Are markets changing?

[Ingot54]

After all, if a computer code is valuable enough for someone to steal, and critical enough for a Wall Street firm to go to federal authorities to protect, one would think that regulators would want to know why it is so important.

Yet regulators largely have stood by and allowed this secretive corner of the quantitative trading world to grow ever bigger, without mustering up much of a protest.

Computer-driven trading, where complex buy and sell orders are completed in fractions of a second, now account for 73 percent of all daily stock trades in the United States, according to the Tabb Group, a financial services research firm. Tabb also estimates that the 300 securities firms and hedge funds that specialize in rapid-fire algorithmic trading raked in some $21 billion in profits last year.

Still, there’s little doubt there’s a lot of money to be made from automated trading that relies on complex mathematical formulas to predict momentary price moves in stocks and commodities.

The big fear is that with high frequency trading dominating daily trading activity, it could spark another 1987-style market crash. The doomsayers say that could occur if all these automated trading programs — which operate with almost no adult supervision — begin reacting to the same downward price trends in a stock or commodity. Or high frequency trading firms could worsen a sell-off by refusing to execute trades to protect their own capital, a move that would make it difficult for other investors to quickly exit a falling stock.

Some say there’s already evidence high frequency trading may be playing havoc with the markets. James Angel, a professor at Georgetown University’s McDonough School of Business, says the big end-of-the-day price swings in the major stock indexes that were quite common last fall were probably exacerbated by high frequency trading.

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The prosecutor in the Goldman software-code theft said that the program could be used to “manipulate markets in unfair ways.” He was talking about it falling into the wrong hands. But what’s to prevent Wall Street from doing that?

For those interested in the wash up I suggest you bookmark these, and follow along.

They seem to be on to it.

Thanks to Markus for his post above, that led me to these links.

Five Things You Should Read About High Frequency Trading | Cale In The Keys

Bill King: Automated front-running on an unfathomable scale | GreenLightAdvisor Views

The Algorithmic Trading Podcast ATP Special Edition - Low Latency (featuring Thomas Chippas, Deutsche Bank)

Hopefully I have been able to get my point across to some of you.

Best wishes

Ivan

 

[Technically Fundamental]

So are you planning to take on the banking industry or put your efforts into gaining a better understanding of how the algo's work and either trade around them or piggy back them?

I know which way I'm leaning.

 

[BSD]

Dumb question...

The guy who nicked GS's code sent that via the web to a hosting site where it stayed pretty for a month.

Now, sthg that got sent round the web never actually disappears, or does it.

Meaning if it doesn't, shouldn't some geeks be able to dig it up ?

I mean the advantage is one knows exactly from where it came, and where it went.

Goldman Sachs ===============> XP-Dev.com - Free Subversion Hosting (SVN Hosting), Version Control, Project Tracking - Home

Plus the hosting service itself, couldn't they have a copy somewhere ?

 

[BSD]

Come to think of it, if I were running a hosting service I'd do a backup of everything anyway as a worst case precaution against data loss.

 

[Ingot54]

Good Question

So are you planning to take on the banking industry or put your efforts into gaining a better understanding of how the algo's work and either trade around them or piggy back them?

I know which way I'm leaning.

There is no way Ingot54 or even 100 of us could hope to influence what is happening in the big world of trading.

The dictionary lists over 2000 derogatory terms I could apply to these faceless ones who are ripping off less suspecting traders, and my using every one of them would not even get me noticed.

The dual-nationality Russian-American Sergey Aleynikov got it right - they sure sit up fast and straight when someone gives them a dose of their own ploy ... larceny I believe!

No - my main purpose is to alert traders a little as to what it is they are involving themselves in, and whether it is something they wish to spend the next 5 years of their lives in attempting to master.

As for myself - it is of no consequence.

I have my own indicator that show when the markets are erratic, and not trending. I have posted it on the thread at the link in my footnoe - Spuds Stochastic Rope.

As I do not trade under 4 hours, and mainly Daily candles, it is something that I need to be aware of because of reversals, but rarely touches me.

But anyone who traded the 8 or 9 major currencies 24 hours ago, would have been aware that successive 30 min candles in many of them, were red/green alternatively for about 6 hours.

Now is that supply and demand ... or something else?

Is that the way people wish to trade?

A major element of luck is required to be able to call those kinds of moves consistently. But I have no doubt plenty will be putting their hands up to claim they profited well from these reversing 30-pip moves.

I was on the side - untradeable for me in my time frame.
I show the 30 min TF, though I don't trade it, of the USDJPY

 

[Neoripley]

... don't think the authorities will be pitching up at the server location in Germany with cables and a laptop - more like screwdrivers, toolboxes and a van.

 

[Martinghoul]

i believe "they got their faces ripped off" was one expert's analysis of CIT deal

Oh yeah, it was definitely one of those Tony Soprano deals. I especially loved the classy touches like penalties for prepayment (up to 850bps of notional) and for not fully drawing on the facility (100bps). Just in case the mkt miraculously recovers and CIT becomes the apple of everyone's eye, Bill Gross still gotta have his pound of flesh.

I absolutely love it. That's how the govt should be doing all this 'lender of last resort' biz...

 

[gooseman]

i don't disagree with that but the whole show was a shower of sh1t from the start. fly on the wall in the CIT/PIMCO meeting would be brilliant. "5 times loan collateral value-you gotta be sh1ttin me"

 

[Ingot54]

The seat of the problem ...

If you ever had any doubt that cowboys are running he USA ... and in particular, the money train, this is why!

The cowboys ride into town and notice that the local rubes are sweet and nice, peace-loving and non-combative.

Add non-confrontational to that list!

So the cowboys put the weights on the local sheriff, who happens to like his life, and his wife. He want s to continue to live in peace, so he allows the "rules" to be bent a little, just to keep the cowboys happy.

But the cowboys are never happy, and push ... and push ... until no one knows what they own, or run, or manipulate. They just keep smiling, and no one notices that they are getting wealthier and wealthier on the money of the locals, who also keep smiling and sayin' "G'day sir."

So one day it gets to a pint where it seems the cowboys have over-extended themselves a tad, and are in dire need of some liquidity, like some of the folding stuff. They walk into the bank, and just sign a small chit and walk out with the loot ... with a promise to repay, oc course.

Because the band of cowboys is so big now, no one wants to ask them "would you please write your debt in the book, and sign it, and make arrangements to repay asap." No - they just feel better when everyone smiles and is nice.

If you think this is a nice bed-time story, think again:

YouTube - Alan Grayson: Is Anyone Minding the Store at the Federal Reserve?

 

[N Rothschild]

the markets are ****ed, there like a brain dead person who hasnt had the life support switched off yet..

 

[montmorencyt2w]

If you ever had any doubt that cowboys are running he USA ... and in particular, the money train, this is why!

The cowboys ride into town and notice that the local rubes are sweet and nice, peace-loving and non-combative.

Add non-confrontational to that list!

So the cowboys put the weights on the local sheriff, who happens to like his life, and his wife. He want s to continue to live in peace, so he allows the "rules" to be bent a little, just to keep the cowboys happy.

But the cowboys are never happy, and push ... and push ... until no one knows what they own, or run, or manipulate. They just keep smiling, and no one notices that they are getting wealthier and wealthier on the money of the locals, who also keep smiling and sayin' "G'day sir."

So one day it gets to a pint where it seems the cowboys have over-extended themselves a tad, and are in dire need of some liquidity, like some of the folding stuff. They walk into the bank, and just sign a small chit and walk out with the loot ... with a promise to repay, oc course.

Because the band of cowboys is so big now, no one wants to ask them "would you please write your debt in the book, and sign it, and make arrangements to repay asap." No - they just feel better when everyone smiles and is nice.

If you think this is a nice bed-time story, think again:

YouTube - Alan Grayson: Is Anyone Minding the Store at the Federal Reserve?

That video really inspires confidence, doesn't it!

 

[Clive Joss]

What happens to emerging market funds NAV when these markets change overnight?
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