Can anyone provide some context on this matter? What happened wednesday and where?
http://blogs.wsj.com/marketbeat/2012/08/02/knight-capital-tr...
Basically, they deployed a new HFT algo and it started buying high and selling low. oops!
Trading Program Ran Amok, With No ‘Off’ Switch
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Re: Trading Program Ran Amok, With No ‘Off’ Switch
#92[deleted]
Re: Trading Program Ran Amok, With No ‘Off’ Switch
#93Earlier quoted context omitted.
Since there's 2 parties to every trade doesn't that make 50% the limit?
Nope, sometimes they bought stock they sold themselves!
If you sell stock to yourself... why even bother to go through the exchange? Why would the exchange even allow such trades?
Re: Trading Program Ran Amok, With No ‘Off’ Switch
#94Earlier quoted context omitted.
Nope, sometimes they bought stock they sold themselves!
If you sell stock to yourself... why even bother to go through the exchange? Why would the exchange even allow such trades?
Knight has different programs running. It was handling >10% of all NYSE, so it must have been running a lot of servers. When the berserk algorithm wanted to buy or sell a stock where Knight was the only "market-maker", another Knight server would usually intercept the order after it had been posted on the exchange. Here's one way it might have happened: http://www.nanex.net/aqck2/3525.html
Re: Trading Program Ran Amok, With No ‘Off’ Switch
#95Earlier quoted context omitted.
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.
I don't know the details of retail brokers vs HFT, but this writeup http://www.nanex.net/aqck2/3522.html has a lot of charts showing trades with 25 millisecond intervals. 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 w…
they have hundreds if not thousands of clients some of who in turn each have thousands of customers... so yeah they will be executing a high throughput. And often large orders get broken up into smaller pieces so as to minimised market impact.
Re: Trading Program Ran Amok, With No ‘Off’ Switch
#96Earlier quoted context omitted.
I could buy that they competently made the best of a bad situation. But I have a hard time believing that getting into the situation was the result of perfect competence. My time writing trading software was never on the automated end of things, so I'm only modestly qualified to comment. But if I were doing the post-mortem on this one, the first thing I'd look for is middle management time pressure forcing a large re…
> In this case, they lost circa 400x the lifetime median income of a US worker. Why is that relevant? > It's hard to imagine the upside that would have justified that kind of risk. Actually, it's easy to imagine such an upside. Consider 800x the lifetime median income of a US worker. Solyndra lost far more of the US taxpayer's money. Are you really suggesting that Solyndra shouldn't have been considered because the a…
> Why is that relevant?
Because it means that there's no "we couldn't afford to do it right" excuse.
> Actually, it's easy to imagine such an upside. Consider 800x the lifetime median income of a US worker.
Double or nothing on a company that size is a stupid bet.
Re: Trading Program Ran Amok, With No ‘Off’ Switch
#97Earlier quoted context omitted.
> In this case, they lost circa 400x the lifetime median income of a US worker. Why is that relevant? > It's hard to imagine the upside that would have justified that kind of risk. Actually, it's easy to imagine such an upside. Consider 800x the lifetime median income of a US worker. Solyndra lost far more of the US taxpayer's money. Are you really suggesting that Solyndra shouldn't have been considered because the a…
> Why is that relevant? Because it means that there's no "we couldn't afford to do it right" excuse. > Actually, it's easy to imagine such an upside. Consider 800x the lifetime median income of a US worker. Double or nothing on a company that size is a stupid bet.
> Because it means that there's no "we couldn't afford to do it right" excuse.
No, 400x the average lifetime salary of a worker doesn't mean that.
> Double or nothing on a company that size is a stupid bet.
Wrong again. Double-or-nothing is often an extremely good bet. You're ignoring odds of each outcome.
Then again, you're just spewing soundbites and getting details right doesn't help with that.