Flash Mobs of Trading Robots Coalescing To Rule Markets

An anonymous reader writes "Financial markets experienced a series of computer glitches recently that brought operations to a halt. According to a researcher at the University of Miami, mobs of ultrafast robots, which trade and operate at speeds beyond human capability, may be responsible for these "flash freezes". From the article: '"Even though each trading algorithm/robot is out to gain a profit at the expense of any other, and hence act as a predator, any algorithm which is trading has a market impact and hence can become noticeable to other algorithms," said Neil Johnson, a professor of physics at the College of Arts and Sciences at the University of Miami (UM) and lead author of the new study. "So although they are all predators, some can then become the prey of other algorithms depending on the conditions. Just like animal predators can also fall prey to each other." When there's a normal combination of prey and predators, he says, everything is in balance. But once predators are introduced that are too fast, they create extreme events.'"

Should be a tax on every transaction

[Anonymous Coward]

Every time I buy a stock or sell one, the IRS and other taxing authorities suck some money out of me.
When these computers buy and sell shares several times a second, they do not get taxed. That is not fair.
There should be a tax maybe .001 cents per transaction. That would cut the amount of chatter and computer predation.
Some of these systems see what slow dim you are going to buy, jump ahead of you in line, buy it and then sell it to you.
You do not get the best price, they get a profit. If they were taxed on both ends of that, they would not do it and you would get a better price.

So far removed from anything useful for society!

[Rosco P. Coltrane]

This sort of financial activities is complete economic nonsense, as it brings nothing of value to people, companies or other concerns that actually produce something useful to society as a whole. Just reading the /. blurb should be enough to convince anyone that "robot trading" is a parasitic activity that should be taxed to oblivion - by ways of a tax based on the speed of trading for instance - and financial markets forced to become what they're supposed to be: places for investors to invest in real economic activities for the long haul.

Re:Should be a tax on every transaction

[Thanshin]

When these computers buy and sell shares several times a second, they do not get taxed. That is not fair.

Laws aren't made to be fair.

There should be a tax maybe .001 cents per transaction. That would cut the amount of chatter and computer predation.

That would go against the people who make the laws.

Some of these systems see what slow dim you are going to buy, jump ahead of you in line, buy it and then sell it to you.
You do not get the best price, they get a profit. If they were taxed on both ends of that, they would not do it and you would get a better price.

And that's the reason for such tax not to exist. Because you getting a better price is not the desired outcome.

Predatory investing?

[Culture20]

Investment is a collaborative strategy, a symbiosis. Programming "investment bots" to be predatory is not a good thing. It introduces parasites into the mix.

Re:So far removed from anything useful for society

[drinkypoo]

Sure, there is. Higher liquidity and better market responsiveness to new knowledge.

Higher liquidity is primarily a benefit to corporations, which are a legal fiction which has no reason to exist if it does not benefit the public.

The case for banning fast trading doesn't exist.

I just made it.

Most such reasons turn out either unrelated to fast trading

Straw man. We are currently specifically having a conversation in the context of discussing a problem which is caused by fast trading.

or attributing mystical powers to fast trading

Straw man. You're talking about some nutter, which has nothing to do with me.

If the best you can do is engage in logical fallacy, you clearly have nothing of value to say. Please move along.

Ho Hum - the exchanges are the biggest crooks

[FriendlyLurker]

The flesh-and-blood sharks were thrown in jail (overnight, litrally) convicted of fraud [reuters.com] many years later and given a tiny slap on the wrist compared to their actual crimes. This not done in the name of justice, but part of a larger power struggle to take the NYSE electronic (the families that had operated the NYSE for 200 years were blocking the move, shit started to hit the fan around 2003). The exchange specialist were only accused of skimming off the top for a short period of time, but everyone familiar with this practice knows that it goes back to 1970's and most likely well before that (Richard Ney called them out for skimming off the top [lewrockwell.com] in his best selling book The Wall Street Jungle around 1970), Richard Wyckoff talked about the principles & techniques of stock market manipulation (by the exchanges) it as far back as early 1900's). Since 1970 that are billions of dollars skimmed off the top - no investigation until a power struggle. The practice goes on today and it is the electronic exchanges that benefit instead of the NYSE specialists. Any talented stock market data analyst can confirm this by taking NYSE data pre electronic exchange data and comparing their "skimming" techniques as confirmed in the court case against the electronic data. Wyckoff became very wealthy [wikipedia.org] living off the crumbs of the exchanges ill-gotten gains.

All this news is underlining is that the exchanges are having more of their crumbs stolen by independent parties... if you want reform, start with brining transparent to the stock marker exchanges and their skimming off the top practices. The cost to society is enormous.

Re:Should be a tax on every transaction

[bmxeroh]

No, what the poster above is referring to is a form of arbitrage. Admittedly, it doesn't sound like the average person is affected by this so much as large block orders placed by big companies, but it absolutely happens. The issue is that these very large orders take a significant amount of time to complete, and the HFT algos have plenty of time to see what is happening, buy up a position and sell it as the price is going up due to the large purchase. It's not about large profits, remember this is High Frequency Trading, so all they have to do is take advantage of very small price differences a gazillion times a day to turn a hefty profit.

Re:Should be a tax on every transaction

[Anonymous Coward]

No, they don't. They don't have ESP. They can't see what you do on a market before you actually do something on the market.

Actually they do have esp.
They can see what order you have placed before it is fulfilled.
Have you not heard of level 2 market data.
Pay for it and you can see what orders are placed - volume, bid/ask price, trading organisation.
Combine that with super high speed connections to the exchange and you can see transactions at the millisecond and act on them.

Off topic:
If you've ever traded you may have spotted the effects of high frequency when using candlestick charts at the 1 minute timeframe.
You will see long repeated sequences of Bull Candle, Bear Candle of the same size over a short time scale (seconds)
Thats proof of Banks and institutional traders bots / algorithms fighting for price power.

8 Years ago you would be lucky to have spotted a dozen a year.
Nowadays there's one everyday if you know which instrument to look at.