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How to lose $172,222 a second for 45 minutes

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Re: How to lose $172,222 a second for 45 minutes

#171

Post by harryh »

jonknee wrote: post #147
vecter wrote: post #92

Earlier quoted context omitted.

I really hate to go down this road because it's been rehashed thousands of times on Hacker News, but high frequency traders add value to the market by adding liquidity (and therefore reducing spreads --> cost to you for executing) and price discovery.

Sort of. If you are buying or selling a lot of shares it's quite a bit more expensive. That probably doesn't matter to you or I if we are buying AAPL because it's a small number of shares, but it does hurt any index/mutual funds you're invested in. Norway's sovereign wealth fund (one of the largest in the world, they own 1% of all US stocks) just came out on this exact topic: http://www.efinancialnews.com/story/2013-…

So what happens is Norway's sovereign wealth fund wants to buy a kagillion shares of MSFT (or whatever). In the good old days they could probably complete this transaction before the price went up too much. Now, thanks to HFTs, this additional demand is noticed faster, the prices rises faster, and it costs Norway more money. So, bummer for them.

But great for you! Because maybe you're the guy selling MSFT shares to them. You get the benefit of the price rising faster.

The market is more efficient. Norway can no longer take advantage of the fact that it knows that there's all this additional demand (originating from itself) and it takes a while for everyone else to figure that out.

Re: How to lose $172,222 a second for 45 minutes

#172

Post by harryh »

levosmetalo wrote: post #136
scrrr wrote: post #87

High Frequency Trading seems so abstract. There's no value created, it seems. It's like something in between imperfect systems, scraping off the margin created by that imperfection. It's fascinating, and interesting from an algorithmic point of view (like a computer game), but at the same time I don't feel sympathy for this company going out of business.

I would support idea to just price every transaction with a 0.0001% transaction fee. It should be enough to bring the whole HFT industry out of business while not having any impact on markets themselves.

This is wrong. The tax will just be passed on in the form of increase spreads.

It's like saying that if you add a 1% tax on food that all grocery stores will go out of business because their margins tend to be really small (around 1%). Clearly that's not what actually happens.

Re: How to lose $172,222 a second for 45 minutes

#173

Post by seldo »

jbrechtel wrote: post #165
adambratt wrote: post #9

The week after this we had a trader in our office who had a meeting at Knight on the morning it happened. He said he saw the whole dev team just power off and go home at 11am, followed quickly by the rest of the employees. At that point, there was nothing they could do. The craziest thing is that it went on for so long. No one caught it until their own traders so it come across Bloomberg and CNBC. They actually thoug…

They left at 11am because they realized how bad the problem was and just gave up? Or left at 11am as a normal thing (e.g. before they noticed the problem) ?

My understanding is that by 11am Knight was clearly bankrupt, so there was no further point in staying at the office.

Re: How to lose $172,222 a second for 45 minutes

#174

Post by meddlepal »

jbrechtel wrote: post #165
adambratt wrote: post #9

The week after this we had a trader in our office who had a meeting at Knight on the morning it happened. He said he saw the whole dev team just power off and go home at 11am, followed quickly by the rest of the employees. At that point, there was nothing they could do. The craziest thing is that it went on for so long. No one caught it until their own traders so it come across Bloomberg and CNBC. They actually thoug…

They left at 11am because they realized how bad the problem was and just gave up? Or left at 11am as a normal thing (e.g. before they noticed the problem) ?

I think he meant in the sense that nothing could be done. You might as well go home have a drink and prep that resume.

Re: How to lose $172,222 a second for 45 minutes

#175

Post by dmak »

ryporter wrote: post #101
sirsar wrote: post #4

I'm shocked they didn't have a killswitch or automated stop-loss of some kind. A script that says "We just lost $5M in a few minutes; maybe there's a problem." Or, a guy paid minimum wage to watch the balance, with a button on his desk. $172,222 is a lot of minimum-wage years.

I work for a small automated trading firm (in foreign exchange), and marking positions to market is one of the difficulties in designing an effective kill switch, because these marks can easily make the difference between a large gain and a large loss. In fast-moving markets (which is when a kill switch is most useful), it's very hard to determine the true mid-market rate. Our system of course always has such a notio…

What kind of technology stack are you guys using? Also, is your system constantly being improved to detect these things or was it just a onetime setup kind of thing?

Re: How to lose $172,222 a second for 45 minutes

#176

Post by rurounijones »

Dylan16807 wrote: post #79
tantalor wrote: post #72

That explains how the deprecated "Power Peg" model was activated, but why was that model so flawed?

They roughly explained it. The counters were in a different state because of refactoring moving their updates around, so the Power Peg code had an incorrect view of reality.

There is a part of me that is strangely impressed that the code ran at all after 8 years of things changing around it.

I would have expected it to just segfault or error out in some way.

Re: How to lose $172,222 a second for 45 minutes

#177

Post by comrade_ogilvy »

Houshalter wrote: post #112
joshAg wrote: post #76

Earlier quoted context omitted.

No, the SEC fined them for losing money stupidly. In order to have access to the market like they did, they had to follow certain laws that are enforced by the SEC. When they were losing all that money they weren't following those laws. It's like if you cause an accident while you're driving by breaking the law; you get a traffic citation (and the accompanying fine), even if your car is totaled as a result of the acc…

Right but they didn't do anything except offer trades. The thing about selling shorts they couldn't cover makes sense, but just for "acting stupidly" seems silly.

These are pros who are paid very well to have a clue. It is not silly if "acting stupidly" is described in writing, such that all parties adequately understand when the hammer is likely to come down. I am sure a lot of traders push the envelope and "drive 71 in a 65 mph zone". But it still not silly to give the guy driving 81 a ticket.

Re: How to lose $172,222 a second for 45 minutes

#178

Post by pnathan »

cstross wrote: post #100
lhaussknecht wrote: post #73

Earlier quoted context omitted.

Reminds me of a colleague who RDPed into each of our 140 subsidiaries to change a config file. He had a list of servers on his desk and ticked off every server. Took him the whole day to apply the changes.

Two words: job security. (Also: lots of folks really don't enjoy learning new stuff. Or new ways of working. No, they really don't. Even if the new techniques are vastly better and more efficient. Put this down to a human cognitive bias favouring the tried-and-trusted over new-and-untested. There's a lot to be said for that when you're a neolithic hunter-gatherer or an iron-age peasant -- if you try something new and…

Totally true. Even when the path is seamless, initial costs are nearly zilch... learning new things and applying them is anathema to many devs.

Re: How to lose $172,222 a second for 45 minutes

#179

Post by twistedpair »

yareally wrote: post #16
coldcode wrote: post #13

Earlier quoted context omitted.

I wonder how you can have code sit on a server unused and then 8 years later have it be called? What language was this written in?

Why would the language matter? Dormant code is the same in any language.

Poster was probably thinking of directories of interpreted code (i.e. Python, PHP, Ruby), compared to compiled binaries (C++, C, C#, Java), since many compiled languages have dynamic deployment mechanisms like OSGi's hotswapping of individual modules.

Re: How to lose $172,222 a second for 45 minutes

#180

Post by Mikeb85 »

avn2109 wrote: post #161
marincounty wrote: post #96

Earlier quoted context omitted.

I think HIgh Frequency Trading will eventually be neutralized through competition. I noticed the their profits aren't as staggering as they were a few years ago. I would like to see a law that limits how close an company(individual) can set up shop next to an exchange though. I think Insider Trading is more of a problem than the public knows?

"Only a fool would trade stocks without inside information."

This is ridiculous. It's possible to make money in the stock market without inside information, but it requires alot of knowledge. Markets are very fluid, complicated, and behaviour patterns are constantly changing.

Unless you're prepared to devote alot of time to learning, it's best to stick to index funds, or lower risk investments (GICs).

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