

Apple and the risks of trading 29,000 times per second - processing
http://tech.fortune.cnn.com/2012/03/24/apple-and-the-risks-of-trading-29000-times-per-second/

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jrabone
My fear as a pessimistic engineer is that unless there is more regulation of
HFT, sooner or later someone big (a bank, an exchange, a country) is going to
be financially wiped out by a HFT-gone-bad incident, and the resulting mess
will take years to unravel while everyone else (pension funds, private
investments, etc.) gets to suffer for the sins of their masters.

I propose an exponentially decaying tax on trades - the longer you hold a
purchase, the less you pay when you sell it. If you WANT to trade at sub-
microsecond levels, you can bloody well pay for the clean-up fund when your
system goes bad.

~~~
bo1024
> I propose an exponentially decaying tax on trades - the longer you hold a
> purchase, the less you pay when you sell it. If you WANT to trade at sub-
> microsecond levels, you can bloody well pay for the clean-up fund when your
> system goes bad.

It seems like any tax on trades at all (even a fixed tiny percentage per
trade) would go a long way toward reducing HFT.

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brisance
Marvin8 on that site had a great comment. Here it is:

What I'd like to know is what happens to customers who have resting orders
near those "fat-finger" trades. If a customer had a sell stop-loss at $583,
did he get stopped out of the market at that price or near $582? I'll bet he
did. If another customer had a buy order in at $583, did he get filled on the
way down? I'll bet he didn't. The broker wil ALWAYS come up with a bs excuse
as to why a customer got a bad fill and never gets a good one. It's the way
the industry works. That's why folks are complete suckers to get involved. The
industry makes BILLION$ screwing its customers.

~~~
tedunangst
The guy who sold at 582 had to sell to somebody, so the buyer at 583 got his
order too. That's why they're called _trades_. There's somebody on both sides.

~~~
brisance
That's the theory. In practice we know that's not necessarily true. e.g. stop-
loss order and the stock gaps down. Did the stop-loss order execute? No, it
may have executed as a market order.

And that's the point he was trying to make. He's saying that the broker can
create any suitable excuse to fit the situation.

With HFT it may not even be an excuse and could very well reflect the reality
of the situation i.e. the price has moved too quickly for the exchange to keep
up.

~~~
tedunangst
If the claim is that a sell at 582 executed and a buy at 583 did not execute,
I want to see evidence. I see variations on this claim with a frequency
approaching high, always by a random internet commenter "betting" on some
hypothetical.

 _the price has moved too quickly for the exchange to keep up._ What does that
even mean?

~~~
brisance
Edit: added link to show that orders don't necessarily get filled according to
time priority ("an order clearly arrived later than ours with the same limit
price, yet it was filled and we were not.")

It's only hypothetical until it happens to you.

Refer to the fleitz's comment about short squeeze. That's an example of orders
that don't get filled.

In theory the broker is supposed to borrow shares to allow the trader to sell
them short. What happens if the broker flouts securities law and does not
follow the rules?

[http://www.nytimes.com/2012/03/26/business/goldman-sachs-
den...](http://www.nytimes.com/2012/03/26/business/goldman-sachs-denies-
claims-it-led-to-copper-rivers-demise.html?_r=1&hpw=&pagewanted=all)

BTW, non-HFT'ers get consolidated market feeds which have higher latency than
raw feeds that HFT'ers use. That's what a major part of the HFT debate is
about.

[http://www.hftreview.com/pg/blog/mike/read/5317/hft-and-
late...](http://www.hftreview.com/pg/blog/mike/read/5317/hft-and-latency-
arbitrage)

<http://www.tradeworx.com/TWX-SEC-2010.pdf> [PDF] (refer to page 17, 18)

~~~
tedunangst
Thank you for the TWX pdf, but is now a good time to point out that the entire
paper was dedicated to proving that HFT is a good thing? Their solution to the
order priority is also removing artificial regulations, not adding more. I
feel like I should have been the one to post that link.

~~~
brisance
The paper presents the case that HFT as it is practiced _right now_ is bad due
to regulations.

But we do not know if tweaking the regulations is the "right" move. Could be a
case of "out of the frying pan and into the fire".

------
guelo
I've been trying to figure out how to keep my money as far away from Wall
Street goons as possible. The hit on Goldman Sachs' reputation from a couple
weeks ago is the latest signal that Wall Street's job is to steal customers'
money, stay away. The loss in confidence will eventually get them, though that
will probably just mean they get another bailout.

~~~
crististm
I just like how they invent lingo to cover up their screw-ups. False print?
Come on - Now if I want to describe the problem there is a name for it. And
they made sure to mention it three times + one in the photo so I will remember
it.

~~~
bloat
Right... because we don't have any jargon in the tech industry.

~~~
crististm
The jargon is for the insiders to speed up their communication.

Using the jargon with the outsiders is just short for BS.

------
tedunangst
"In 2011, BATS accounted for more than one in 10 U.S. stock trades, processing
an average of 29,000 trades per second. Against that kind of computer power,
retail investors don't stand a chance."

Correct me if I'm wrong, but isn't BATS an exchange? Why are retail investors
"competing" against the exchange? Is the solution some sort of paper and
pencil exchange? Or maybe we can go back to jumping up and down and flapping
our arms?

"Why, these investors ask, do false prints and fat finger trades always happen
on the downside"

Because anybody with money can take advantage of it. On the upside, only
people holding the stock can do so (unless you short the stock, but I've never
tried nano timeframe shorting.)

~~~
fleitz
Retail 'investors' shouldn't have any issue with BATS if anything BATS
provides liquidity, however retail 'traders' stand no chance because the
computer is far better at technical analysis and pattern matching than the
average trader. Retail traders never really stood a chance against
institutions because retail trades the market rather than creating it like
institutions do.

eg. A retailer can't execute a short squeeze but an institution can.

~~~
ahi
No one needs 29,000 trades a second liquidity. HFT serves no market making
function. It is a drag on market operations and confidence.

~~~
cube13
No trader is doing 29,000 trades a second.

BATS is an exchange like NASDAQ. They're facilitating and executing trades for
their clients. NASDAQ handled 70k per second in 2008, and could handle almost
4 times that load(<http://www.forbes.com/forbes/2009/0112/056.html>).

HFT has nothing to do with this.

------
pnathan
I'm sorry, but this reads like some sort of PR hit job vs. BATS.

~~~
ceejayoz
Given their self-inflicted disastrous launch, I don't think anyone needs to
pay for a PR hit job against them.

------
talmand
Tom Clancy predicted this kind of thing years ago. Although in his story the
catalyst was a foreign power messing with the system. Once things got rolling
the automated systems went with it to the point of the whole system crashing.
Clancy wrote it so that a retired money guy had to explain to the people in
charge what really happened because they were clueless on how the system
actually worked. The solution was to simply reset the clock back to what was
before the problems began and they pretended it never happened. Some of the
discussion on the economy and trading were really interesting in that book.

------
fletchowns
How is making 29,000 trades per second good for the market? It seems like
trading at that frequency should be illegal.

~~~
fleitz
Why should trading at that frequency be illegal?

What is the optimal amount of trades per second one should be making?

Once per second? Once per minute? Once per year?

Even if there were such a number how could any bureaucrat ever arrive at the
optimal frequency any particular market participant should be trading at?

~~~
Iv
Does the intrinsic value of a company change 29 000 times per second ? is this
signal or noise ?

Trading once per day and randomizing the order of trades would work nicely I
think. There was a recent very good example of this concerning Apple : When
Steve Jobs died, they kept the information secret and agreed with the stock
exchange to suspend trading for a day. The time for everyone to think about
what it meant for the company instead of hysterically following a random
trend. A big event, obviously changing the company's intrinsic value, was
interpreted with a daily period. Everything I read about high frequency
trading indicates that it is mainly noise.

I mean, stock exchanges close at night and during week ends. There are 48
hours without quotations. How does one concile that with nano-second trading.

~~~
tedunangst
If it's mainly noise, why do you care?

What I find most amazing is that the stock market is relatively small, yet
people have strong opinions about it while ignoring much larger markets.
There's some adage about how if you can't measure it, it doesn't exist or
something. If CNN doesn't run a ticker for some market, I guess it doesn't
matter.

~~~
prodigal_erik
I care if all my 401(k) alternatives are in markets being parasitized by HFTs
who have learned to exploit execution flaws and attack the confidentiality of
the order book. Less selfishly, I care if HFTs are diverting society's
resources away from the effective producers the market exists to support.

~~~
anonymoushn
_Less selfishly, I care if HFTs are diverting society's resources away from
the effective producers the market exists to support._

Unfortunately, there's gold in them there microseconds.

