4 ms·

Maybe computerized trading isn't the problem, but the solution?

12 points by cwan 17y ago

pavel_lishin 17y ago
The solution to what problem? Financial firms not making enough money during calamitous times?
quant18 17y ago
Well, "computerized trading" covers a lot of things. I suspect a big part of the problem last Thursday was caused by broker algos automatically routing client orders to alternative venues when the NYSE market data feed delay gets too high, without concern for liquidity or price at those venues. (So much for that alleged fiduciary duty to find the NBBO). Normally not too much of a problem --- except when the market-makers pull their quotes, the stat-arb guys stop arbitraging, and all the other kinds of buy side "computerized trading" guys get out of the market and run away scared ...
- yummyfajitas 17y ago
  (So much for that alleged fiduciary duty to find the NBBO). No such duty exists when latency > 1 sec (which it was on NYSE).
dablya 17y ago
Don't they claim the benefit of HFT is the liquidity it provides? Now it turns out they can pull that liquidity when it's needed the most?
- alttab 17y ago
  Imagine the counter-story: "High Frequency Trading companies made millions during stock market crash." They knew they would make a lot of money once the market rebounded - they always do. They make money when the price changes, not if it goes up or down. These firms were probably trying to prevent the PR storm that they caused it. Even though they could have possibly made it worse by pulling out, they would much rather that be the story and gain support than making a lot of money and being on the other side of a pitchfork mob. Side note: Either way this doesn't mean that they don't control the market with such high volumes. Getting rid of HFT would almost require waining their volume over time to help transition to a completely new liquidity system.
  - yummyfajitas 17y ago
    Since there are many HFT firms, no individual firm stands to gain by pulling out and avoiding a PR storm. This was risk management, pure and simple. The exchanges were likely to break orders (which they did) and broken orders hurt HFT.
andyjdavis 17y ago
Personally, as a programmer, I have concerns about hooking anything resembling an autonomous computer system up to anything important. The stock market, weapons systems or large industrial systems like oil refineries for example. Any time you take the humans out of the loop you're playing a dangerous game. All software has bugs. All software fails in weird unexpected ways at the worst possible time. When its software that has significant real world consequences like influencing the markets, firing weapons or operating equipment that could kill human plant operators and making decisions at speeds that make human intervention difficult or impossible you're asking for trouble.

12 points by cwan 17y ago

The solution to what problem? Financial firms not making enough money during calamitous times?

Well, "computerized trading" covers a lot of things. I suspect a big part of the problem last Thursday was caused by broker algos automatically routing client orders to alternative venues when the NYSE market data feed delay gets too high, without concern for liquidity or price at those venues. (So much for that alleged fiduciary duty to find the NBBO). Normally not too much of a problem --- except when the market-makers pull their quotes, the stat-arb guys stop arbitraging, and all the other kinds of buy side "computerized trading" guys get out of the market and run away scared ...

yummyfajitas 17y ago
(So much for that alleged fiduciary duty to find the NBBO). No such duty exists when latency > 1 sec (which it was on NYSE).

dablya 17y ago

Don't they claim the benefit of HFT is the liquidity it provides? Now it turns out they can pull that liquidity when it's needed the most?

alttab 17y ago
Imagine the counter-story: "High Frequency Trading companies made millions during stock market crash." They knew they would make a lot of money once the market rebounded - they always do. They make money when the price changes, not if it goes up or down. These firms were probably trying to prevent the PR storm that they caused it. Even though they could have possibly made it worse by pulling out, they would much rather that be the story and gain support than making a lot of money and being on the other side of a pitchfork mob. Side note: Either way this doesn't mean that they don't control the market with such high volumes. Getting rid of HFT would almost require waining their volume over time to help transition to a completely new liquidity system.
- yummyfajitas 17y ago
  Since there are many HFT firms, no individual firm stands to gain by pulling out and avoiding a PR storm. This was risk management, pure and simple. The exchanges were likely to break orders (which they did) and broken orders hurt HFT.

andyjdavis 17y ago

Personally, as a programmer, I have concerns about hooking anything resembling an autonomous computer system up to anything important. The stock market, weapons systems or large industrial systems like oil refineries for example. Any time you take the humans out of the loop you're playing a dangerous game. All software has bugs. All software fails in weird unexpected ways at the worst possible time. When its software that has significant real world consequences like influencing the markets, firing weapons or operating equipment that could kill human plant operators and making decisions at speeds that make human intervention difficult or impossible you're asking for trouble.