41–50 of 97 posts
Strange article. Lots of text but missing the main thing I was looking for. What kind "erroneus trades"? where did the money go? If you buy stock at the market you did not intend to buy, why not just sell them the next day?
Essentially, they were buying high and selling low. Many times a second.
'Prediction is difficult, especially with regard to the future'. It looks like they were using some new algorithm, which should have made them a lot of money, had the market gone up after their massive purchases. In that case, they would have pocketed fat bonuses and would not be on the news. However, it has not happened, so the crying and the search for a scapegoat is on. It sounds like the case of the banking busin…
So, they launched a busted market making algorithm, lost a ton of money and no one is going to bail them out.
They lost $440 million (and amount greater than their market cap), and possibly the company, on what the world knows to be incompetence. At some point if I couldn’t stop it - I’d be tempted to just kill the power to the server rooms, all of them. There just has to be a way to cut your losses.
Does it not go directly against the spirit and purpose of having a stock market with proper investors?
Earlier quoted context omitted.
Seems like maybe they couldn't hold on to the stock for long enough to unload the enormous volume they were dealing with. It sounded like at one point they were doing AS MUCH VOLUME AS EVERYONE ELSE on the exchange combined. http://news.ycombinator.com/item?id=4337750
Since there's 2 parties to every trade doesn't that make 50% the limit?
"The difference reached a peak at 9:58 a.m., when the volume was six times greater."
That's pretty noticable!
Why isn't automated high-frequency trading banned already? Does it not go directly against the spirit and purpose of having a stock market with proper investors?
'Prediction is difficult, especially with regard to the future'. It looks like they were using some new algorithm, which should have made them a lot of money, had the market gone up after their massive purchases. In that case, they would have pocketed fat bonuses and would not be on the news. However, it has not happened, so the crying and the search for a scapegoat is on. It sounds like the case of the banking busin…
They weren't taking long-term speculative positions, their short-term market making had a major bug in which instead of buying low and selling high it was doing the opposite (thus losing a small amount on each pair of trades). For more details read Nanex's blog ( http://www.nanex.net/aqck2/3522.html ). So, they launched a busted market making algorithm, lost a ton of money and no one is going to bail them out.
Why isn't automated high-frequency trading banned already? Does it not go directly against the spirit and purpose of having a stock market with proper investors?
this is issue nothing to do with speculative trading. Knight is a broker. They provide an interface to the market for retail brokers, spread betting outfits and so on. Their algos execute orders placed by their clients. Their new algo had a bug. That's it.
Just looking at things in a big perspective, the fact that the system is designed for allowing trades at such frequencies makes it seem like markets these days no longer exist for the benefit of the listed companies.
Then again, maybe I don't know wtf I'm talking about :-S I guess I don't understand how real value can be created from such a system.
What I wonder, following this story this week, is how the software quality controls at a place like Knight compare with those for life-critical systems like those in, e.g., aviation. On one hand, you'd think the QA in finance would be pretty solid, considering that the survival of the company could be at stake (witness Knight). On the other hand, I have a feeling that even there, people just don't take it that seriou…
It's at stake either way.
QA is not risk free. Time spent in QA is opportunity cost lost. Many things are very time to market sensitive. One must balance "perfect" against "shipped".
This is even more true in (electronic) financial industry.