons. For example, most quotefeeds (such as Reuters, if my memory serves) have outdated technology that handles load really badly. When quotes are 5+ seconds slow, they're essentially useless, given that HF trading occurs on a millisecond timeframe. Most liquidity providers would love to be in the market when it's panicking, because this is a great…

Reading this just makes me feel even more that the whole HF trading thing is the biggest con going out there.

Hmm. Speculators choose to avoid a market which they feel is highly risky. For this, you believe they are con artists.

Similarly, any person who doesn't put their retirement fund into junk bonds and penny stocks is also a con artist. After all, they are avoiding risky markets!

Re: Market Plunge Baffles Wall Street

#27

Post by starkfist » Fri, May 07, 2010, 4:25 PM UTC

mattmanser wrote: post #17

pw0ncakes wrote: post #4

Earlier quoted context omitted.

A lot of HF traders pull out in times like this for technological reasons. For example, most quotefeeds (such as Reuters, if my memory serves) have outdated technology that handles load really badly. When quotes are 5+ seconds slow, they're essentially useless, given that HF trading occurs on a millisecond timeframe. Most liquidity providers would love to be in the market when it's panicking, because this is a great…

Reading this just makes me feel even more that the whole HF trading thing is the biggest con going out there.

The biggest con out there is government employees making salaries that are on average double than private enterprise... but I guess that's a different discussion.

Re: Market Plunge Baffles Wall Street

#28

Post by yummyfajitas » Fri, May 07, 2010, 4:36 PM UTC

ivenkys wrote: post #24

Here is the movement of Accenture as given by WSJ: "With Accenture, for example, 20,365 shares changed hands at around $39.98 during the minute of 2:46 p.m., then another 68,516 shares were traded at $38 per share during the minute of 2:47. But then in the 2:49 p.m. minute, 66,277 shares traded at one cent. By 2:50 p.m., the stock was back up to $39.51." The trade at 2:50 pm is the is the one that intrigues me , i ca…

One or more large investors believed that the correct price for Accenture was about $40. When they saw it available at prices between $0.01 and $39, they bought and bid it up.

Re: Market Plunge Baffles Wall Street

#29

Post by cynicalkane » Fri, May 07, 2010, 4:42 PM UTC

startuprules wrote: post #21

"The entire stock market rally which we have seen this year off the February lows resembles a low volume Ponzi scheme, and formed a huge air pocket under prices. This US equity rally was driven by technically oriented buying from the Banks and the hedge funds. There was and still is a lack of legitimate institutional buying at these price levels. This was machine driven speculation enabled by the lack of reform in a…

If there were no buys to prop up the free falling, why did the markets rebound almost instantly?

Re: Market Plunge Baffles Wall Street

#30

Post by randallsquared » Fri, May 07, 2010, 4:55 PM UTC

studer wrote: post #12

randallsquared wrote: post #7

Earlier quoted context omitted.

It actually seems like standard procedure. They reset the market after 9/11, too. Basically, it seems like any time something really unusual happens, it's an excuse to go outside the rules. Back when I was involved in digital gold currencies, this kind of thing seemed pretty standard across the board: banks would just reverse transactions, freeze accounts, etc, any time there was anything unusual, and it seemed like…

What rules are you referring too? Are you saying that Nasdaq violated their own rules when they rolled things back?

Oh, not specifically and officially; I don't know what actual contractual or legal rules surround this, and it could well be that trading is contingent on a contract that allows them to do whatever they want. By "rules", I mean the usual rules that people believe are in force, like "Once I buy or sell, it stays bought or sold". In exceptional situations (like this one, or 9/11), it always seems to turn out that honoring obligations was optional all along, doesn't it?