High-Frequency Traders Are the Ultimate Hackers, Says Mark Cuban 538
An anonymous reader writes "Billionaire Mark Cuban talks in an interview with the Wall Street Journal about how he thinks high-frequency trading can be quite damaging to stock markets. He goes so far as to call high-frequency traders the 'ultimate hackers.' He says, 'They're running software programs that have one goal, and that's to exploit the trading systems as early and often as possible. As someone who wrote software for eight years and who keeps up very closely with the technology world, that scared the hell out of me. The only certainty in the software world is that there is no such thing as bug-free software. When software programs are trying to outsmart other software programs and hack the world's trading platforms, that is a recipe for disaster. ... How many times an hour are there failures across individual equities around the world because of software running algorithms battling each other for supremacy to make a profitable trade? We have no idea. It's not a question of if or when we have meltdowns, it's just a question of how big and where. It's straight out of War Games. And that's before we even get to the possibility of nefarious or sovereign hackers getting involved.'"
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Re:Predictably... (Score:5, Informative)
This is totally correct. Most people now just locate whole junks of their algo platform in the same data center as the exchange (co-location). Once it's there, I've seen people questioning and arguing about minutiae such as which switch its connected to or length of ethernet/fibre cable vs competitors. Tiny fractions of a millisecond are very significant in this game. Then there's the kernel optimizations, assembly in-lining, FPGAs etc.
I think (probably unpopularly) that it's a bit unfair to brand these guys as 'hackers' implying that it's some sort of dirty word. Smart engineers will always find a way to make something faster, better, stronger. To think that people in finance would accept that things "have got fast enough now and we should just stop" is a bit naive. Why should finance technology be any different from any other kind of technology?
Also, bugs ARE of course there and is basic fact of having an imperfect model. These are pretty much immediately exploited in quite a Darwinian way by other market participants. This is why one model makes more money than an other. I'm not sure why the article's author thinks this is some kind of blinding revelation. Even in extreme examples such as during the flash crash, for every stupid model making disastrous trades, there was someone on the other side of each trade making a massive profit. Survival of the fittest, welcome to capitalism.
One final though is that people can't just 'hack' the exchange. Organisations like the FSA exist to ensure that each transaction that occurs is audited to make sure that it has a financially sound objective, not just gaming the system for weaknesses. Market participants can fined very significantly for getting this wrong.
This article is really just uneducated scare-mongering.
Re:Is it illegal? (Score:4, Informative)
Capitalism is a method of allocating resources through the private sector and that's precisely what Wall Street does. If I give you money to start your business, did I produce something? How is that any different from a company like facebook (which I hate btw) going public and getting $16B to expand its business?
Capitalism is just one method of allocating resources. Another method of allocating resources is to have the gov't do it - i.e. communism.
Re:Predictably... (Score:5, Informative)
Look the purpose of the stock market is to facilitate the trading of securities. The societal good of that is that it frees up and allocates money to companies that are producing more value , or doing it more efficiently. This is a way to reward smart companies and incentivize new technologies.
This shit has nothing to do with any of that. They're gaming the system for a purpose to which it was never meant to be put and further, they're endangering everyone else while they're at it. Those are just the facts.. none of that was my opinion.
This is where Citizen United matters a lot . Romney is promising to re-Bushify the stock market if he gets elected. That means Wall Street is going Romney. That means huge sums of money are being poured into his campaign and if he wins , the market stands a good chance of cratering the economy again.
Greed has located a positive feedback loop and is exploiting it in a predictably greedy fashion.
The thing is, this is obviously reckless and has nothing to do with free markets. It's as if we threw away any concept of a social good except the servicing of the impulses of richest greediest people our society can produce.
Greed is an innate flaw in human thinking under most circumstances. It's not some magic rocket fuel that impels society towards greater wealth and innovation. That's a bullshit narrative told to you by drug addicts who don't want to be separated from their drug . And nothing more.
The thing is, the fanaticism on the right is also in a positive feedback loop with the right wing noise machine. Even though their economic deregulatory policies cratered the economy, they are taught how to deny that fact by the right wing noise machine. This clears them to vote more of the same into office.
We've effectively turned our economy over to people with a a group of compulsive gamblers and risk junkies. This is a completely different thing than supporting risk taking entrepreneurs.
Look societies live, grow and die. They die because they become captive to an entrenched minority who games the social cultural political system and secures for itself some positive feedback loop that reinforces their power and permits them to write the rules of society to their personal, narrow advantage. Thenceforward, at every decision point, their local, short terms needs are serviced first and in our case, almost exclusively.
We may be living in a dying society that will catastrophically implode . Our refusal to address global warming in more of the same dynamic with the oil and coal companies finding a positive feedback loop in their campaign contributions and right wing noise machine.
Citizen's United matters more than you think. SCOTUS overturned a hundred years of hard won lessons about politics and money and democracy this week in their Montana decision , which is nothing more than en extension of their Citizen's United decision. This from a political wing which claims to abhor the ideologically driven, no-nothing meddling of Big Government into the policies of the States and of business and other boots-on-the-ground forms of hard won, real world knowledge.
Money isn't speech and corporations aren't people. These are two more -in-your-face patent absurdities that future generations, if there are any, will laugh out loud at in middle school classes and serve as the Cliff Notes on Why America Collapsed 101.
You have to understand that rational thinking and reasoning about even the basic, obvious facts of the world does NOT come naturally to people. As proof of this I offer a recent story about an ongoing cause for mass murder in Africa- Penis Shrinkage Through Sorcery.
I 'll link to the Reuters story because otherwise you might suppose I am accidentally reporting satire.
http://www.reuters.com/article/2008/04/23/us-witchcraft-idUSN2319603620080423 [reuters.com]
Long story short, m
Re:It's also highly questionable (Score:5, Informative)
Because that extra $0.02 profit now disappeared into the pockets of the insanely rich, instead of the original seller. In other words, HFT only serves to make the rich richer and widen the gap between rich and poor.
You know what happens when that gap grows too big?
Re:Is it illegal? (Score:5, Informative)
"How does efficient market theory explain all the millionaire and billionaire stock traders Manhattan and London?"
It doesn't, of course. But... given hundreds of years of solid evidence, it should. So... what is the difference? How did those things happen?
A few were smart. A few got lucky. Many of them already HAD family money.
Most of the rest is due to market-fixing, cronyism, insider trading, etc. [readersupportednews.org]
When the free market is allowed to work, it works. But we have over 100 years now of government and insider interference in the free markers, to the extent that they can hardly be called free anymore.
Sorry, but you can't point to a system that has been almost hopelessly corrupted, and call that evidence that the system as designed doesn't work. That's a logical fallacy.
Today's Wall Street is very, very far from a "free market".
Re:Predictably... (Score:4, Informative)
Re:Can you explain? (Score:5, Informative)
As near as I can tell they're the definition of an economic parasite.
Of course they are parasites, but that misses the point. They are more efficient parasites! They do a better and more efficient job of market making than the system they replaced. A tapeworm that drinks an ounce of your blood every day, is better than a tapeworm that drinks two ounces.
Again, I'm open to being proven otherwise, it's just I don't see what value they add.
When stocks are traded, someone has to match up buyers and sellers. These are "market makers". In pre-HFT days, these were usually brokers, such as Merrill-Lynch, who were assigned by the exchanges to be market makers in certain stocks. They would buy and one price and sell at a slightly higher price. This price difference is the "spread". The HFT came along, and squeezed the market makers out by offering smaller spreads. Today the HFTs are the market makers, and Merrill-Lynch no longer even exists as an independent company.
They just seem to drive up the cost for real investors....
I don't see how you can possibly reach this conclusion. If they didn't offer "real investors" a better deal, why would "real investors" buy from them or sell to them? They offer better prices. The only losers are the old inefficient middlemen who got squeezed out of the market. Good riddance.