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Apple and the risks of trading 29,000 times per second

tech.fortune.cnn.com

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Re: Apple and the risks of trading 29,000 times per second

#11

Post by yskchu »

fleitz wrote: post #7
fletchowns wrote: post #4

How is making 29,000 trades per second good for the market? It seems like trading at that frequency should be illegal.

Why should trading at that frequency be illegal? What is the optimal amount of trades per second one should be making? Once per second? Once per minute? Once per year? Even if there were such a number how could any bureaucrat ever arrive at the optimal frequency any particular market participant should be trading at?

Even though it will be hard to determine the optimal amount of trading per second, you have to agree that the situation now is far from normal.

One of the most important economic benefit, and function of the stock market, is to allow companies to raise capital.

High frequency trading does nothing to promote this goal.

In some sense the stock market today is more like a gambling hall.

Re: Apple and the risks of trading 29,000 times per second

#12

Post by Iv »

fleitz wrote: post #7
fletchowns wrote: post #4

How is making 29,000 trades per second good for the market? It seems like trading at that frequency should be illegal.

Why should trading at that frequency be illegal? What is the optimal amount of trades per second one should be making? Once per second? Once per minute? Once per year? Even if there were such a number how could any bureaucrat ever arrive at the optimal frequency any particular market participant should be trading at?

Does the intrinsic value of a company change 29 000 times per second ? is this signal or noise ?

Trading once per day and randomizing the order of trades would work nicely I think. There was a recent very good example of this concerning Apple : When Steve Jobs died, they kept the information secret and agreed with the stock exchange to suspend trading for a day. The time for everyone to think about what it meant for the company instead of hysterically following a random trend. A big event, obviously changing the company's intrinsic value, was interpreted with a daily period. Everything I read about high frequency trading indicates that it is mainly noise.

I mean, stock exchanges close at night and during week ends. There are 48 hours without quotations. How does one concile that with nano-second trading.

Re: Apple and the risks of trading 29,000 times per second

#13

Post by brisance »

tedunangst wrote: post #10
brisance wrote: post #9

Marvin8 on that site had a great comment. Here it is: What I'd like to know is what happens to customers who have resting orders near those "fat-finger" trades. If a customer had a sell stop-loss at $583, did he get stopped out of the market at that price or near $582? I'll bet he did. If another customer had a buy order in at $583, did he get filled on the way down? I'll bet he didn't. The broker wil ALWAYS come up…

The guy who sold at 582 had to sell to somebody, so the buyer at 583 got his order too. That's why they're called trades . There's somebody on both sides.

That's the theory. In practice we know that's not necessarily true. e.g. stop-loss order and the stock gaps down. Did the stop-loss order execute? No, it may have executed as a market order.

And that's the point he was trying to make. He's saying that the broker can create any suitable excuse to fit the situation.

With HFT it may not even be an excuse and could very well reflect the reality of the situation i.e. the price has moved too quickly for the exchange to keep up.

Re: Apple and the risks of trading 29,000 times per second

#14

Post by tedunangst »

brisance wrote: post #13
tedunangst wrote: post #10

Earlier quoted context omitted.

The guy who sold at 582 had to sell to somebody, so the buyer at 583 got his order too. That's why they're called trades . There's somebody on both sides.

That's the theory. In practice we know that's not necessarily true. e.g. stop-loss order and the stock gaps down. Did the stop-loss order execute? No, it may have executed as a market order. And that's the point he was trying to make. He's saying that the broker can create any suitable excuse to fit the situation. With HFT it may not even be an excuse and could very well reflect the reality of the situation i.e. the…

If the claim is that a sell at 582 executed and a buy at 583 did not execute, I want to see evidence. I see variations on this claim with a frequency approaching high, always by a random internet commenter "betting" on some hypothetical.

the price has moved too quickly for the exchange to keep up. What does that even mean?

Re: Apple and the risks of trading 29,000 times per second

#15

Post by tedunangst »

Iv wrote: post #12
fleitz wrote: post #7

Earlier quoted context omitted.

Why should trading at that frequency be illegal? What is the optimal amount of trades per second one should be making? Once per second? Once per minute? Once per year? Even if there were such a number how could any bureaucrat ever arrive at the optimal frequency any particular market participant should be trading at?

Does the intrinsic value of a company change 29 000 times per second ? is this signal or noise ? Trading once per day and randomizing the order of trades would work nicely I think. There was a recent very good example of this concerning Apple : When Steve Jobs died, they kept the information secret and agreed with the stock exchange to suspend trading for a day. The time for everyone to think about what it meant for…

If it's mainly noise, why do you care?

What I find most amazing is that the stock market is relatively small, yet people have strong opinions about it while ignoring much larger markets. There's some adage about how if you can't measure it, it doesn't exist or something. If CNN doesn't run a ticker for some market, I guess it doesn't matter.

Re: Apple and the risks of trading 29,000 times per second

#16

Post by seanalltogether »

yskchu wrote: post #11
fleitz wrote: post #7

Earlier quoted context omitted.

Why should trading at that frequency be illegal? What is the optimal amount of trades per second one should be making? Once per second? Once per minute? Once per year? Even if there were such a number how could any bureaucrat ever arrive at the optimal frequency any particular market participant should be trading at?

Even though it will be hard to determine the optimal amount of trading per second, you have to agree that the situation now is far from normal. One of the most important economic benefit, and function of the stock market, is to allow companies to raise capital. High frequency trading does nothing to promote this goal. In some sense the stock market today is more like a gambling hall.

I completely agree. There are a fair amount of investors that are going after a percentage of a company, they are making investments that can actually propel a company forward. The rest of us are gambling on a popularity contest.

Re: Apple and the risks of trading 29,000 times per second

#17

Post by prodigal_erik »

tedunangst wrote: post #15
Iv wrote: post #12

Earlier quoted context omitted.

Does the intrinsic value of a company change 29 000 times per second ? is this signal or noise ? Trading once per day and randomizing the order of trades would work nicely I think. There was a recent very good example of this concerning Apple : When Steve Jobs died, they kept the information secret and agreed with the stock exchange to suspend trading for a day. The time for everyone to think about what it meant for…

If it's mainly noise, why do you care? What I find most amazing is that the stock market is relatively small, yet people have strong opinions about it while ignoring much larger markets. There's some adage about how if you can't measure it, it doesn't exist or something. If CNN doesn't run a ticker for some market, I guess it doesn't matter.

I care if all my 401(k) alternatives are in markets being parasitized by HFTs who have learned to exploit execution flaws and attack the confidentiality of the order book. Less selfishly, I care if HFTs are diverting society's resources away from the effective producers the market exists to support.

Re: Apple and the risks of trading 29,000 times per second

#18

Post by brisance »

tedunangst wrote: post #14
brisance wrote: post #13

Earlier quoted context omitted.

That's the theory. In practice we know that's not necessarily true. e.g. stop-loss order and the stock gaps down. Did the stop-loss order execute? No, it may have executed as a market order. And that's the point he was trying to make. He's saying that the broker can create any suitable excuse to fit the situation. With HFT it may not even be an excuse and could very well reflect the reality of the situation i.e. the…

If the claim is that a sell at 582 executed and a buy at 583 did not execute, I want to see evidence. I see variations on this claim with a frequency approaching high, always by a random internet commenter "betting" on some hypothetical. the price has moved too quickly for the exchange to keep up. What does that even mean?

Edit: added link to show that orders don't necessarily get filled according to time priority ("an order clearly arrived later than ours with the same limit price, yet it was filled and we were not.")

It's only hypothetical until it happens to you.

Refer to the fleitz's comment about short squeeze. That's an example of orders that don't get filled.

In theory the broker is supposed to borrow shares to allow the trader to sell them short. What happens if the broker flouts securities law and does not follow the rules?

http://www.nytimes.com/2012/03/26/business/goldman-sachs-den...

BTW, non-HFT'ers get consolidated market feeds which have higher latency than raw feeds that HFT'ers use. That's what a major part of the HFT debate is about.

http://www.hftreview.com/pg/blog/mike/read/5317/hft-and-late...

http://www.tradeworx.com/TWX-SEC-2010.pdf [PDF] (refer to page 17, 18)

Re: Apple and the risks of trading 29,000 times per second

#19

Post by creamyhorror »

yskchu wrote: post #11
fleitz wrote: post #7

Earlier quoted context omitted.

Why should trading at that frequency be illegal? What is the optimal amount of trades per second one should be making? Once per second? Once per minute? Once per year? Even if there were such a number how could any bureaucrat ever arrive at the optimal frequency any particular market participant should be trading at?

Even though it will be hard to determine the optimal amount of trading per second, you have to agree that the situation now is far from normal. One of the most important economic benefit, and function of the stock market, is to allow companies to raise capital. High frequency trading does nothing to promote this goal. In some sense the stock market today is more like a gambling hall.

Well said. As in some casinos, in the world's stock markets some big players (probably including certain HFTs and hedge funds) take much more of the winnings than small ones, due to information asymmetry or pure competitive advantage (e.g. due to extremely fast trading and advanced algorithms).

The more money is sucked from the market by intelligent arbitrageurs/gamblers, the less there is for small(er) investors. That's a bad thing in itself and also increases the focus on financial gameplay (analysis of market trends and fads) to the detriment of investment (analysis of the worth of companies). Frothy, ever-rising stock markets attract investment away from other markets, usually for poor reasons: the traded companies haven't done anything that would justify such rapid and significant changes in their stock values.

The point of the stock market is not to let the smartest people profit from the rest; it's to allow companies to raise capital efficiently and fairly. If we tweak the rules of the market, by limiting trade frequency for example, we may be able to push the play in the market towards a form that aligns better with this core function of the market.

Finally, I want to reiterate that for a closed population, the stock market is a zero-sum game. Money made is won from someone else, always.

edit: i'd appreciate you mentioning the points you disagree with when you give your downvotes - thanks

Re: Apple and the risks of trading 29,000 times per second

#20

Post by guelo »

I've been trying to figure out how to keep my money as far away from Wall Street goons as possible. The hit on Goldman Sachs' reputation from a couple weeks ago is the latest signal that Wall Street's job is to steal customers' money, stay away. The loss in confidence will eventually get them, though that will probably just mean they get another bailout.
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