How to lose $172,222 a second for 45 minutes • Hacker News Board

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

#111

Post by hrjet » Tue, Oct 22, 2013, 10:09 AM UTC

jpatokal wrote: post #46

Just another reminder of how systems that you'd think are rock solid often aren't. In my previous life working with telcos, I once tried to teach a particularly huge customer how to use CVS how to manage configurations across a 10+ machine cluster of machines. They didn't see any value in it, so they stuck to their good old process of SSHing into each machine individually, "cp config.xml config.xml.20131022", and the…

I heard similar stories from a friend working for a big telco.

The other day he was describing a strange bug which was triggering in the field of a large telco. It was strange because it used to get triggered after exactly 85 days of deployment.

It turned out to be a debug script that was pinging a development server and timing out (because the development server was not accessible from the field). The series of retrials and timeouts totaled to exactly 85 days, after which the rest of the script would activate and uninstall crucial dependencies!

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

#112

Post by Houshalter » Tue, Oct 22, 2013, 10:18 AM UTC

joshAg wrote: post #76

Houshalter wrote: post #68

They fined them for losing money? What?

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.

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

#113

Post by vidarh » Tue, Oct 22, 2013, 10:24 AM UTC

strongvigilance wrote: post #108

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?

Why have a limit on how close people can be to the exchange? For one thing, everyone would just colo at exactly the minimum distance, achieving nothing. For another, ability to colo is not really an issue. If you wanted to create an HFT startup, colo is not going to be a major cost compared to hiring developers.

A limit on distance is in effect a speed limit. It means anyone that is able to reach the limit has a shot at competing. Whether that is good or not, or makes a difference or not is another discussion, but you can certainly affect the competitive situation massively that way.

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

#114

Post by lmm » Tue, Oct 22, 2013, 10:24 AM UTC

6d0debc071 wrote: post #85

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.

This was the bit that most shocked me: "Knight did not retest the Power Peg code after moving the cumulative quantity function to determine whether Power Peg would still function correctly if called." From thereon they purely and simply deserved everything that happened to them.

They didn't retest some code that hadn't been used since 2003. Why would they? Sure, removing that code would've been a good idea, but that's a forgivable mistake.

Reusing a flag that did something different in a currently-deployed version, without having a "transition" version that ignores that flag? Dodgy, but makes sense if you're in a rush.

Needing to manually deploy code to 8 different servers? Just stupid.

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

#115

Post by lmm » Tue, Oct 22, 2013, 10:25 AM UTC

mcphilip wrote: post #47

notaddicted wrote: post #44

Earlier quoted context omitted.

Yes, these criminal masterminds found a way to swindle honest hard-working themselves out of 440 million dollars and "get away with" a cool extra -12 million.

They also amassed over $3 billion net short positions spread across 75 stocks during those 45 minutes causing significant losses to investors with stop loss positions triggered that would not have happened without Knight's erroneous trades. They didn't just harm themselves...

Stop loss orders amplify market instability. People with them deserved what they got.

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

#116

Post by Peaker » Tue, Oct 22, 2013, 10:30 AM UTC

marijn wrote: post #91

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.

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, in this case by exploiting properties of the stock trading system. I guess you could say that they create a lot of value—for the people doing it. Very few modern economic activities make sense in a broader perspective, they exist purely beca…

I disagree completely. You seem to be confusing money/worth with value. If someone manages to redirect money towards themselves without creating a new economic resource, then no new value is made.

Avoiding systems that don't create value would help us live in a world with more value in it. That's why considering this is very productive, and helps moral people avoid wasting precious resources on zero sum games.

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

#117

Post by sumedh » Tue, Oct 22, 2013, 10:31 AM UTC

vecter wrote: post #92

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 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.

This liquidity argument is rehashed thousand times but did you know that most of the orders made by HFT's end up getting cancelled.

Regulators found HFT's exacerbated price declines. As noted above, regulators found that high frequency traders exacerbated price declines. Regulators determined that high frequency traders sold aggressively to eliminate their positions and withdrew from the markets in the face of uncertainty.

http://en.wikipedia.org/wiki/2010_Flash_Crash

Berkshire Hathaway has a difference of 1000 dollars for its bid ask spread yet you dont see a lot of people complaining, do you?

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

#118

Post by mgav » Tue, Oct 22, 2013, 10:32 AM UTC

Very interesting, though I was happy to see Knight Capital take the huge loss, since they were such complete scumbags who stole hundreds of millions of dollars by backing away from trades* during the dotcom boom and bust.

*Backing away is when a market maker makes a firm offer to buy or sell shares, receives an order to execute that transaction (which they are ethically and legally obligated to do) and instead cancels the trade so they can trade those shares at a more favorable price (capturing enormous unethical profits in fast-moving markets while regulators did virtually nothing to enforce the rules in a meaningful way)

Learn more: http://bit.ly/1ddUzWP

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

#119

Post by brazzy » Tue, Oct 22, 2013, 10:35 AM UTC

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 read a couple of months ago that HTF has effectively already been neutralized (as in: profits have collapsed and lots of HFT shops have closed or merged), simply by the nature of the game:

There's a limited total profit potential everyone competes for, which limites the number of players and the expenses that can be justified.

And that profit potential is directly related to market volatility. Which peaked in 2008 and has since gone down drastically.

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

#120

Post by lmm » Tue, Oct 22, 2013, 10:36 AM UTC

dror wrote: post #23

Is there any benefit to the market as a whole to have these high speed transactions trying to game the system? Seems like as a rule, they're likely to cause instability, and I have a hard time seeing any benefits in them.

In a sense the markets should be unstable. A perfect market would be so sensitive that any new information, every order from a fundamentals trader, should shift the price. That's what these high speed transactions get you - more accurate prices, and faster. And as a result of that they can offer much narrower spreads than you'd get elsewhere.

Benefits? Knight gave a bunch of other market participants a better price than they could get anywhere else, and no-one traded at a price they didn't agree to.