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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

#121

Post by ajays »

ajtulloch wrote: post #105
ajays wrote: post #75

I keep hearing about HFT, and have read about it a little. But there's a surprising dearth of data. Can someone come up with a data set? For example: here are N inputs to the program. If the program can make a decision D in time T, then it can make money. Or something to that effect. I have no idea right now what the inputs to these HFT programs are; what the expected actions under the time constraints are; and how t…

Sure: 1. Data set - order book of your chosen stock exchange. Events being streamed in at rates up to 1Gb/s [1]. This is the entire set of actions affecting the order book - bids, offers, cancellations, adjustments, etc. - it's huge. If you want to get fancy - most do - you would typically pull in several of these feeds (or subscribe to a consolidated feed) containing several exchanges, and look to arb any price/book…

How about releasing some data? Do some feature generation and come up with features, along with the desired action (the best possible action, given that you know how things are going to go in the future). Then us clueless types can see what all the hubbub is all about :-)

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

#122

Post by clavalle »

joe_the_user wrote: post #44
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…

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…

I think the zero sum nature of HFT is already providing an answer.

There is so much competition in the U.S. that HFT firms are having to expand to other markets like London and beyond that don't have the same level of saturation.

There are only so many markets in the world, so in about 10 years (probably much less) when they are all saturated with very low margin HFT, equilibrium will be reached firms will simply evaporate and/or glom together.

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

#123

Post by freshhawk »

bokonist wrote: post #80
freshhawk wrote: post #72

Earlier quoted context omitted.

> In theory Not a good theory. All the players in this game believe they are above average among players in this game. They all want the system to be exploitable because they all believe they will exploit it better than their peers. At the very least better than the investors (the real suckers here). You are falling into the game theory economics trap. People are highly irrational actors who don't even act in their o…

You are falling into the behavioral economics trap. In general, the big movers and shakers in financial markets act in quite economically rational ways. There is a natural selection process at work where the people who are good at using their brain to accumulate money, accumulate money, and thus have more impact in the market. If you look at many cases where wealthy market players appear to be acting irrationally, wh…

"In general, the big movers and shakers in financial markets act in quite economically rational ways"

They are certainly more intelligent, knowledgeable and invest more rationally but I've seen nothing to make me believe that they lack or compensate for the types of positivity biases that makes everyone think they are above average and can beat their peers.

We weren't talking about the contexts of the investment choices they make (where I mostly agree with you) but about changing to a system where the winners can't exploit the system to extract far more money than the value they put in.

If they are A-type human beings they have a positivity bias if they have a human brain. You don't need perverse incentives to keep a system that over-rewards winners if everyone thinks they are, or soon will be, the winners.

That said, I would also be interested in knowing about any perverse incentives here, I just don't think they are necessary.

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

#124

Post by ajtulloch »

mistermann wrote: post #119
ajtulloch wrote: post #104

Earlier quoted context omitted.

This is flat out wrong. The correct analogy is: Before HFT, to execute a block trade, your only option was to go to a specialised liquidity provider a.k.a your friendly local investment bank - the CC company in your analogy - , who would take a huge spread - the 3%-5% drain on the economy that you mentioned - in exchange for taking that liquidity risk. Now, with HFT, the increased speed of markets has democratised li…

Ok, this seems plausible, however, I am skeptical. Do you have any data or studies proving out these theories, including data that would give credence to the idea that the $ taken out of the market now due to HFT is less than that taken out by old fashioned liquidity providers?

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1695460; http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1722924; http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2010....; http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1970072 http://www.sec.gov/comments/s7-02-10/s70210-122.pdf

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

#125

Post by runako »

javert wrote: post #89
runako wrote: post #57

Earlier quoted context omitted.

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.

But the flash crash still caused real investors (not professionals) to lose real money for the reasons outlined. Alternatively, the exchange's failure to tune the circuit breakers correctly caused real investors to lose real money?

Definitely an avenue for exploration. I'd argue that the exchanges have been doing this over time, but that market manipulators will always move faster than the exchanges can tune circuit breakers and other mechanisms to prevent manipulation. Folks who stand to benefit from the type of volatility embodied in the flash crash will always be able to outrun these sorts of changes.

Oh, also don't forget that the exchanges are subject to regulatory capture from the firms who benefit from real investors losing money to market manipulators. It's not like Goldman Sachs is going to be pounding the table for the NYSE to make it harder for HFT desks to manipulate markets.

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

#126

Post by sseveran »

yaix wrote: post #95
sseveran wrote: post #92

Earlier quoted context omitted.

SEO gets crappy websites into Google. HFT serves many purposes, mainly replacing human market makers with computers.

What positive purposes does HFT server, appart from making yourself money at the expense of the stability of the overall economy? """replacing human market makers with computers""" That is not HFT, that is just automated trading. The damaging part if the "HF", not the "T".

No. The dominate strategies of HFT firms are market making and related arbitrage such as latency arbitrage between venues. There is nothing nefarious about having a computer do this in general as it is much more efficient than a human doing this. These strategies are not very complicated and instead require a lot of infrastructure to run. It used to be you needed to buy or rent a floor seat at the exchange to be able to run these types of strategies. Today that money goes to servers, hosting and engineers.

Automated trading, such as statistical arbitrage would be lower frequency, although often still high frequency by most peoples standards. This algorithms often are liquidity takers from HFT.

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