Ex-Goldman Sachs Programmer Found Guilty 244
Readers twoallbeefpatties and ngrier wrote in essentially simultaneously about the guilty verdict in the trial of former Goldman Sachs computer programmer Sergey Aleynikov. We've discussed the case several times before. The trial itself was sealed from the public to prevent discussion of GS's high-frequency trading system. Reader ngrier summarizes: "After just three hours of deliberation, the jury found Sergey Aleynikov guilty of intentionally stealing proprietary Goldman Sachs code. As he had admitted copying the code as he was preparing to join a startup competitor in 2009, the case hinged on the intent. He faces up to 10 years in prison."
Re:Where is wikileaks when you need them (Score:0, Informative)
wrong high frequency trading insures liquidity which actually makes stocks more accurately priced.
Re:high frequency trading needs to be outlawed any (Score:4, Informative)
I read this book, and after was astounded with how true it rings, not because of the money I earned (I don't even invest), but because of the insights it provides into the greediness and irrational nature of the market.
To summarize the book, buys stocks based on what you think their value is, which actually requires doing a value analysis on the stock and buying when it is undervalued, and selling when it is overvalued, as to just getting sucked into the latest get rich quick stock or bond at the height of its balloon, only to have it pop.
Good luck finding a copy under $500 dollars. This is a rarity. It was once deemed the most stolen book from libraries in the world by the NYT. [yahoo.com]
But I may have seen it available on torrents before
Re:Where is wikileaks when you need them (Score:4, Informative)
You and most of /. really have no clue how market making works, HF or not. Some people have reasons to buy derivatives (futures and options). A coffee roaster might want a call option on raw beans to protect themselves from price rises, and likewise, a coffee grower might want a put option to protect against falling prices. If you estimate the volatility of the underlying asset's price, you can calculate a theoretical fair price for a derivatives.
Now suppose I use my model to calculate a particular option is worth $10. If the market is wide open, I could offer to buy it for $5 or sell it for $15 - making a market with a spread of $10. In this situation, I could make $5 of profit, or "edge", on each option I trade. But you might decide you can afford to quote $6/$14 - now you'll pick up all the trades with an edge of $4. I won't want you to get all the action, so I'll have to quote inside your spread - maybe $6.50/$13.50 - and other people will get in on the action. As the number of market makers increases, the spreads tighten, and the people who actually have a purpose for the options get a better deal.
The exchanges take a percentage of each transaction, so they want to attract as many traders as possible. Part of this is offering narrow spreads on derivatives. To make the spreads narrow, they will try to attract market makers. This is often done by offering rebates on fees to people quoting sufficiently narrow spreads for a high proportion of the time.
In a liquid market, the spreads will be very narrow, and thus the edge on each transaction will be tiny. As a market maker, you need to be making enough to pay your traders and software developers, so you need to make sure you get as many of the trades as possible. Latency is the killer, so you need to do anything you can do to keep it down. Co-locating your system at the exchange costs you money for rack space, but it will give you lower latency, and therefore more chance of being first in and getting the trades. Everyone does this now, so it's simply a cost of business if you want to make money. Beyond this, you need to employ smart developers and IT people to keep making your system faster. Everyone is doing this now, so at it's like an arms race - you have to keep getting faster or you will lose out and not get the trades you need to make money.
The upshot of this for everyone else is that derivative prices are fairer - when you want to hedge, you won't be incurring much cost over the theoretical fair price of the instrument.