Mark Cuban: High-Frequency Traders Are the Ultimate Hackers • Hacker News Board

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

#71

Post by hogu » Wed, Jun 27, 2012, 5:09 AM UTC

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…

How would this be better than what we have now? Right now stocks already go to the highest bidder - if there is a seller willing to sell at that price. how would you run an auction if there are 40 firms trying to sell the same stock?

The ad market is well suited towards auctions because you have one seller for many buyers, but in finance you have a symmetric relationship between buyers and sellers.

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

#72

Post by freshhawk » Wed, Jun 27, 2012, 5:15 AM UTC

bokonist wrote: post #66

freshhawk wrote: post #61

Earlier quoted context omitted.

> 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…

> In theory

Not a good theory. All the players in this game believe they are above average among players in this game.

They all want the system to be exploitable because they all believe they will exploit it better than their peers.

At the very least better than the investors (the real suckers here).

You are falling into the game theory economics trap. People are highly irrational actors who don't even act in their own self interest most of the time, nevermind some form of optimal rational behavior.

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

#73

Post by [deleted] » Wed, Jun 27, 2012, 5:23 AM UTC

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…

[deleted]

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

#74

Post by jeffem » Wed, Jun 27, 2012, 5:40 AM UTC

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…

What experience do you have in financial markets that you believe you've come up with "the most efficient design for stock market trading possible"?

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

#75

Post by ajays » Wed, Jun 27, 2012, 5:44 AM UTC

I keep hearing about HFT, and have read about it a little. But there's a surprising dearth of data.

Can someone come up with a data set? For example: here are N inputs to the program. If the program can make a decision D in time T, then it can make money. Or something to that effect. I have no idea right now what the inputs to these HFT programs are; what the expected actions under the time constraints are; and how the effectiveness is measured (in terms of the given data). Someone please enlighten me.

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

#76

Post by nradov » Wed, Jun 27, 2012, 5:53 AM UTC

runako wrote: post #60

unabridged wrote: post #14

Earlier quoted context omitted.

What exactly is a flash crash and why should individuals care? Isn't it just bank's computers temporarily offering stock at a severe discount and then the price going back to normal. It doesn't hurt anyone but the people with poorly programmed algorithms. No trades should ever be broken just because someone can't control their trading bots.

>> poorly programmed algorithms You're describing the stop-loss orders that non-professionals use to protect themselves from losing money when the fundamentals of their companies deteriorate suddenly. A stop loss is a very simple algorithm that is widely available in retail brokerage platforms. (Example stop-loss order: "Sell when the last trade is 3% below my purchase price.") For instance, you own 100 shares of Pep…

Except that in the real world your stop loss order for PEP probably wouldn't work under that scenario. The price is likely to instantly gap down further than -3%. Or trading may be halted immediately before your order is executed at all. When everyone rushes for the exit at once no market is going to be orderly.

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

#77

Post by mkramlich » Wed, Jun 27, 2012, 5:54 AM UTC

HFT has some qualities which make it unattractive to me:

- strategically, it's an unbounded arms race, due to competing against lots of other HFT forces all trying to squeeze profits quickly out of micro opportunities in bid/ask numbers, news leak/announce gaps, etc.

- due to above, there are high technical and talent costs just to have the minimum setup needed to play in that game

- also following from the first thing, HFT becomes an additional profit motive for adding destructive, dishonest political vectors to society, such as corruption and propaganda, in order to time trades, do front running, insider trading, war profiteering, bankster conspiracies, etc.

- short-term thinking

- lastly, you're fundamentally not building anything real or positive for the rest of society outside HFT and your direct clients/owners; or making the world a better place; to others, you're just a parasite on the money flows, adding more noise and chaos, and arguably risk, to the economy

I like to compare it to the alternative, strategically-speaking: LFT (low f.t.)

- lower costs (your fixed & marginal costs "scale down" better, which is also better in the startup phase. Think lemonade stand, a small simple web SaaS, contract development -> software product company, etc.)

- longer-term thinking & bets (buy & hold; future trends, etc.)

- actually building, investing, helping others, bringing new products/services to the market, solving problems for others for profit

LFT could be used to describe traditional stock investing, it could include personal relationship investing, personal health/skills investing, building lifestyle businesses, building startups to flip, doing R&D, invention & marketing, etc.

Both HFT and LFT can make you wealthy on the top end scenarios. But LFT scales down to the low end scenarios and early phases better, and you can tangibly and visibly see improvements to the world that you've made happen. Both can benefit from hacker thinking. But to me, it's clear which is the healthier choice for the individual and society, in the long run.

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

#78

Post by btilly » Wed, Jun 27, 2012, 5:57 AM UTC

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…

What do you do in thinly traded markets, like some out of the market options?

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

#79

Post by nradov » Wed, Jun 27, 2012, 5:58 AM UTC

scotch_drinker wrote: post #41

steve8918 wrote: post #31

Earlier quoted context omitted.

A lot of people lost a lot of money during the flash crash, through margin calls, stop loss hits, etc. It also called into question the stability of our markets. If people lose confidence in our stock markets, then people stop trading on them. If we have another flash crash, you can bet that the already-low volumes on the markets will be met with even lower volumes, which could damage our economic recovery. Most peop…

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…

Hello? The game has always been rigged. That doesn't necessarily mean you shouldn't play, but you have to go into it with you eyes open.

Where are the customers' yachts?

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

#80

Post by bokonist » Wed, Jun 27, 2012, 6:00 AM UTC

freshhawk wrote: post #72

bokonist wrote: post #66

Earlier quoted context omitted.

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…

> In theory Not a good theory. All the players in this game believe they are above average among players in this game. They all want the system to be exploitable because they all believe they will exploit it better than their peers. At the very least better than the investors (the real suckers here). You are falling into the game theory economics trap. People are highly irrational actors who don't even act in their o…

You are falling into the behavioral economics trap. In general, the big movers and shakers in financial markets act in quite economically rational ways. There is a natural selection process at work where the people who are good at using their brain to accumulate money, accumulate money, and thus have more impact in the market. If you look at many cases where wealthy market players appear to be acting irrationally, what you'll often see is they are acting in a personally rational manner, but are operating in a context with very perverse incentives. So I am curious if anyone in the HN commentariat knows the specific perverse incentives involved that prevent this more optimal system from happening. ( Joe Retail investor can be quite irrational. But I'm wondering why the Stock Exchanges and big corporations accept the status quo with regards to HFT.)