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The Almighty Buck Crime The Internet

Adaptation From Flash Boys Offers Inside Look at High-Frequency Trading 246

Posted by samzenpus
from the rigged-game dept.
Lasrick (2629253) writes "This NYT adaptation from the book provides an in-depth and infuriating look at how the stock market is rigged. Brad Katsuyama of the Royal Bank of Canada couldn't understand why stock he was trying to buy would suddenly vanish: 'Before RBC acquired this supposed state-of-the-art electronic-trading firm, Katsuyama's computers worked as he expected them to. Suddenly they didn't. It used to be that when his trading screens showed 10,000 shares of Intel offered at $22 a share, it meant that he could buy 10,000 shares of Intel for $22 a share. He had only to push a button. By the spring of 2007, however, when he pushed the button to complete a trade, the offers would vanish.' The ensuing investigation by Katsuyama led him to design a program that actually slowed down the trades. But Katsuyama's investigation revealed so much about how the system is rigged."
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Adaptation From Flash Boys Offers Inside Look at High-Frequency Trading

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  • by blue trane (110704) on Monday March 31, 2014 @01:17PM (#46623627) Homepage Journal

    I think corps are fucking us by harping on government debt, which has never mattered and is not the crisis they cynically claim it is, when in private they laugh and tell each other "Reagan proved deficits don't matter" and wait till their party gets in so they can run up the debt to new record levels. Because they know it doesn't matter.

  • by the eric conspiracy (20178) on Monday March 31, 2014 @01:29PM (#46623749)

    > how exactly is this rigged for the longer term investor?

    It isn't. Long term investors are looking for price changes from 20-200% between trades. HFT is making money in the .1% range which is basically in the noise band.

    Even then a reasonably intelligent investor has some tools he can use to protect himself from the worst front running - pay attention to the spreads and use limit orders.

  • Re:Forbit all HFT (Score:4, Insightful)

    by stewsters (1406737) on Monday March 31, 2014 @01:36PM (#46623805)
    That sounds good, but what will happen is that the big trading firms will build software to give each other hints as to when they will be buying and selling the the next 30 seconds. There will still be algorithmic trading, it will just have to move toward out of channel cooperation rather than pure speed.
  • by Thud457 (234763) on Monday March 31, 2014 @01:43PM (#46623877) Homepage Journal
    I sure am proud that our country's best and brightest are focusing their efforts on optimization of moving around virtual little green pieces of paper.
    It's not like we have real problems that need to be addressed.
  • Re:Forbit all HFT (Score:5, Insightful)

    by Soulskill (1459) Works for Slashdot on Monday March 31, 2014 @01:46PM (#46623895) Homepage

    Every time I learn more about HFT, I become more convinced that it has to be regulated, and soon. They're only going to get more efficient at extracting money out of these markets without introducing any actual value, and that can't be sustainable in the long run.

  • Limit order? (Score:5, Insightful)

    by jgotts (2785) <jgotts&gmail,com> on Monday March 31, 2014 @01:50PM (#46623933)

    Nobody trades like this, and nobody traded like this in the early 2000s. That trading style has been obsolete for 20 years, and predates HFT. You don't see something, decide you want that, and then hit Enter or click your mouse button.

    In this example, you decide the maximum price you want to pay in advance, and you enter a limit order. If you're selling you decide upon your minimum selling price, and in the same way you enter a limit order. You've locked in your profit, regardless of timing.

    If you're setting up some sort of combination, you enter the triggering parameters in advance, and you don't even need to see what was being done on screen.

    People say that computers are trading with each other. That is false. That's like saying that Microsoft Word writes documents. Trading companies, their traders, and their programmers write trading software and adjust parameters. 30 years ago, the "software" was held in the traders' minds, and the execution was done via outcry. The underlying mathematics is the same, and traders don't have to hold these calculations in their minds.

    The problem here is this. Extremely rich companies can have the fastest links to the exchanges, but this is no different from the olden days where the oldest and richest companies had the smartest and most well-connected traders. The tools of the trade are slightly different, but rich and successful companies will leverage their money to be the most successful, or else they will be replaced by somebody else.

    My own background is that I wrote a derivative trading system between 1999-2006 for a tiny company that ultimately didn't make it because we couldn't compete against the big boys. This angst about HFT is largely technophobia. The traders trade, they learn the software, and they often don't understand how it works. To programmers like me, the algorithms are a black box, but the traders do understand the mathematics pretty well. When you have traders coming out against HFT, you have traders who couldn't understand the software or were burned because their companies weren't rich enough.

    People who have never worked in this field who are against HFT really don't understand computer-based trading very well, from either a programmer's perspective or a trader's perspective. Keep in mind that the job of a computer is to make mundane things happen more quickly, so we can focus on more human things. You want your 401K to execute as accurately-priced trades as possible. HFT ensures that both styles of trading benefit.

  • by BradMajors (995624) on Monday March 31, 2014 @02:33PM (#46624319)

    High frequency trading is actually good for the small investor and gets them better pricing. What the article is about is the inability of institutional investors to make large trades without moving the market.

  • by ceoyoyo (59147) on Monday March 31, 2014 @03:29PM (#46625019)

    If you don't like it, vote for somebody who will increase science spending. Currently, a bright 16 year old has a choice between

    Moving virtual little green pieces of paper around: making ridiculous amounts of money

    Curing cancer: being poorly paid until hitting middle age, then almost certainly hitting a career dead end and having to retrain to get coffee for someone who moves little green pieces of paper around.

  • Re:Forbit all HFT (Score:5, Insightful)

    by Aviation Pete (252403) on Monday March 31, 2014 @03:53PM (#46625283)

    Better yet, how about a tiny tiny tax on each trade?

    That ist exactly what needs to be done. In engineering terms: Increase damping. This will reduce oscillations and calm things down.

  • by wonkey_monkey (2592601) on Monday March 31, 2014 @05:08PM (#46625973) Homepage

    I'm bit suprised at bad reputation HFT has at Slashdot.

    [...]

    This is war.

    Asked and answered, perhaps?

    I, for one, feel that the human race has far better things it could be doing with its time instead of obsessing over increasing some numerical values to the detriment of other numerical values.

    But then, that's a bit like my (admittedly ill-informed) thoughts on money, sometimes. We invented it, and yet somehow we no longer seem to be in control of it, and it's got us dancing to its tune. Never mind Skynet; what happens when the money markets decide they no longer need us?

"Consider a spherical bear, in simple harmonic motion..." -- Professor in the UCB physics department

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