High Frequency Trading
Get flash to fully experience Pearltrees
By Ian Fraser, a financial journalist who blogs at his web site and at qfinance . His Twitter is @ian_fraser . What has become of our markets? Nanex, the market analysis firm, has animated a half second of trading activity in Johnson & Johnson stock. The animation is both intoxicating and mindblowing, not only because of the sheer quantity of trades, each of which is made by computer algorithms (i.e. without human intervention) in such a miniscule timespan, but also because of the tremendous scope that high-frequency trading creates for what Nanex calls “abusive behaviour” — including arbitrage and market manipulation — and systemic risk. The video illustrates an actual half second of trading in J&J stock from May 2nd, 2013, slowed down so it takes five minutes to watch.
Scott Patterson’s Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System is as insider view of the world of Algos, HFT, and software driven markets. Patterson does a great job of taking a dark, highly complex subject as the basis for a compelling, character driven narrative.
25 September 2011 Last updated at 19:22 ET By Richard Anderson Business reporter, BBC News
<img alt="Wall Street Algorithms Are in Control" src="/magazine/wp-content/images/19-01/ff_ai_flashtrading_f.jpg" title="Wall Street Algorithms Are in Control" width="660" height="405" /> Today Wall Street is ruled by thousands of little algorithms, and they've created a new market—volatile, unpredictable, and impossible for humans to comprehend. Photo: Mauricio Alejo
What goes on in stock markets appears quite different when viewed on different timescales.
It sounds like something out of The Matrix: a giant, world-spanning electronic network where high-powered machines, some of them using GPUs to gain a speed advantage, run secret, rapidly-evolving software algorithms that battle it out for profits in a high-stakes game of cat-and-mouse, attack-counterattack, that yields some $21 billion a year for the winners and can spell ruin for the losers. Except that it's not The Matrix —it's the stock and commodities markets, and the fact that these markets mainly consist now of computers trading against one another has been brought closer to the public's attention by last month's alleged theft of Goldman Sachs' proprietary trading code.
HFT - curators...
It’s frustrating to know that there’s a simple solution to a serious problem but no one seems willing to do the obvious.
Skynet begins to learn, at a geometric rate. It becomes self-aware at 2:14 a.m. eastern time, August 29.
The stock market’s fastest electronic firms boosted trading threefold during the rout that erased $2.2 trillion from U.S. equity values, stepping up strategies that profit from volatility, according to one of their biggest brokers.
Last night, on BBC Radio 3, I was featured reading an essay about high frequency trading .
Finally, a bit of evidence, rather than anecdote, about the costs of high-frequency trading. In a new study, Andrei Kirilenko , the chief economist at the U.S. Commodity Futures Trading Commission, along with researchers at Princeton University and the University of Washington , examined high-frequency trading in a futures contract called the e-mini S&P 500 , between August 2010 and August 2012. The study looked at only the expiring contracts (which trade electronically on the Chicago Mercantile Exchange) that are used to bet on the direction of the Standard & Poor’s 500 Index. The researchers also did something they’d never been able to do before: Use actual trading data from individual firms, though none were identified.
High-frequency traders have caused U.S. commodity futures prices to disconnect from market fundamentals of supply and demand since the 2008 financial crisis . An extensive and detailed analysis by the United Nations Conference on Trade and Development just confirms what we have shown again and again ( most recently here in Silver ) that HFT's impact on the world is not all unicorn-tears and liquidity-providing. Markets are more exposed to 'sudden and sharp' corrections , and as Reuters notes "The strategy of those involved in high-frequency trading tends to reinforce the correlation between equities and commodities ".
The crusade against High Frequency Trading which Zero Hedge started well over two years ago , is now coming to an end. Reuters reports that U.S. securities regulators have " taken the unprecedented step of asking high-frequency trading firms to hand over the details of their trading strategies, and in some cases, their secret computer codes. " As everyone knows, the only thing of value within the sub-penny scalping HFT universe are the odd nuances in computer code. Which is why its supreme and undisputed secrecy is sacrosanct.
Content farms depend heavily on search engines for traffic. Photograph by Marc Rimmer.