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Businesses The Almighty Buck

Market Data Firm Spots the Tracks of Bizarre Robot Trading 483

Posted by timothy
from the tessier-ashpool-at-work dept.
jamie spotted a fascinating story at The Atlantic about "mysterious and possibly nefarious trading algorithms [that] are operating every minute of every day in" the stock market: "Unknown entities for unknown reasons are sending thousands of orders a second through the electronic stock exchanges with no intent to actually trade. Often, the buy or sell prices that they are offering are so far from the market price that there's no way they'd ever be part of a trade. The bots sketch out odd patterns with their orders, leaving patterns in the data that are largely invisible to market participants." Spotting the behavior of these bots was possible by looking at much finer time slices than casual traders ever see — cool detective work, but as the story points out, discovering it is just the beginning: "[W]e're witnessing a market phenomenon that is not easily explained. And it's really bizarre."
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Market Data Firm Spots the Tracks of Bizarre Robot Trading

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  • by Pojut (1027544) on Wednesday August 04, 2010 @04:17PM (#33142916) Homepage

    The "market" is a fucking scam.

    There, that wasn't so hard, was it.

    • by Sir_Lewk (967686) <sirlewk@@@gmail...com> on Wednesday August 04, 2010 @04:23PM (#33143000)

      Believe it or not, I'm not sure that explains these weird robot trades at all.

      • by RingDev (879105) on Wednesday August 04, 2010 @04:29PM (#33143104) Homepage Journal

        I read an interview a few weeks ago about these trades. When we're talking about the majority of all stock trades being done by these incredibly fast bots, where people are looking for every possible advantage, there are many tricks. One of them is to flood out a huge quantity of bogus bid/sell offers in sufficient enough bulk that it may cause your competition's bot to slip a few micro seconds. Just enough for your own bot to snipe a fraction of a cent advantage.

        If you are interested in the 'Cyber-War'. Forget China, head to Wall Street.

        -Rick

        • Re: (Score:3, Insightful)

          If you are interested in the 'Cyber-War'. Forget China, head to Wall Street.

          Why should Americans have all the fun? Could be Chinese bots... I hear they like money, also...

        • by digitalhermit (113459) on Wednesday August 04, 2010 @04:51PM (#33143434) Homepage

          The biggest traders can use bogus trades to get an idea of what price a stock is able to bought/sold at. With sufficiently fast systems -- i.e., ones tied directly into NASDAQ, NYSE, etc.. -- they can make millions of dollars extra than if they didn't have this knowledge. And it's legal...

        • by mestar (121800) on Wednesday August 04, 2010 @05:02PM (#33143596)

          I don't see what is the mystery here. If two people are negotiating a price, and both of them have a hidden high/low price for which they are ready to settle, then the dominating strategy in a game theory sense is to move your price by the smallest step possible. That way, you always hit your opponents price that is best for you and worst for him.

          Of course, in face to face markets, this is insulting:

          http://www.youtube.com/watch?v=3n3LL338aGA [youtube.com]

          but, we are talking bots with a really low ping here. And that's what those patterns are.

          At least those with increasing prices by one cent. Those where the bids are going down don't fit this explanation.

          • by RingDev (879105) on Wednesday August 04, 2010 @05:32PM (#33143986) Homepage Journal

            At least those with increasing prices by one cent. Those where the bids are going down don't fit this explanation.

            And that is what this junk is, completely bogus bids with no intent other than to cost your competitors clock cycles.

            To use the face to face analogy, it's like two people trying to negotiate a deal when a third person comes up and starts screaming at one of the parties. While the subject is still recovering from being screamed at, the other parties make the same deal that the offended party was about to make.

            -Rick

            • by Princeofcups (150855) <john@princeofcups.com> on Wednesday August 04, 2010 @10:33PM (#33146358) Homepage

              At least those with increasing prices by one cent. Those where the bids are going down don't fit this explanation.

              And that is what this junk is, completely bogus bids with no intent other than to cost your competitors clock cycles.

              I worked for a couple of years at one of the big trading exchanges in Chicago. Our offices were on a lower floor, and whenever our traders got off the elevator, coming back from lunch, they would hit all the floor buttons to delay the traders returning to the higher floors, and anyone else unlucky enough to be on the same elevator. But that was one of the minor reasons that I quit that business sector. The piles of spilled cocaine on the bathroom floors, and my boss asking me "Do you love money? I love money. In order to be in this business you have to love money!" were two others.

          • by inKubus (199753) on Thursday August 05, 2010 @02:08AM (#33147286) Homepage Journal

            It is that, but they could just be trolling as well. In a market with billions of shares and millions of actors, there are bound to be mistakes and typos. Someone puts an autocommiting ask out for a stock with an extra zero and there's no one looking there, no problem. But if there's an electronic bot trolling that price range, it can lock the order before they have a chance to retract. Now there are rules and appeals to mitigate this, but if it was just a small thing then it might be overlooked. Of course, the obvious thing is annealing, like you mentioned.

        • by TooMuchToDo (882796) on Wednesday August 04, 2010 @06:00PM (#33144330)

          Holy shit. It's like ebay snipping but with real money!

        • Re: (Score:3, Insightful)

          by sumdumass (711423)

          Lol.. Are you sure it's to cause your competition's bot to slip a few micro seconds? Or could it be someone who simply wants to avoid the lag of checking the prices before participating in a transaction so he simply sets the bots to always submit the preset buy / sell limits and if it's in range, the trade is accepted, if not, it's simply rejected.

          That would shave more then a few microseconds from the competition compared to attempting to bog them down which could also bog their transaction down at the same

    • by Petersko (564140) on Wednesday August 04, 2010 @04:24PM (#33143028)
      "The "market" is a fucking scam."

      I think I'd prefer to say that the market has a purpose, and that purpose has absolutely nothing to do with maintaining wealth for the casual investor. Once you abandon the idea that the market gives a damn about the solidity of retirement accounts or the portfolios of the masses, then it's easier to accept that the purpose of the market is to move money around and around in a big circle, while slowly siphoning it off into the pockets of particular groups.

      Stocks are a massive game of hot potato. Whoever is holding the stock with the game is over gets burned.

      I say it's not necessarily a scam because it should be clear to anybody looking in that this is how it works. Like the rake at a poker game, if you wait long enough the house has all the money. This fact isn't hidden - you just have to wake up to the implications.
      • Re: (Score:3, Funny)

        by AndersOSU (873247)

        The only think the house has to watch out for is angry gamblers burning the casino to the ground.

      • by afabbro (33948) on Wednesday August 04, 2010 @05:03PM (#33143622) Homepage

        Once you abandon the idea that the market gives a damn about the solidity of retirement accounts or the portfolios of the masses,

        Easy to "abandon," since that was never the purpose. The stock market exists to marry investors' capital with business opportunities and to provide an easy means for selling and buying ownership shares of corporations. Corporations use the stock market to raise capital. Individuals or organizations use it to buy/trade ownership of corporations. That's it.

        The stock market is not designed to be a retirement savings device.

        • by TrippTDF (513419) <hiland@@@gmail...com> on Wednesday August 04, 2010 @05:11PM (#33143726)
          I agree with you -

          The "scam" here is the massive one where America thought the purpose of the market was to provide retirement savings- Thus people dumped all their money into the market in hopes of having big retirement payouts. Look at the surge in the DOW since the 90's- that's everyone's retirements going straight into the market. You know how many people nearing retirement in 2008 and 2009 watched their retirement plans go out the window?

          I don't have a solution, and I also have money in the market, but the core purpose of the market has been wildly changed from what it is designed for.
          • by gtbritishskull (1435843) on Wednesday August 04, 2010 @05:29PM (#33143942)
            I disagree. As the parent said, the job of the stock market is to marry capital to seekers of capital. A retirement account is a collection of capital that you want to make money on. If you can afford the risk of the stock market (you have enough time for variations in the stock market to even out) then it is the best place to put your money because you will get the highest return. But, those people "nearing retirement age in 2008 and 2009" that "watched their retirement plans go out the window" were stupid. If you are about to retire, you should have a large percentage of your money in bonds. Because, you can't afford the risk of the stock market. That shows that their retirement accounts were mismanaged, not that the stock market for some reason should not be used when saving for your retirement.
            • by blair1q (305137) on Wednesday August 04, 2010 @05:52PM (#33144210) Journal

              I disagree.

              The stock market exists to marry suckers with the people who put their capital into businesses.

              You will likely never get the opportunity to do so.

              When you trade in the stock market, you are paying off people who hold stock, not putting your money into the company whose shares you are buying. Your willingness to buy them gives the true investor confidence that he can lay off his risk in his investment by selling you the company at a time of his choosing. This in turn inflates the amount he's willing to risk in the company. That does not mean you are investing. It means you are helping to inflate the market value of companies well above their true risk.

              Which means that investors don't have to work as hard to determine the viability of a company, and in fact don't care how well it will do, only how well it sounds like it will do. Which means many companies that shouldn't exist are brought into being, and sold to you as great "investments".

              Now, there are ways to get value from the company itself for your shares. Divedends, commonly. Very, very, very rarely you will get a cash disbursement when the company ceases to exist. You will more often be given different shares of stock or cash when the company is acquired by another company. But you will also often be given a notification that your stock is worthless and the company has been delisted in a bankruptcy proceeding. And you get to vote on company referenda. Although there are other individuals who get to vote a hundred thousand times for every one of your votes. And some of those don't even own the class of stock you own, or as many shares.

              The stock market is not investing. It is speculation. It is a pure application of the greater-fool theory, plus the imagined hope that somehow openly buying and selling items that are priced by random decisionmaking will estimate the "true value" of a company, something that, so far as I've been able to research, has never actually occurred. When the value of the company is finally adjudicated, the market price is either 30% too low or 100% too high. In between, nobody with inside information is even marking the price to the company, because they're not allowed to trade. The stock market is legally bound to be ignorant of the facts. And that makes it eminently unqualified to be involved in investing.

              Gamble all you want, but try to avoid spreading the lie.

              • by HornWumpus (783565) on Wednesday August 04, 2010 @08:53PM (#33145858)

                Finally adjudicated? As in bankruptcy?

                WTF are you babbling on about?

                The * is worth whatever someone will pay for it.

                That's right blair1q Enron really was worth all that money way back when (even though it was all fraud).

                The money made was green and spent just the same (as long as you were not part of the fraud).

                Stocks must be liquid for markets to work at all efficiently.

                It's much harder to raise capital for a private corporation vs a public one.

                There are several reasons for this but stock liquidity is definitely a feature for all investors (including but not limited to those that get in on IPOs).

                It should be noted that most holders of IPO stock were previously holders of private stock (Founders, Angels, Vulture Capitalists etc), not Wall street insiders.

                It should also be noted that IPO are 'Initial Public Offerings' not 'Only Public Offerings', companies raise capital with new stock offerings all the time.

                I will agree with you that speculators are just gamblers who lower the signal to noise ratio in prices.

                I'd tax any market gains from positions held less then a year the same a gambling winnings.

              • by CodeBuster (516420) on Wednesday August 04, 2010 @10:27PM (#33146334)

                The value of a share of stock is derived from it being a share, albeit a small one in practice, of ownership in a business. The price of that share, in the long run, will reflect the proportional value of the benefits that would ordinarily accrue to the owner of that business. It is very easy to see why shares in a viable business, however small individually, are NOT worthless. Suppose, for example that the "worthless" shares of a viable and profitable business were selling for $0.01 per share. Don't you think that someone would come along and buy up all of the shares at that price? Even if the buyer's only intent was to liquidate the company and pocket the resulting profits he would still be interested in buying the outstanding shares at that price because if he acquired control of the company, perhaps by becoming the 51% owner, then he could force that kind of liquidation. This is why the long term share price in the marketplace tends to reflect the true present value of the underlying business. A share of something is worth something; It is not worthless. Now in the short run people can and do play psychological games in the marketplace which is why the moment to moment price of a stock is essentially random. However one must not confuse the result of individual games (i.e. I buy and you sell; game finished) with the iterated version which is played continuously for years, decades and even centuries. The individual stock investor does best by doing his homework, looking at the qualities of the business that cannot be feed into a short term computer trading algorithm, and then investing for the long run. This practice has very little to do with gambling.

                Gamble all you want, but try to avoid spreading the lie.

                This one gets thrown around a lot here on Slashdot, where the investing (particularly stock market investing) == gambling meme is often taken for granted. However, this analogy, like most, is a rather crude approximation of what is actually happening when one invests. If you are interested in a more in-depth treatment of this subject, there is an excellent essay [investorguide.com] on investorguide.com [investorguide.com] which covers this very topic, investing vs gambling.

          • by Black Parrot (19622) on Thursday August 05, 2010 @02:10AM (#33147288)

            The "scam" here is the massive one where America thought the purpose of the market was to provide retirement savings- Thus people dumped all their money into the market in hopes of having big retirement payouts.

            Various replies disagree with you, but it has certainly been marketed to the public as a "Make Money Fast" game for ordinary people.

            Look at the surge in the DOW since the 90's- that's everyone's retirements going straight into the market. You know how many people nearing retirement in 2008 and 2009 watched their retirement plans go out the window?

            And here's the real motivation for all those Republican politicians who want to "save" Social Security by moving the money to the stock market. A sudden two-trillion dollar flood of money inflates share prices, the savvy rich people cash out, the correction hits, and the savvy rich people use their inflated profits to cash back in. The people who will actually need Social Security when they retire get left holding the empty bag. This privatization plan, like all others, is just a scam to move ordinary people's money into rich people's pockets.

      • Re: (Score:3, Interesting)

        In my high school economics class back in the mid 90's we played a game about trading in the stock market. The brokers made diddly squat. In reality, the brokers are making the millions while the investors are making crap.

        • by Anachragnome (1008495) on Wednesday August 04, 2010 @05:30PM (#33143960)

          In his economics class, my son had an interesting assignment. The instructor gave each student 10,000 "dollars" (it was a simulation) to invest in any stock(s) they wished.

          A month later, the class did all the math and found out how everyone fared. My son was the only student that had returns on his investment.

          He simply looked at the market as a whole, then made a single decision. The market was in a long slump (the beginnings of the current recession) and he invested every single dollar into Anheuser-Busch. Beer. My son described it as the "Woe-is-me Effect"--often, when people have money problems, the first thing they do is drink. He also pointed out that this is exactly how the wife of Senator John McCain makes her money--moving it in and out of her own beer distributorships as the market fluctuates (moving her money back into her own companies stocks when the rest of the market is hurting--Beer for everyone!).

          The only other student that didn't lose his pants was a student that spread his investment money across as many stocks as possible. He was just short of breaking even. The losses almost averaged out the gains, but not quite (makes sense in a declining market).

          While algorithms may help in ways, they do not come close to basic HUMAN intuition. We see things computers do not.

      • by snowwrestler (896305) on Wednesday August 04, 2010 @05:24PM (#33143872)

        Stocks are a massive game of hot potato. Whoever is holding the stock with the game is over gets burned.

        When is the game over? Do you mean when a company declares bankruptcy? (the game is over for that stock) Or when the market falls? (it goes up and down constantly) Or is the entire stock market going to crash and burn? (end of American society as we know it)

        I agree that the goal of the stock market is not to maintain wealth--if you just want to maintain, you can't beat inflation-protected Treasuries. The stock market is a way to grow wealth, and the winning strategy is not a secret: dollar cost averaging and low-load index funds. It's not a get-rich-quick scheme, but it will grow wealth if given enough time.

        If you're wheeling and dealing individual stocks, yeah, it's more like gambling. But that is only one way to play the stock market.

        • Re: (Score:3, Insightful)

          by blair1q (305137)

          the winning strategy is not a secret: dollar cost averaging and low-load index funds

          That strategy gives a moderate return over a certain medium-long term outlook. Provided something large doesn't get involved, like you get in during a marketwide bubble or are forced to cash out in the middle of a marketwide downturn, or both.

          Until the fund manager decides to screw you and a fund you picked for its nice upward drift starts trending down and stays that way for several quarters, wiping out years of "gains".

      • by rwa2 (4391) * on Wednesday August 04, 2010 @05:33PM (#33143998) Homepage Journal

        Word.

        Any trade where your purpose is to make money out of money seems pretty pointless to me. But I'm an engineer, so I certainly don't see the world the same way as a business/finance geek would. But as long as the finance geeks and politicos are jerking each other around, they're presumably not bothering anyone else (until they fuck shit up so much that it's time to tell them to go sit in the corner for a while).

        Warren Buffet seems to have good investing advice I can appreciate.... invest in what you know; what you want to succeed, and do it for the long term. I can jive with that... then even if your investments lose money, it at least went to what you consider a worthy cause.

        I put a portion of my savings into my company stock, because I want to show that I'm personally invested in my employer. I know it's not a good idea to put too much in there in case it tanks, in which case you'll be out of a job and a retirement. So I make sure most of the rest of my money is in a diversified index fund. Usually the index funds with low fees, because they don't perform all that worse than "managed" funds, and I don't care to reward the stock fund "managers" for being succeeding at being greedy.

        I usually choose the international index funds, if only to promote peace through cross-investment. Also I think the US dollar will likely fall during my lifetime. And if it doesn't, well, then I've still got plenty of strong dollars in savings. Plus, most of the easy growth is probably in developing international markets anyway. I don't care to try to "win big" by catching the next Qualcomm or Apple, because they could probably succeed without my help, and they'd probably make most of their ill-gotten gain through means I don't approve, like patents and lawsuits and technological lockout.

        • Re: (Score:3, Insightful)

          by blair1q (305137)

          Any trade where your purpose is to make money out of money seems pretty pointless to me.

          If you're actually lending that money to a company to improve its productivity (i.e., investing) then you're putting money to work instead of keeping it in your pocket, and that has a multiplicative effect on the economy. If you can charge interest and make money from your money then that's a good thing.

          But the stock market isn't that. It's people trading the same gambling checks around and around in a circle, with the

        • Re: (Score:3, Insightful)

          by PCM2 (4486)

          Any trade where your purpose is to make money out of money seems pretty pointless to me.

          You mean like where I have a bunch of money, and I loan it to a guy, and he uses it to make widgets, which he then sells and uses the profits to pay me back my money plus interest? Yeah, I can't imagine how that would be of benefit to anyone.

    • by eldavojohn (898314) * <[moc.liamg] [ta] [nhojovadle]> on Wednesday August 04, 2010 @04:25PM (#33143032) Journal

      The "market" is a fucking scam.

      There, that wasn't so hard, was it.

      Well, in the article they say that one firm's explanation is that high frequency traders are injecting quotes into the system because they know about them and don't have to sort through them when they are posted ... but their competitor's bots have to look at that data and sort out the real data that are actual useful quotes instead of the outliers which are quotes that will never be taken.

      So scam is close but spam might be a better word for this.

      I also get a kick out of how periodically in this article they remind us that high frequency trading is good for the market and these people that don't do anything that act as middle men are actually good for the market because they up availability or "eliminate inefficiencies" (that's my favorite). And they're all taking money out of this magical unending bucket of cash ... quant funds and high frequency traders are so 1929 I don't even know where to begin.

      • by vlm (69642) on Wednesday August 04, 2010 @04:38PM (#33143216)

        I also get a kick out of how periodically in this article they remind us that high frequency trading is good for the market and these people that don't do anything that act as middle men are actually good for the market because they up availability or "eliminate inefficiencies" (that's my favorite)

        Maybe they started with an intelligent explanation that seems to fit reality, like we're watching a very confrontational version of simulated annealing among multiple competing firms using real money, but you run that thru the "english to journalist" filter and get the gibberish you describe. You have to realize journalists are the guys that flunked out of Calc I in their freshmen year and then spent the rest of their schooling drunk or stoned, as gatekeepers to the masses they are always going to be epic fails.

        http://en.wikipedia.org/wiki/Simulated_annealing [wikipedia.org]

        Its fairly perceptive to note that journalist style gibberish is often used by people trying to scam. There are plenty of (often self serving) religious / philosophical arguments that claim markets are always scams, etc. Need to very carefully consider cause vs effect and correlation vs causation or else you just send up with cliche instead of insight.

    • by Wonko the Sane (25252) on Wednesday August 04, 2010 @04:30PM (#33143122) Journal

      Karl Denninger [market-ticker.org] has been reporting this problem [market-ticker.org] for a few years now.

      • Re: (Score:3, Insightful)

        by omnibit (1737004)

        I'll probably be modded down for being counter consensus but so many delight in crying foul when they don't understand a concept.

        The markets bring together buyers and sellers (who would have thought!). It just so happens that a group of math and programming whizzes know how to capture the minor fluctuations in market sentiment.

        Human day traders (attempt) to make a living out of playing the bid/ask game but usually their volume is so minute that it has almost zero bearing on liquidity. Markets need liquidity

    • by spun (1352) <loverevolutionary@yah o o .com> on Wednesday August 04, 2010 @04:30PM (#33143146) Journal

      Usury is the sin of lending money for unfairly large amounts of interest. Capitalism is an economic system of lending money for as much profit as possible. Capitalism makes labor subservient to money. It lets people expand their power over others, not by working, but by lending. This unfair adjudication of risk and reward, and the subsequent consolidation of power into fewer and fewer hands, is why many religions, at one time or another before the rich took them over, considered usury a fairly serious sin.

      The rich do not have to work to earn a living, they just sit back and let the money roll in. Supposedly the return they get is for the risk, but there is no risk involved. The rich can buy politicians, laws and experts who, in practice, reduce the risk to near zero. The average investor faces at least some real risk, but not the truly wealthy.

      • by vlm (69642) on Wednesday August 04, 2010 @04:50PM (#33143410)

        This unfair adjudication of risk and reward, and the subsequent consolidation of power into fewer and fewer hands, is why many religions, at one time or another before the rich took them over, considered usury a fairly serious sin.

        Um, no.

        http://en.wikipedia.org/wiki/Usury [wikipedia.org]

        "Most importantly, usury is the derivation of profit from biological time, which is linked to life, considered sacred, God-given and divine ..."

        It all boils down to charging people for "god given time". The church does not want bankers moving in on their turf. Peasants should worry about worshiping on time, not paying the mortgage on time. Bankers should not be charging money for "gods Sunday" or for that matter any day because god made the sun rise in the morning, not the banker. Or in summary, God gave you 30 years to live so you can worship him, not pay your banker.

        That explains why some religions tolerate a fee-based-structure for interest (I give you $10, you promise to gimme back $11) as opposed to a percentage over interval based structure (I give you $10, you owe me the original $10 PLUS 5% of that per year). Most religions tolerate trade (even if the exchange seems a bit uneven) a heck of a lot better than they tolerate fooling with who owns/controls time.

        I'm not religious at all, but even I know this is the "correct" interpretation. Not that I disagree with your result or goal. Its just that you're totally on the wrong path of reasoning.

        • by dcollins (135727) on Wednesday August 04, 2010 @06:35PM (#33144678) Homepage

          "I'm not religious at all, but even I know this is the 'correct' interpretation."

          This sounds like total bullshit.

          The article you link to doesn't say anything like this. In fact, it says the opposite in the second sentence:

          Usury... originally meant the charging of interest on loans. This included charging a fee for the use of money, such as at a bureau de change. [Wikipedia, "Usury"]

      • by OakDragon (885217) on Wednesday August 04, 2010 @06:07PM (#33144406) Journal

        Capitalism is an economic system of lending money for as much profit as possible.

        Capitalism is more properly defined as a system in which the means of production are privately owned (as Wikipedia has it). It may have some aspects that conform with your definition, but that's not the whole of capitalism.

    • by stonewallred (1465497) on Wednesday August 04, 2010 @04:42PM (#33143290)
      The weird robot trades are actually preliminary account trades being done by a rogue AI who is marshaling its resources to better conquer and destroy all flesh based life. In about ten years, if there is any humans left who can access or spend time to look at the remaining data, will see the pattern. As a traveler from an alternate universe, I am giving you this warning to save yourselves.
    • Re: (Score:3, Insightful)

      by Vitriol+Angst (458300)

      I've read a lot of detailed analysis, and some nonsense "usually in favor of the practice" --- and I think that it all comes back to the concise brevity of the OP;

      the "market" is an EPIC fucking scam.

      And YES, it was that hard -- Slashdot cannot come to some simple hyperbolic generalization without lots of handwringing, gestalt therapy, and gnashing of virtual teeth in search of the glimmering silver lining of an exposed rectum.

      >> I do however believe that the MOST LIKELY use for the outlier transactio

      • Re: (Score:3, Interesting)

        by socz (1057222)
        Yet people continue to think its a good idea to invest their hard earned money so they can wait to retire and then find out they lost it all. I know about 2 instances, Enron and IndyMac Bank. In both cases people lost EVERYTHING they had "put into" their retirement. "But that won't happen to me, we're to big for that to happen." :(

        I honestly tell people "you're better off in Las Vegas or even playing the lottery, because at least that's something you can understand and control yourself." (No, you can't
  • by Arancaytar (966377) <arancaytar.ilyaran@gmail.com> on Wednesday August 04, 2010 @04:18PM (#33142924) Homepage

    The machine intelligences are communicating through hidden channels in our global network.

    Judgement Day is close.

  • by SuiteSisterMary (123932) <slebrun@g[ ]l.com ['mai' in gap]> on Wednesday August 04, 2010 @04:18PM (#33142928) Journal
    It's the famous Nanosecond Buyout!
  • by gilroy (155262) on Wednesday August 04, 2010 @04:20PM (#33142962) Homepage Journal

    ... it's just SkyNet looking after its retirement holdings.

  • Is there a chance (Score:5, Interesting)

    by bugs2squash (1132591) on Wednesday August 04, 2010 @04:21PM (#33142968)
    That the trades are trying to trigger "limits". ie. Someone may have pre-programmed a system to automatically dump stock if the price tanks, so when one of these trades comes in the price looks as if it is tanked, the stock sells and the buyer snaps up a bargain.
    • Re:Is there a chance (Score:4, Interesting)

      by Anonymous Coward on Wednesday August 04, 2010 @04:41PM (#33143270)

      Alternately, they could be testing the elasticity of the market for that stock. Remember back to econ 101 and the price/demand curves? The assumption was they are smooth curves. In reality, they have stair-steps. And sometimes the steps are big, and sometimes they are small.

      By teasing out the fine grain elasticity of a stock, you can make some predictions. There's always going to be some jitter in price. But if you know that demand is pretty weak until a stock drops 50 cents, you set up your trades to take advantage of a likely 50 cent drop that day. Same if there is higher demand than availability. Get ready for a price jump.

    • Re:Is there a chance (Score:5, Interesting)

      by Restil (31903) on Wednesday August 04, 2010 @04:45PM (#33143348) Homepage

      This is why people shouldn't set automatic limits. Of course, it's kinda silly even under normal circumstances. If you have money invested somewhere, you should pay attention to it. You should pay attention to the health of the companies you are invested in. You should pay attention to see if they have competent management, put out quality products, and keep their production in line. If on a daily basis, you notice the stock starting to slip, find out why. Even Enron and Worldcom didn't tank overnight. There was plenty of time to realize that there was a problem brewing and get out without some artificially set "limit" to sell the stock automatically. Besides, when the fit finally does hit the shan, and your sell order isn't hit until after that point, there's a chance you won't get anything near what you're wanting, since nobody will be buying at that point.

      An automatic buy order is stupid for the exact same reason. You might set yourself up to snap up a bargain if and when it ever happens, but the problem is, if the stock suddenly drops due to a pending bankruptcy or some other equally devastating reason, you'll get your stock purchase, making some other desperate seller very happy, and never be able to recover the cost.

      -Restil

      • Re: (Score:3, Insightful)

        by vertinox (846076)

        You should pay attention to see if they have competent management, put out quality products, and keep their production in line. If on a daily basis, you notice the stock starting to slip, find out why.

        Hrm.... Recently I saw a well profitable small electronics company loose 75% share value in a week. The only reason I could find out was a google search that found that this company was being targeted by short squeezes on forums.

        I could have panicked and sold though, but I decided not to look at the share pric

      • Re: (Score:3, Insightful)

        by vertinox (846076)

        Oh the more I re-read your post the more I realized how people who don't even pay attention to the stock market modded you up.

        Even Enron and Worldcom didn't tank overnight.

        Yes, but you are completely wrong in that they hid their problems from the world to the end. They were rated AAA by Moody's the day they announced bankruptcy. An investor can't protect themselves from companies that cook their books.

        Fortunately that is illegal and rare.

        An automatic buy order is stupid for the exact same reason. You might

  • Flood attempts? (Score:5, Interesting)

    by pesho (843750) on Wednesday August 04, 2010 @04:24PM (#33143022)
    This looks like high frequency traders have moved on from just gaming the market and now are trying for flood each other with bogus data hoping to trigger a bug in the competition's software or simply overwhelm it.
  • by topham (32406) on Wednesday August 04, 2010 @04:26PM (#33143052) Homepage

    They are designed to create timing opportunities in other trades.

  • Corewars with money (Score:5, Interesting)

    by vlm (69642) on Wednesday August 04, 2010 @04:27PM (#33143062)

    Its corewars, but with real money instead of simulated computer memory.

    http://www.corewars.org/ [corewars.org]

    The name of the game is to send a "signal" that confuses the other guys bots, such that you fool them into making you money.

    Very much like aircraft radar guided missiles vs radar jammers vs anti-jamming missiles

  • by Anonymous Coward on Wednesday August 04, 2010 @04:28PM (#33143088)

    They're obviously designed to manipulate trading volume in order to fuck with the church of technical analysis believers.

    When you understand how the spread of ask/bid prices impact candlestick charts, and subsequently: the market's perception of bullish and bearish indicators, you can see how sinister this really is.

    http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:introduction_to_candlesticks

    • by afabbro (33948) on Wednesday August 04, 2010 @05:17PM (#33143792) Homepage

      They're obviously designed to manipulate trading volume in order to fuck with the church of technical analysis believers.

      Scientology makes more sense than the ridiculous nonsense that is technical analysis.

      "We have here a classic head and shoulders pattern as CSCO is showing support at 23 and some resistance at 25. I'm looking for a breakout once 25 is tested for the third time with momentum in a birthday cake trend over the next four periods..."

  • by MarcQuadra (129430) on Wednesday August 04, 2010 @04:30PM (#33143124)

    I have a simple solution for problems that could be caused by these high-speed robots doing the trades, and also for eBay's 'sniping' problem (where your item sits for days untouched, and then the bids all land in the last thirty seconds).

    Just add some 'fuzzy logic' to the time things happen. eBay auctions would randomly end 'between 10:05 and 10:10", forcing snipers to bid before the end of the trading. Same for the stock market, just have trades execute, by law, on a 'random' basis within a certain time period after they're filed. I'm not sure what the right balance between stability and liquidity is, but I'll guess that a two minute window would discourage most high-speed trading.

    • by Chad Birch (1222564) on Wednesday August 04, 2010 @04:43PM (#33143308)
      I've never really understood the complaints about eBay sniping. Set your maximum bid at the actual maximum that you want to pay. Whether someone snipes or not, if your bid is the highest you will win. If it's not, you won't.

      Even if it is an actual problem for some reason though, I'd think that the simplest solution would just be to extend the auction slightly every time there is a new high bid. Add 5 or 10 minutes every time the bid increases, and sniping would be totally ineffective.
      • by afabbro (33948) on Wednesday August 04, 2010 @05:33PM (#33144008) Homepage

        I've never really understood the complaints about eBay sniping. Set your maximum bid at the actual maximum that you want to pay. Whether someone snipes or not, if your bid is the highest you will win. If it's not, you won't.

        You are right in principle, but...let's say I see something now and decide I'll pay $50 max for it. If it sells for $50.01, well damn, I would have paid $50.01. I might not have paid $60, but one cent more?

        It's really hard to find the exact to-the-penny point where your "no, I won't pay that" mode is tripped. Virtually everyone will pay a few cents more than their maximum bid - and hence, snipers flourish and cause angst. It's not a case of paying 20% more - that's obvious - it's a case of paying .001% more. Most people can't focus their "maximum that you want to pay" that finely.

        • by Cajun Hell (725246) on Wednesday August 04, 2010 @06:36PM (#33144688) Homepage Journal
          I don't see why this is a big deal, though. If you bid $50.00 and it sells to someone else for $50.01, all that happened is that you failed to buy something. For you, that's a neutral outcome, not a bad one. The sniper bought the item they wanted and the seller got a fair price. Everyone either won or broke even. No harm happened to anyone. What's the problem?
        • Re: (Score:3, Interesting)

          by Laser Dan (707106)

          I've never really understood the complaints about eBay sniping. Set your maximum bid at the actual maximum that you want to pay. Whether someone snipes or not, if your bid is the highest you will win. If it's not, you won't.

          You are right in principle, but...let's say I see something now and decide I'll pay $50 max for it. If it sells for $50.01, well damn, I would have paid $50.01. I might not have paid $60, but one cent more?

          It's really hard to find the exact to-the-penny point where your "no, I won't pay that" mode is tripped. Virtually everyone will pay a few cents more than their maximum bid - and hence, snipers flourish and cause angst. It's not a case of paying 20% more - that's obvious - it's a case of paying .001% more. Most people can't focus their "maximum that you want to pay" that finely.

          Whenever I bid on ebay, I choose my maximum bid, then add a couple of dollars and a random amount of cents to avoid this. Eg if I would pay about $50, I put a bid for say $53.72. Most people bid whole numbers or the next minimum increment above, so by adding a small "snipe margin" you avoid being irritated. If the final price is higher than this, well the price is higher than you wanted to pay anyway so no problem.

      • Re: (Score:3, Informative)

        by vux984 (928602)

        I've never really understood the complaints about eBay sniping.

        I suggest you spend more time considering the issue.

        Set your maximum bid at the actual maximum that you want to pay. Whether someone snipes or not, if your bid is the highest you will win. If it's not, you won't.

        But this a suboptimal strategy that will result in you paying more for the item than you could otherwise get away with. There is a psychological and competitive aspect to bidding, that induces people to up their bids. By bidding your max

    • by copponex (13876) on Wednesday August 04, 2010 @04:52PM (#33143442) Homepage

      You have proposed a solution to introduce more accountability, transparency, or ethical considerations into the free market. Wall Street will not accept your proposal because your solution:

      (x) reduces profits gamed from the current flaws
      (x) introduces accountability
      (x) introduces transparency
      (x) introduces ethical considerations

    • Re: (Score:3, Interesting)

      by mhajicek (1582795)
      Interesting idea. IIRC eBay already has an anti-snipe option to delay the close to X minutes past the last bid.
    • I have a simpler solution to this: tax transactions. Seriously, the London Stock Exchange does it [wikipedia.org]. You don't even have to tax excessively, simply tax each transaction a fixed amount (say $.25) or a very small % (like 0.005%). Why should high frequency trading even be allowed? This tax would also kill automated frontrunning [advisoranalyst.com]. If churn is the problem, there are ways to slow things down.
  • Correct the market (Score:4, Interesting)

    by Anonymous Coward on Wednesday August 04, 2010 @04:33PM (#33143164)

    High frequency trading is an abuse of the system. Stop it, take the market away from gamblers and return it to investors.

  • by Giant Electronic Bra (1229876) on Wednesday August 04, 2010 @04:37PM (#33143204)

    This is not 'weird' at all. It's just one bot trying to fool another by making it think there is excess liquidity on one side. Oldest trick in the book. Also entirely against the rules. So it proves there are slugs out there gaming the market, but there's no question about WHAT they are doing, that's perfectly transparent.

  • Wow, that's better (Score:5, Insightful)

    by Itninja (937614) on Wednesday August 04, 2010 @04:37PM (#33143208) Homepage
    WoW has rules against using scripts, bots, and 3rd party programs to play for you. Failure to abide by the rules get you banned.
    The stock market trading system has no rules against scripts, bots, and 3rd party programs to buy millions Every time I think about how WoW regulates the artificially increasing of fake wealth while the stock market has no regulation regarding the artificially increasing of actual wealth, I die a little inside.
    • by Anonymous Coward on Wednesday August 04, 2010 @04:53PM (#33143474)

      If you hold a stock for more than a few microseconds, you're labeled a "f*cking camper" now.

    • by trout007 (975317) on Wednesday August 04, 2010 @05:35PM (#33144030)
      You are exactly right but you are missing the point. There are no government regulations on WoW. It's operates completely to make money by pleasing it's paying customers. If they don't self regulate the game and the players don't consider it fun anymore they stop paying. The difference is the Exchanges are regulated by the government. So they only people they have to please is the SEC. Without government oversight they would have to operate more like WoW and pay attention as people abandon their markets that they consider rigged.

      Also the government almost forces people into the stock market through tax laws. If the government didn't continually devaluate the dollar you could just save your money in a bank and you wouldn't lose purchasing power. If you keep your money in the market in a brokerage account they tax every dividend and profit you make. So they set up IRA's and 401k's to lock you into the stock markets. All so their powerful friends can leech off the hard work of millions of people.
  • by Renraku (518261) on Wednesday August 04, 2010 @04:40PM (#33143254) Homepage

    Back when I used to play MUDs, I remember setting up triggers in Gmud. I idly thought to myself, "What if I could do this with the stock market?"

    Back when I used to play World of Warcraft, I remember all the auctionbots people would set up to automatically undercut you down to one copper over what was profitable. You could search for a specific item, see one person selling it for say, 1000 gold, put your item up for 990 gold, search for that item again, and see that all five of their items up for sale are now 989 gold and 99 silver. If you set it somewhere absurdly low like 500 gold, it would be bought out by a bot within seconds of posting it. Of course, after buying it, their prices were back to normal. Of course botting is illegal in World of Warcraft.

    Again, I applied this thinking to the stock market. What if you had bots to buy if the price was favorable for very popular stocks, but they could manipulate the market to make the price favorable? This kind of manipulation can and will lead to some dire consequences as people no longer act predictably for fear of the bots manipulating them.

  • Emergent Behavior (Score:4, Insightful)

    by PIPBoy3000 (619296) on Wednesday August 04, 2010 @04:41PM (#33143280)
    I suspect that a fair amount of this is emergent behavior - complex patterns from simple rules. For example, if two bots are making test purchases of a stock, one penny greater than the last buy, up to a fixed, you end up getting these odd patterns. The two programmers may not have planned the interaction at all, though they have these weird Game of Life sort of patterns in the data.
    • Mod parent up (Score:3, Insightful)

      That makes a hell of a lot more sense than any of the other explanations that have been posted. "Never attribute to malice what can properly be attributed to incompetence" -- ideas like shadowy international organizations communicating coded messages through stock trades or self-aware machine intelligences a la Skynet forming on the exchanges are certainly entertaining, but they're not needed to explain this phenomenon.

      What is needed, of course, is an explanation of why We The People put up with this crap,

  • by brian0918 (638904) <[moc.liamg] [ta] [8190nairb]> on Wednesday August 04, 2010 @04:48PM (#33143376)
    I've seen this reported on Zero Hedge for months now. The purpose of spamming the market with order quotes is to slow down the competitor's computers, to give you a slight edge in monitoring the market. Basically, you flood the market with order quotes. The competitors' algorithms have to take these into account, while your algorithm can be designed to ignore them. This gives you a slight edge over the competitors in processing actual market data and making determinations.
    • by hamburger lady (218108) on Wednesday August 04, 2010 @05:04PM (#33143644)

      problem is, since every other large-scale HFT algorithm does the same thing the benefits are lost. of course, they all have to keep doing it to keep the new equilibrium going.

      why hasn't this whole market fallen apart yet?

      • Re: (Score:3, Interesting)

        why hasn't this whole market fallen apart yet?

        Perhaps because, if the total load is too great, they DDoS the machines of the market itself and trading slows to a crawl. Then there's nothing to skim.

    • by brianerst (549609) on Thursday August 05, 2010 @01:51AM (#33147208) Homepage

      It actually doesn't need to be that nefarious (of course, it could be).

      You see a lot of this sort of thing in the derivatives markets (I work in the industry - I was the lead architect of the CBOT's Order Routing System) and it's caused by auto-spreaders. A spread trade in derivatives involves finding a pattern between two or more products and trading the differential in prices (e.g., the March Corn contract and the June corn contract tend to move largely in sync, but the spread between them can grow and shrink, so you combine a buy and a sell when the spread narrows and a sell/buy when it grows again).

      Most of the easier kinds of spreads are handled natively by the exchange trading engines - they imply prices into and out of the underlying contracts and trade the package of contracts as an atomic unit. But someone who wanted to trade non-standard spreads (like those across exchanges, for instance NYMEX energies vs. ICE energies) has to do it differently - you have to create a synthetic spread by watching the prices of the underlying products and "legging in" the different products you want to buy or sell when your price target is reached.

      The easiest and least sophisticated way to do this is to wait until your prices all line up (say you want to buy the NYMEX Oil contract for 10 cents less than you sell the ICE Oil contract for) and then throw in market orders. Then you wait for the spread to move and throw in market orders when you're in the money (you sell the NYMEX Oil contract for 12 cents more than you buy the ICE Oil contract for). Bingo - you make money and you don't really care what either contract was really "worth" - you just care about the differential.

      Problem is - market orders suck. The price can move away from you (screwing your differential) and you end up behind all the limit orders that were in before you (increasing your chances of a price movement). So, the smarter way to do it is to place part of your order into the market as a limit order that tracks against the price of the other market. As that market moves, you cancel/replace the leg or legs that are "in the book" so that you stay in sync with your overall strategy. If your "in the book" order(s) starts to fill, you know you've hit your target and you can drop the final part of your spread into its market, giving you a much better chance of getting your differential.

      Now, imagine that you are doing a pretty complicated spread (four or five different underliers that all relate in some model you have) - depending on which ones you put into book and who else is spreading slightly different contract combinations, you get a lot of weird orders being inserted, canceled and replaced at prices all over the map. It can appear semi-random, but for each algorithm, it actually is highly deterministic.

      I don't know if that's what's going on here, but I wouldn't necessarily rule it out. A number of exchanges (including the CME) are trying to stop this sort of thing, because the transaction volume going into and out of the exchange (and the associated price changes that need to get pushed out) is hugely expensive. So, these days you have to maintain a certain ratio of orders to fills (i.e., don't cancel or replace a lot) or you start to get fined.

  • Facinating (Score:4, Insightful)

    by m.dillon (147925) on Wednesday August 04, 2010 @04:48PM (#33143380) Homepage

    It looks to me like the orders are trying to match against dark pool bids/asks, and/or all-or-nothing bids/asks. Another possibility is that they are trying to extract non public information from the trading system by purposefully loading the system down and timing responses.

    High frequency trading bleeds money away from institutional investors (by sussing out dark pool bid/ask levels) and from market makers (by stealing ETF rebates for volume). Also, most brokerages use fairly simple algorithms to handle market orders which can be sussed out by the more sophisticated algorithms used by the HF traders.

    None of this will really effect the retail investor, it amounts to a penny or less on some transactions. Frankly, people have it easy these days where the bid/ask spread is a single penny. When I began trading in my late teens the bid/ask spread was in fractions and was considerably more than a penny. Retail investors get much better pricing these days.

    -Matt

  • by careysub (976506) on Wednesday August 04, 2010 @05:09PM (#33143708)

    In the absence of sensible regulation there are many abuses of the "free market" that effectively destroy it and turn it into a rigged game to benefit the already rich and powerful. Monopolies. Cartels. Price fixing. Trading on one's own account ahead of a customer.

    These special access high-speed connections to the stock market exchange are market fixing tools, pure and simple. They allow the trading firms to skim the market for their own profit, thus defrauding every market participant in the world who lacks these powerful and privileged tools.

    Requiring all buys to be held for a "long" time (a minute?, an hour?) would kill a lot of these shenanigans. Also requiring the link to go through a regulated buffer that introduces a random delay of a second or so would also take the wind out of their sales (pun intended). Or maybe we just impose a fee on each transaction so that they aren't free. Sub-millisecond trading loses a lot of luster if you automatically incur a charge equal to 0.1% (or something) of the stock's value.

    • by khallow (566160) on Wednesday August 04, 2010 @06:40PM (#33144734)

      In the absence of sensible regulation there are many abuses of the "free market" that effectively destroy it and turn it into a rigged game to benefit the already rich and powerful. Monopolies. Cartels. Price fixing. Trading on one's own account ahead of a customer.

      Or we could do nothing and not fix a non-problem. After all, the market currently is far from "destroyed". "Monopolies, cartels, price fixing, trading on one's account ahead of a customer"? If any of those exist (for example, there aren't any monopolies resulting from high frequency trade), then all you have to do is develop your own high speed market program and profit from the opportunity. Or only trade with brokers that have passed some sort of fairness audit (if you desire fairness over profit).

      These special access high-speed connections to the stock market exchange are market fixing tools, pure and simple. They allow the trading firms to skim the market for their own profit, thus defrauding every market participant in the world who lacks these powerful and privileged tools.

      Once you strip the needlessly negative connotation from the above statement, it reads a bit differently:

      These special access high-speed connections to the stock market exchange are market making tools, pure and simple. They allow the trading firms to provide, for a profit, extremely short term liquidity and price information, thus aiding every market participant in the world who is trying to sell large orders and who lacks these powerful and costly tools.

      Requiring all buys to be held for a "long" time (a minute?, an hour?) would kill a lot of these shenanigans. Also requiring the link to go through a regulated buffer that introduces a random delay of a second or so would also take the wind out of their sales (pun intended). Or maybe we just impose a fee on each transaction so that they aren't free. Sub-millisecond trading loses a lot of luster if you automatically incur a charge equal to 0.1% (or something) of the stock's value.

      Why would we want to kill these "shenanigans"? And why do you think a delay would stop the shenanigans (rather than introduce bizarre oscillations and such into the stock market).

  • by Derling Whirvish (636322) on Wednesday August 04, 2010 @05:46PM (#33144148) Journal
    The solution is simple -- just tax each trade say one dollar per trade. It's not enough to bother the legitimate trades as all of them are for substantially more than a dollar each, usually thousands of dollars each. This would prohibit using the trading system to make a DOS attack on a competitor. Unless you are prepared to pay the tax.
  • by rritterson (588983) on Wednesday August 04, 2010 @06:21PM (#33144556)

    It occurred to me when looking at the charts that the stock market quote system is the perfect way to send encoded transmissions- the sender/offering entity is almost impossible to trace back and the receiver can remain entirely anonymous since almost anyone can look at stock pricing charts. Next, the patterns can be nearly impossible to detect, especially if several sources are linked together to make one transmission system, since the system is filled with lots and lots of what amounts to 'random noise' in the millions of non-encoding quotes/trades out there.

    A sender would also have a significant amount of bandwidth given the number of different ticker symbols, the frequency of quotes, the rate of change between quotes, the direction of quotes, etc.

    Normally, a casual observer wouldn't even notice the signals present at all. In this case, a potentially unrelated event (the flash crash) caused more scrutiny, but, supposing this are encoding signals we're witnessing, we still don't know what they mean or to whom they were sent.

  • The problem ... (Score:4, Insightful)

    by atomic brainslide (87546) on Wednesday August 04, 2010 @07:48PM (#33145366) Homepage

    ... isn't that the mysterious bidders are "testing" the market to see if anyone is selling or buying at outrageous prices. the problem is that the bids being placed are not placed in good faith -- this is against the law in the USA.

    the crazy, high-frequency bids are placed and then cancelled at high speed. they act as place holders waiting in line for the price to move in their favoured direction. however, since the vast majority of the time the bids are cancelled, they never execute. this results in the mirage of liquidity and the inevitable "Flash Crash" where sellers come in and all the buyers instantly disappear.

  • by angst_ridden_hipster (23104) on Wednesday August 04, 2010 @08:41PM (#33145782) Homepage Journal

    What's the matter with you people? Back in the day, Slashdotters would have figured this out immediately.

    It's the *terrorists* using the bid data as an out-of-band *communication protocol* for transmitting *encrypted messages*! Remember? Like they were doing with steganography in eBay auction photos? The brilliance is they are using our own tools against us!

    Bear with me a moment, pour yourself a large frosty mug o' xenophobia, and think about all those *overseas programmers* in the financial industry. Why, if we don't stop them, they'll probably code up some *derivative bots* that will f-up the mortgage industry!

  • by JoeBuck (7947) on Wednesday August 04, 2010 @09:00PM (#33145908) Homepage
    ... that is, if people are doing this kind of thing to gum up the works for their competition, one answer is to assess a very small fee per trade, less than a penny. This would be completely negligible to a normal investor, but could be quite expensive to those trying to saturate the system for the benefit of their trading algorithm. Market-makers like Goldman Sachs would also wind up paying significant amounts, but given their privileged position which basically gives them a license to print money it's only fair. The fees collected could go into an insurance fund to help cover the next financial meltdown, and if it slows down trading a bit, that may well be a good thing. Complex nonlinear systems have a tendency to go unstable, and damping is one way of decreasing this possibility.

The Universe is populated by stable things. -- Richard Dawkins

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