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Market Plunge Baffles Wall Street

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Re: Market Plunge Baffles Wall Street

#41

Post by ams6110 »

khafra wrote: post #40
rbanffy wrote: post #35

Earlier quoted context omitted.

> But when their own stop-loss program sells for a 70% loss they get a do over. There has to be a mechanism to undo cascade mistakes because, if someone figures out a way (and that's rather easy) to induce mistakes and to profit from them, it will shortly become the prevalent form of trading. We want exchanges to foster investment on productive companies.

It's a market for intangibles; over the short term it's zero-sum. The only way to profit is to induce mistakes; to get someone on the other side of a trade that's profitable to you and damaging to them. If algorithmic trading causes vulnerability to mistakes, they need to revise their algorithms or factor in the risk of this type of loss; that's the way free markets work. The externalities of a sudden crash suck, but…

My guess is that the algorithms are already being adjusted. My fear is that a bunch of politicians who are as clueless as most everyone else are going to try use this as yet another opportunity to grab the spotlight. Expect congressional hearings.

Re: Market Plunge Baffles Wall Street

#42

Post by ewjordan »

andr wrote: post #13
oneplusone wrote: post #11

Earlier quoted context omitted.

Expect your trades will get reversed at the end of the day and you will not make any money.

That's the best part. Only the trades that are directly related to the stocks that dropped are being reversed. Even if your trades on the stock are reversed, you have still moved the market and executed your DJIA options.

...and then, if your scheme works (which, as others have pointed out, would take a miracle, and a very carefully chosen market that's not handled the way most of the big ones are), both you and your friend go to jail for market manipulation, which would be rather simple to prove - there's almost no reason you would ever want to sell something way below the best bid, so you're without the usual excuses that market manipulators use to justify manipulative trades ("uh, my analysis showed that the 26.5 day moving average crossed the 100 day low, so I bought, but then I noticed that the pork bellies volatility was higher than usual, so I sold a few seconds later, because that's the way my strategy works...").

Re: Market Plunge Baffles Wall Street

#43

Post by inferno0069 »

pw0ncakes wrote: post #31
starkfist wrote: post #27

Earlier quoted context omitted.

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.

Actually, a much worse con, if you want to have this discussion, is that millions of private-sector corporate employees are getting paid peanuts for their work, compensated largely with a promise of future prosperity/advancement that will never come through. A much worse con is that the economic growth since 1975 has been siphoned off almost entirely by the increasingly entrenched upper classes, with consumer debt, a…

> Do you really think that it's of benefit to society for some people to show up to work every day and take home Wal-Mart wages, instead of having real alternatives?

Given the prevalence of unemployment, yes Walmart jobs are better than at least one real alternative.

Re: Market Plunge Baffles Wall Street

#44

Post by codexon »

rbanffy wrote: post #35
fredmg wrote: post #22

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, e…

> But when their own stop-loss program sells for a 70% loss they get a do over. There has to be a mechanism to undo cascade mistakes because, if someone figures out a way (and that's rather easy) to induce mistakes and to profit from them, it will shortly become the prevalent form of trading. We want exchanges to foster investment on productive companies.

if someone figures out a way (and that's rather easy) to induce mistakes and to profit from them, it will shortly become the prevalent form of trading

That sounds contrary to what Goldman Sachs is saying why they shouldn't be sued. They are using the "big boys" defense.

http://www.cbsnews.com/stories/2010/04/21/politics/washingto...

Re: Market Plunge Baffles Wall Street

#45

Post by pw0ncakes »

inferno0069 wrote: post #43
pw0ncakes wrote: post #31

Earlier quoted context omitted.

Actually, a much worse con, if you want to have this discussion, is that millions of private-sector corporate employees are getting paid peanuts for their work, compensated largely with a promise of future prosperity/advancement that will never come through. A much worse con is that the economic growth since 1975 has been siphoned off almost entirely by the increasingly entrenched upper classes, with consumer debt, a…

> Do you really think that it's of benefit to society for some people to show up to work every day and take home Wal-Mart wages, instead of having real alternatives? Given the prevalence of unemployment, yes Walmart jobs are better than at least one real alternative.

I would rather have a society where people are paid unemployment, even indefinitely, than one where they work under Wal-Mart conditions for Wal-Mart wages-- a circumstance that would be considered slavery by most societies dating back to ancient Greece, although we're afraid to admit that this arrangement is such today.

Re: Market Plunge Baffles Wall Street

#46

Post by rbanffy »

khafra wrote: post #40
rbanffy wrote: post #35

Earlier quoted context omitted.

> But when their own stop-loss program sells for a 70% loss they get a do over. There has to be a mechanism to undo cascade mistakes because, if someone figures out a way (and that's rather easy) to induce mistakes and to profit from them, it will shortly become the prevalent form of trading. We want exchanges to foster investment on productive companies.

It's a market for intangibles; over the short term it's zero-sum. The only way to profit is to induce mistakes; to get someone on the other side of a trade that's profitable to you and damaging to them. If algorithmic trading causes vulnerability to mistakes, they need to revise their algorithms or factor in the risk of this type of loss; that's the way free markets work. The externalities of a sudden crash suck, but…

This is the normal operation. The "undo" key is not supposed to be used unless something abnormal happens.

Re: Market Plunge Baffles Wall Street

#47

Post by rbanffy »

codexon wrote: post #44
rbanffy wrote: post #35

Earlier quoted context omitted.

> But when their own stop-loss program sells for a 70% loss they get a do over. There has to be a mechanism to undo cascade mistakes because, if someone figures out a way (and that's rather easy) to induce mistakes and to profit from them, it will shortly become the prevalent form of trading. We want exchanges to foster investment on productive companies.

if someone figures out a way (and that's rather easy) to induce mistakes and to profit from them, it will shortly become the prevalent form of trading That sounds contrary to what Goldman Sachs is saying why they shouldn't be sued. They are using the "big boys" defense. http://www.cbsnews.com/stories/2010/04/21/politics/washingto...

Nobody sane would trust them to write the rules on which the market operates.

Re: Market Plunge Baffles Wall Street

#48

Post by ivenkys »

yummyfajitas wrote: post #28
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.

That's my problem with this - why would i pay $40 for something that is available at $0.01.

Yes i might believe it is worth $40 but when i am getting something for much cheaper than that surely i would just buy and wait for it to go up, in which case the price rise should also be in stages, which it is not.

Re: Market Plunge Baffles Wall Street

#49

Post by sesqu »

yummyfajitas wrote: post #14
andr wrote: post #6

Theory: 1) Short DJIA. 2) Pick some stocks and place buy orders at $0.01. 3) Get a friend to fill those orders for you at $0.01, taking the loss. Call it a trader error. 4) A lot of poorly written algorithms, which take into account the last traded price, start selling to cover their stoploss orders (sell if the price 5) Havoc ensues. DJIA is down. Cover your DJIA short and take the rest of the day off.

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…

Thank you, but I think you need to be more explicit at stage 7.

As I understood you, algorithms notice someone dumping stock and they pick it up. Then they hope you were selling for cheaper than market value because you were in a hurry, not because you thought said stock was overvalued, and they try to pass off the stock later on.

Is this what "providing liquidity" means? It seems like a good thing, iff people generally do high-frequency trading far more than actual investment. What's providing that confidence? Experience?

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