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Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

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Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#51

Post by javert »

scotch_drinker wrote: post #42
javert wrote: post #37

Earlier quoted context omitted.

A lot of people lost a lot of money during the flash crash, through margin calls, stop loss hits, etc. Well, if day traders lost money, who cares? That's the business they're in. It also called into question the stability of our markets. If people lose confidence in our stock markets, then people stop trading on them. True, but there was a fast recovery, and people are still trading. You mentioned that volume is low.…

It's not the day trader losses we're worried about. It's the average investor who had trailing loss orders in on P&G (just an example) who had to sell their positions at steep losses only to see the market rebound immediately leaving them with zilch. This attitude of "If day traders lost money, who cares" is missing the forest for the trees. Lots and lots of people got screwed by the flash crash and that starts to ca…

That is a very good point.

I know the exchange can automatically put a halt to the trading of an asset, and that seems (to me) like a good tool in this case. e.g. if there is a certain pre-defined amount of volatility in a certain time. Do you think that would address this concern?

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#52

Post by Dn_Ab »

programminggeek wrote: post #8

I have no problem with HFT, but only because it is turning machines into things that are doing what humans did before, only at a speed that we can't keep up with as humans with our inherently physical interfaces. How is HFT different than traditional arbitrage except for the fact that it is faster and potentially at a scale that normal traders would never be able to keep up with? How is buying something one second an…

The problem of HFT is two.

First, HFT is very difficult. It requires the talents of extremely intelligent individuals. These individuals are a scarce resource. Now, being as they are near the generation and handling of money, HFT firms are best placed to outbid all others for these people. So R&D and other such lose out on top minds. Additionally, if much of the money of high net people is being invested in funds without finding its way into risky high tech research, this too can be a drag on the economy in the long term. http://sirc.rbi.org.in/downloads/4Cecchetti.pdf

The second is a problem of misaligned priorities. It's one thing to suck in all the best minds and it's another to have them all expending a massive amount of effort trying to shave down microseconds so their order goes in first. Chris Stucchio here http://www.chrisstucchio.com/blog/2012/hft_whats_broken.html argues very well that the so called sub-penny rule (abs(changeinprice) >= 0.01) is antiquated and from a time when humans reigned. This rule is a source of friction for the bots and is very likely a key player in the current misallocation of talent. It's removal would make HFTing cheap enough that not so many people would be needed. Some would leave to cure cancer or mine asteroids. The rest could then work on more sophisticated pricing techniques - which is a net boon, maybe those techniques could make prices more stable or be reused for optimal donor matching or something.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#53

Post by [deleted] »

sskates wrote: post #38
kristianp wrote: post #5

I for one don't agree with HFT. Why should our best hackers and mathematical minds be wasted on something so shallow as gaming the market? Would a small randomised delay introduced by the exchange into each stock trade (or price datum) reduce the incentive for HFT?

Can someone explain this mindset to me? That there is somehow a fixed amount of mathematical talent in the world and if there are people whose preferences make taking a job in HFT optimal then society is necessarily worse off.

[deleted]

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#55

Post by whatusername »

clarky07 wrote: post #45
ezl wrote: post #34

Earlier quoted context omitted.

I forget where I read this, but in an article by someone else I read something like: "[There's something very sinister about a company that takes society's greatest engineer and science minds away from important tasks for humanity and diverts them to the task of optimizing ads] A lot of people will say what you say about HFT, but have no qualms about Google and Facebook and Twitter. Why is that?

I for one would say this about HFT, Facebook, twitter, and google. Though to a lesser extent for google as they have lots of other impressive projects such as self driving cars that could have a good impact.

Indexing all of the worlds information isn't something for our best hackers?

Setting up a global communications network where I can easily share photos videos with friends and families (helping millions and millions stay in touch) isn't worthy of some great hackers?

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#56

Post by jasonwatkinspdx »

ezl wrote: post #2

sigh i got really excited about this because I was considering the interpretation of the word "hackers" like we use it in "Hacker News" (relevant: http://paulgraham.com/gba.html ) I know that the startup community at large doesn't largely respect short term trading, particularly HFT. I understand it, though I honestly think its misguided and the outrage is disproportionately large, but thats another story. The reason…

That you can, does not mean you should.

And who pays for your failures?

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#57

Post by runako »

javert wrote: post #51
scotch_drinker wrote: post #42

Earlier quoted context omitted.

It's not the day trader losses we're worried about. It's the average investor who had trailing loss orders in on P&G (just an example) who had to sell their positions at steep losses only to see the market rebound immediately leaving them with zilch. This attitude of "If day traders lost money, who cares" is missing the forest for the trees. Lots and lots of people got screwed by the flash crash and that starts to ca…

That is a very good point. I know the exchange can automatically put a halt to the trading of an asset, and that seems (to me) like a good tool in this case. e.g. if there is a certain pre-defined amount of volatility in a certain time. Do you think that would address this concern?

No.

The exchanges had similar circuit breakers in place during the flash crash. They even cancelled some orders after the fact.

But the flash crash still caused real investors (not professionals) to lose real money for the reasons outlined.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#58

Post by jasonwatkinspdx »

cynicalkane wrote: post #50
joe_the_user wrote: post #44

Earlier quoted context omitted.

Oddly enough, I was originally expecting that same thing. Still, I think it's reasonable to ask the question: where does the boundary between good, useful hacking and evil, insidious hacking lie? And I think it's reasonable to not assume that the boundary lies at what is legal or that the boundary lies at what is "interesting". I mean, how you produce and profit from spam is a hard, interesting problem. Flame and Stu…

Trading is a zero-sum game, but investing is not, and trading exists to make markets and snipe inefficiencies. The amount of money that can be made here can be surprising, until you consider that they're oiling the gears for manifold trillions of dollars in commerce and wealth. Some of that is gambling, but most of it isn't. Stuff like institutional hedgers and investment funds are huge sources of market activity.

It's is very hard to see how predicting short term market position unrolling by individual institutions is making a market or sniping inefficiency. That is an arms race that creates a minimum cost to enter to compete.

When success at sniping depends upon privileged network access, both human and technical, it's more a matter of profiting on an inefficiency you enforce upon everyone else.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#59

Post by bokonist »

"As far as narrowing spreads, that’s absolutely true, but in absolute terms what does it translate into? For the individual investor it might save them a quarter a month."

In a properly designed, information age stock market there should not be a spread. All stocks should trade via a programmed, black box auction that runs on an interval. The HFT practice of creating phony orders that are immediately canceled, just to gain visibility into the current bids and asks, would be eliminated. No seeing other people's bids, and then front running them, no canceling orders. You put in a limit order for the value of the stock, and the stock goes to the highest bidder. All the extra pennies and quarters go to the shareholder, nothing to the HFT algorithms (unless they provide actually value such as market making or smoothing irrational volatility). It's the most efficient design for stock market trading possible.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#60

Post by runako »

unabridged wrote: post #14
wmf wrote: post #10

Earlier quoted context omitted.

The difference is that a crash can happen faster than any human can stop it. It's fine if you trust your high-frequency circuit breakers.

What exactly is a flash crash and why should individuals care? Isn't it just bank's computers temporarily offering stock at a severe discount and then the price going back to normal. It doesn't hurt anyone but the people with poorly programmed algorithms. No trades should ever be broken just because someone can't control their trading bots.

>> poorly programmed algorithms

You're describing the stop-loss orders that non-professionals use to protect themselves from losing money when the fundamentals of their companies deteriorate suddenly. A stop loss is a very simple algorithm that is widely available in retail brokerage platforms. (Example stop-loss order: "Sell when the last trade is 3% below my purchase price.")

For instance, you own 100 shares of Pepsi and plan to hold for a while (years, not days). Tomorrow while you are in a meeting, a large-scale accounting fraud at Pepsi is announced, sending the stock down some large %age before the circuit breakers halt the stock. Prudently, you had a stop-loss order limiting your losses to (say) 3%. In this case, the stock probably won't recover when the stock starts trading again.

If the stock had dropped and suddenly recovered due to a non-news flash crash, you would have just lost 3% of your investment for no fundamental reason. The flash crash in essence caused you sell at a localized bottom.

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