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.'"
Gotta love Mark (Score:5, Interesting)
Mark is currently trending because of the way that he handled ESPN analyst Skip Bayless last week, on live tv. He completely owned.
http://www.youtube.com/watch?v=hv2jqFd2-qI [youtube.com]
As an HF Trader... (Score:2, Interesting)
HF traders in general aren't searching for 'glitches,' but mispricing opportunities. HF traders take the risk of warehousing their views on prices, while providing liquidity and the rest of the world takes full advantage. We often mud-wrestle for less than a penny per share, while being villified for being the downfall of modern economies. In truth, you should be pointing the stinky finger of blame at the institutions making the 'macro' decisions, those with the power to manipulate economies, governments and coporations on a larger scale...
Who wants to eat some astroturf?
Re:Predictably... (Score:5, Interesting)
Re:Easy to be a critic, harder to suggest alternat (Score:3, Interesting)
"If a bank needs to exchange dollars for Euros, what should they do? Call someone on the phone because they're afraid of competing in an electronic market?"
Getting a current exchange rate -- or making an exchange, for that matter -- are not the same things as HFT. Both are quite possible without any HFT at all.
Re:The REAL question: (Score:2, Interesting)
HFT systems are extremely complex systems created and maintained by highly skilled programmers. There's no banker playing desk jockey with a pieces of software on his desk. It's an automated system that exploits the rules of the market.
Re:Is it illegal? (Score:5, Interesting)
"it is pure, unrestrained capitalism. What could possibly go wrong?"
It is nothing of the sort. Capitalism is a means of producing things. Wall Street produces nothing.
Wall Street isn't "capitalism". It's a government-endorsed casino. There's a pretty big difference.
Re:System is broken. (Score:5, Interesting)
Just as importantly, every single mortgage note should be hand transferred, recorded, and witnessed. If a mortgage holder cannot produce the note to a court, the mortgage is null and void, and a judgement entered by the court setting it in stone.
That should go a long way to preventing some of the fraud and outright theft that Wall Street has performed.
How many people have had their homes stolen, we may never know.
Transaction tax (Score:5, Interesting)
Much like spam mail, HFT would cease to be an issue if a transaction came with even a tiny overhead. (And in both cases, I doubt it'll ever happen.)
Re:Is it illegal? (Score:2, Interesting)
No it isn't...Once governments bail out the banks and prop up the system it isn't capitalism at work anymore.
Why aren't capital gains taxed the easy way? (Score:5, Interesting)
Stocks/bonds/commodoties have an undodgable tax of 0.2%? This is collected out of the trade automatically and sent to DC in real time.
I'm not in a thinking mood whether this should be on sales or purchase. It would hurt high frequency traders because they'd be paying mad taxes, but people who invest like a sane man for long term the tax is negligable.
Re:System is broken (Score:4, Interesting)
That's the whole point about it being stored in the courthouse, in the same county as the property, for the lifetime of the loan.
If it is required by law to be a physical document, and that all transactions must be witnessed by an officer of the court, it is pretty damn hard to counterfeit a transaction without the illicit cooperation of an officer of the court.
It is already a matter of public record the ownership history of a property. All I am asking is that it become a matter of public record the history of any past or present loans against the property as well.
If you did that it would make very hard for anybody, home owner and lenders alike, to lie.
Re:System is broken (Score:4, Interesting)
Yup, and that is the system we had. Unfortunately, the companies thought that system moved too slow and had a high transaction cost. So they bullied the regulators to let them keep their own clearing house... which they didn't properly maintain. It's the dumbest concept ever, private companies self-regulate on who owns the land today and then tell the government at their leisure. Little wonder that we are now seeing the benefit of our great grandfather's line of thinking.
Re:Can you explain? (Score:5, Interesting)
"The provide liquidity"
The market had adequate liquidity before high frequency trading, I challange you to find a reasonable arguemnt that it did not. The problem is the "more = better" argument being applied without any rational thought behind it. This is like using total calorie consumption in a country as a measure of health. In a place of absolute starvation it can be a worth-while absolute measurement: more calories is better. But once you hit a certain point you have to start paying more attention to distribution of calories, and then at another point more calories is damaging to health. We have long since hit the point where having more money flowing into the finantial sections of our econmy is just damaging, and that is totally ignoreing the evident distribution problem.
And high frequency trading does hurt you with you limit order: it makes it less likely that you are going to be able to make as much money out of your trades. They can try every combination up to $100 in microseconds to test the waters (without ever commiting to a trade) and so find the person willing to pay the least to buy that. Then they can figure out who is willing to pay a bit more, and in the blik of an eye become the middle-man, pocketing the difference. They have that unfair advantage over you, just because they are bigger and have more money. How is that ever going to benifit a just or equitable society? In a fair market your broker could have found the person willing to sell to you for $99. And before you argue that the high frequency trader is just replacing the broker, that broker should have been working for your best interests, if they are keeping the difference you can alwasy find a more moral broker.
Re:Predictably... (Score:2, Interesting)
Why should finance technology be any different from any other kind of technology?
No one is against technology. But when computers start trading at a pace that a normal person can't comprehend, that's when I say a line has been crossed. where exactly that line is, no one knows. It'd be nice if a regulatory agency could say that traders need to hold on to a purchased item for at least, e.g. a minute, before selling it off. A minute is probably enough time for a person to give that decision a thought.
Re:It's also highly questionable (Score:1, Interesting)
That's a stupid analogy. It's more like you're standing in the supermarket and, without looking at the price, you announce "I would like to buy a can of beans for $3". The can of beans is actually priced at $2.99, and a HFT buys it from the supermarket and then sells it to you at your requested price of $3. What's so terrible about this? Without the HFT, the supermarket is still going to sell it to you at $3 if that's the price you're offering.
Here's a scenario. Imagine you're standing next to two beans sellers with your eyes closed, and you announce that you want to buy a can of beans for $3. One of the sellers offers beans for $2.99, and the other for $2.98. If there's no HFT here, you're always going to end up paying $3, and the trader who makes the sale is the one that gets the can of beans in your hand first. If there is a HFT around, he's always going to buy beans from the $2.98 guy and sell them to you for a 2 cent profit, and the $2.99 guy is going to get no business. The HFT is acting as a competitive pressure and prices are going to go down as close as they can get to the ideal. How is this not a good thing?
Re:Can you explain? (Score:4, Interesting)
If the "liquidity" provided by high frequency traders is valuable when performed on the order of milliseconds, then logically the extension is also valid: trading on the order of microseconds or even nanoseconds should be more valuable still.
And what makes you think that isn't true? At some point the cost of providing a certain level of speed in the market may outweigh the potential profit from doing so. But faster trading does provide liquidity to slower traders and it provides advantages to those faster traders in responding to news events and other changes in the market.
Here's a thing to think about though: the markets close every day for hours, and the economy doesn't suddenly collapse due to this suspension of "liquidity".
Why not trade once every thousand years, if speed of market doesn't matter?
As an aside, I think we'd just see a continuation of present market structure. Humans would still trade on their timescales and HFT would still trade on its timescales, no matter how illegal you tried to make it. The only effect of lag regulation would be to move HFT to locations where it would remain legal. Those would become the real markets. Imagine a world where the stock market is a small piece of the actual market. It's just a place where the chumps, who don't have HFT, have to trade at a loss. Meanwhile the real markets are competing networks maintained by various deep-pocketed organizations which trade whatever they want to trade at whatever speeds they want to trade at.
Re:System is broken. (Score:5, Interesting)
Re:Predictably... (Score:5, Interesting)
Simple solution has already be proposed. Queue trade requests in such a way that a random delay is inserted. The delay will be negligible and go unnoticed for humans but it would definitely screw up milliseconds traders.
Re:Predictably... (Score:5, Interesting)
And we do have an idea of what's actually going on. Here's a detailed example of the recent Facebook IPO problems: http://www.nanex.net/aqck/3099.html [nanex.net].
Re:Predictably... (Score:2, Interesting)
Although I'm skeptical about HFT, re: money isn't speech--
Do you propose that people can only exercise their first amendment rights by talking (creating sound from their vocal chords)?
The moment you use anything beyond that (TV ad, pamphlets, booklets, books, DVDs, even a bullhorn), you're spending money.
So how do you propose to allow people to exercise their free speech rights without spending money?
Free Speech and de-regulation (Score:4, Interesting)
Citizens United v. FEC has nothing to do with corporate personhood. That concept has been around since the late 1800s.
"Congress shall make no law ... abridging the freedom of speech"
A law which prohibits an organization from running a TV ad about a politician is a clear violation. Remember, the SCOTUS doesn't "legislate" or weigh the predicted results of the decision. They interpret the Constitution, and they made the right decision.
Financial de-regulation is a red herring. The politicians want you to believe deregulation was the problem for a multitude of reasons. First, the people that did it are long gone so there's nobody to vote out. Second, it gives the appearance that no laws were broken, and third, the fix is easy. More regulation. It's BS.
Government has at least 4 agencies specifically to regulate the financial sector and the FBI to investigate. They have all the regulations and evidence they need. The problem is that the feds literally will NOT enforce the existing laws.
"Money is Not Speech"
You guys DEFINITELY need a better meme. That statement is completely meaningless. IMO, it gives the impression that only word-of-mouth is immune from government infringement.
Re:Predictably... (Score:5, Interesting)
But the money isn't speech. The ad, pamphlet, etc is. Citizens' United decided that corporations had a Constitutional right to free speech. If they did have such a right, then it wouldn't be fair to limit their expenditures. But the obvious problem with that ruling is that corporations don't - and shouldn't! - have a right to free speech.
Corporations have to be people so they can own things and we can sue them. That's a well-established legal fiction. But they don't inherently get any human rights because of that. I, and many-to-most other people, think that granting corporations human rights is a mistake. What's next - the right to bear arms?