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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

#181

Post by twic »

crusso wrote: post #157
fhars wrote: post #129

Earlier quoted context omitted.

Looking at systems by considering whether they 'create value' in some generalized utilitarian sense is unproductive. Such systems survive by being able to extract energy somehow A perfect description of many forms of organized crime.

I would draw a line between systems that rely upon voluntary interaction like stock markets vs systems that rely upon forced coercion like organized crime.

Which side of that line do confidence tricksters, fraudsters, and counterfeiters lie?

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

#182

Post by fr0sty »

harryh wrote: post #171
jonknee wrote: post #147

Earlier quoted context omitted.

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 t…

Please supply values for the following undefined variables:

1. kagillion (shares, %ADV, notional dollars)

2. good old days (single year or a range)

3. too much (in $ or %)

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

#183

Post by twic »

marincounty wrote: post #96
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 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?

I think it's simpler than this: just delay every trade by a random amount between zero and ten seconds. For people who actually want to buy or sell instruments because of their value to them, that won't be a problem. For people who just want to play Street Fighter II with the market, it's game over.

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

#184

Post by harryh »

fr0sty wrote: post #182
harryh wrote: post #171

Earlier quoted context omitted.

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 t…

Please supply values for the following undefined variables: 1. kagillion (shares, %ADV, notional dollars) 2. good old days (single year or a range) 3. too much (in $ or %)

1. Hrm, ok. So apparently it's a 770B fund. Let's say they want to move .01% of their assets into MSFT. That would be $77M or about 2.2M shares. That would be about 5% of the average daily volume of MSFT.

2. It's not a binary thing but a gradual transition from mostly human market makers in the 80s to mostly algorithmic market makers today.

3. I'm on shakier ground on this one, but a fraction of a % of their cost.

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

#185

Post by jonknee »

harryh wrote: post #171
jonknee wrote: post #147

Earlier quoted context omitted.

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 t…

No, it's more like they want to buy a kagillion shares and before they can complete the trade a HFT buys them and sells to Norway for slightly more. It's not good for me, I sold to the HFT. It's just intraday noise that only does the HFT any good.

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

#186

Post by harryh »

jonknee wrote: post #185
harryh wrote: post #171

Earlier quoted context omitted.

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 t…

No, it's more like they want to buy a kagillion shares and before they can complete the trade a HFT buys them and sells to Norway for slightly more. It's not good for me, I sold to the HFT. It's just intraday noise that only does the HFT any good.

If that was actually happening it would mean that spreads (the difference between where market makers buy and sell stocks) were large. In fact, the exact opposite is true. Spreads are tiny. Much smaller than they used to be!

This is because there's not just one HFT. There are tons. So if one of them tries to do this you won't sell to them, you'll sell to one of the other ones for a better price. Yay competition!

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

#187

Post by meepmorp »

ycombobreaker wrote: post #51
meepmorp wrote: post #26

Earlier quoted context omitted.

I seem to have misread, but not in a way that markedly distorts things.

"Powder Keg" is a very marked distortion of "Power Peg".

Considering how it blew up the company, it's an apt misreading.

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

#188

Post by twic »

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…

> a market data glitch (which is not at all uncommon)

This is a point that bears amplifying. People who do not work in the financial industry may not appreciate just how bad market data feeds are. Radical jumps with no basis in reality, prices dropping to zero, regular ticks going missing, services going offline altogether with no warning, etc.

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

#189

Post by comrade_ogilvy »

jrochkind1 wrote: post #153
Dylan16807 wrote: post #78

Earlier quoted context omitted.

Sure, you click reflexively, but you should notice the text was bad either after clicking or within a couple more clicks. Letting the first few errors through is reasonable, but letting a wall of them through without noticing anything wrong, when reading them is your job , is inexcusable.

I don't know if it's excusable or not, but it may be incompatible with typical human cognition to expect someone to be able to do that. Maybe you have to figure out a way to test people for unusually high aptitude at looking at mind-numbingly dull repetitive things over and over again, but then still being able to notice the aberrant ones. And then only put people in that job with unusually high aptitude there. Or ha…

Yours is the correct viewpoint: it is incompatible with human cognition.

If an alert system is not perceived as highly reliable in directing positive action, then the humans involved will inevitably disable the alert system, either by pulling out a screwdriver or rewriting their mental rubrics to ignore the messages as noise.

Knight Capital is just the finance version of Three Mile Island and Deepwater Horizon -- the means to mitigate or prevent disaster were on hand, but the people in charge just dithered by the kill switch because they were confused. Well, if the people in charge are confused, that is a reason to start the emergency procedures.

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

#190

Post by twic »

retube wrote: post #80
dchichkov wrote: post #45

Earlier quoted context omitted.

It looks like they saw positions accumulating in one of theirs accounts, but couldn't identify the source. And maybe they saw positions too late, because of lag. Here's a description from that SEC report, onto what went wrong with their monitoring system: "Moreover, because the 33 Account held positions from multiple sources, Knight personnel could not quickly determine the nature or source of the positions accumulat…

I think your formatting above has forced a very wide page width....

It's simulating those little ticker tape things that stock prices came on in old movies. I found it made it a rather thrilling read.
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