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Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

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Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#61

Post by freshhawk »

bokonist wrote: post #59

" As far as narrowing spreads, that’s absolutely true, but in absolute terms what does it translate into? For the individual investor it might save them a quarter a month. " In a properly designed, information age stock market there should not be a spread. All stocks should trade via a programmed, black box auction that runs on an interval. The HFT practice of creating phony orders that are immediately canceled, just…

> It's the most efficient design for stock market trading possible

Precisely why it doesn't work that way.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#63

Post by msellout »

programminggeek wrote: post #8

I have no problem with HFT, but only because it is turning machines into things that are doing what humans did before, only at a speed that we can't keep up with as humans with our inherently physical interfaces. How is HFT different than traditional arbitrage except for the fact that it is faster and potentially at a scale that normal traders would never be able to keep up with? How is buying something one second an…

To increase speed, you must decrease computation and memory access. The less computation and memory access possible, the smaller the variety of strategies possible. In regular timescales, the strategy space is much larger than the number of machines / agents competing. The ratio of the number of agents to the number of possible strategies approaches zero. As more machines compete in nanosecond time scales, the ratio of the number of machines to the number of strategies in this restricted space becomes much larger.

As this ratio increases, the system dynamics undergo a phase shift. The probability of dramatic movements becomes much greater. When too many agents are crowded onto the same strategy, they all try to take the same side of a trade -- liquidity disappears. This was the cause of the flash crash of 2010, and will be the cause of many more.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#64

Post by jberryman »

sskates wrote: post #38
kristianp wrote: post #5

I for one don't agree with HFT. Why should our best hackers and mathematical minds be wasted on something so shallow as gaming the market? Would a small randomised delay introduced by the exchange into each stock trade (or price datum) reduce the incentive for HFT?

Can someone explain this mindset to me? That there is somehow a fixed amount of mathematical talent in the world and if there are people whose preferences make taking a job in HFT optimal then society is necessarily worse off.

Well, speaking broadly about finance vs other more productive fields of human endeavor, there is a staggering amount of brain drain of the (very much finite) graduates of ivy league schools to the finance industry:

http://www.wbur.org/npr/146434854/stopping-the-brain-drain-o...

I think it's obvious that that doesn't mesh with the narrative we tell ourselves about the importance of higher education to society at large.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#65

Post by rudiger »

bokonist wrote: post #59

" As far as narrowing spreads, that’s absolutely true, but in absolute terms what does it translate into? For the individual investor it might save them a quarter a month. " In a properly designed, information age stock market there should not be a spread. All stocks should trade via a programmed, black box auction that runs on an interval. The HFT practice of creating phony orders that are immediately canceled, just…

Interesting! Where can I find out more about this more efficient market exchange design?

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#66

Post by bokonist »

freshhawk wrote: post #61
bokonist wrote: post #59

" As far as narrowing spreads, that’s absolutely true, but in absolute terms what does it translate into? For the individual investor it might save them a quarter a month. " In a properly designed, information age stock market there should not be a spread. All stocks should trade via a programmed, black box auction that runs on an interval. The HFT practice of creating phony orders that are immediately canceled, just…

> It's the most efficient design for stock market trading possible Precisely why it doesn't work that way.

In theory, if this system were to be adopted, the Stock Exchange Operator could charge a small tariff so that some of the money that now goes to HFT's goes to the stock exchange, with the rest going to the shareholders. So in theory, adopting this more optimal system would be financially beneficially to both the corporations and the Stock Exchange (and in theory, those two are the only two players who's agreement is needed to change the system). So I wonder why the optimal, auction based system does not get adopted - is there some reason for the status quo other than the normal inertia and stupidity of large institutions?

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#67

Post by getsat »

steve8918 wrote: post #48
scotch_drinker wrote: post #41

Earlier quoted context omitted.

This is something people miss entirely in this argument, the fact that lots of investors have trailing stop trades in and in a flash crash, those people get their asses handed to them. Then we immediately start having a credibility problem. Once you have a credibility problem, the end game is getting close. When you combine that with things like the MF Global bankruptcy where client accounts were stolen from, you sta…

Exactly. $1.6 billion lost from customer accounts that were not supposed to be touched, and no one is arrested? It just evaporated into thin air? The entire thing is disgusting, and I pulled out most of my money from my futures trading account exactly because of this, because I didn't have confidence that I would see my money again. Hedging through futures is something that many commodities producers do in order to h…

Haha, I hope you don't have a 401(k).

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#68

Post by chii »

jasonwatkinspdx wrote: post #56
ezl wrote: post #2

sigh i got really excited about this because I was considering the interpretation of the word "hackers" like we use it in "Hacker News" (relevant: http://paulgraham.com/gba.html ) I know that the startup community at large doesn't largely respect short term trading, particularly HFT. I understand it, though I honestly think its misguided and the outrage is disproportionately large, but thats another story. The reason…

That you can, does not mean you should. And who pays for your failures?

For a corporation, the psycopathic behaviour is that if it makes a profit and is not illegal (yet), then do it.

The real problem is that large financial institutions have somehow ingrained themselves in society in such a way that they bring us all down when they fail, and so society would _have_ to bail them out. It is an ingenious stragegy - by aligning failure with the downfall of many others, these large financial institutions gets the protection they don't deserve. I wish it was me who was reaping the benefits, but unfortunately, being a "commoner", that aint so.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#69

Post by hogu »

steve8918 wrote: post #17
programminggeek wrote: post #8

I have no problem with HFT, but only because it is turning machines into things that are doing what humans did before, only at a speed that we can't keep up with as humans with our inherently physical interfaces. How is HFT different than traditional arbitrage except for the fact that it is faster and potentially at a scale that normal traders would never be able to keep up with? How is buying something one second an…

The real issue is that in order to get an edge, HFT traders are engaging in electronic warfare in order to slow down their opponents. One of the worst things they are doing is "quote stuffing", which means submitting bids and cancelling them tens of thousands of times per second. They stuff the exchanges with quotes and eventually cause a huge latency with respect to the quotes that are shown by the exchange, such as…

Some have suggested that the problem was when the quotes were timestamped.

http://www.nanex.net/FlashCrash/FlashCrashAnalysis_NBBO.html

I don't really understand how you could abuse an exchange through quote stuffing - I've heard(and it seems reasonable to me) that they would use round robin queues to protect from exactly this sort of thing.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#70

Post by MBlume »

sskates wrote: post #38
kristianp wrote: post #5

I for one don't agree with HFT. Why should our best hackers and mathematical minds be wasted on something so shallow as gaming the market? Would a small randomised delay introduced by the exchange into each stock trade (or price datum) reduce the incentive for HFT?

Can someone explain this mindset to me? That there is somehow a fixed amount of mathematical talent in the world and if there are people whose preferences make taking a job in HFT optimal then society is necessarily worse off.

Uh, where do you think we can get more mathematical talent from? At the end of the day, there's only so many people at the right end of the bell curve.
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