3 ms·

I'm dubious on this matter. While, yes, high frequency traders are (in some ways) making the market more efficient, it is still extremely difficult to think tha

by bryanh 16y ago

I'm dubious on this matter. While, yes, high frequency traders are (in some ways) making the market more efficient, it is still extremely difficult to think that a hyper-efficient but potentially unstable market is preferable to a moderately-efficient but much more robust market. I mean, a bug in my coding means someone potentially doesn't get an email with a download link. A bug in theirs potentially means millions of shares are tossed around, possibly even confusing other "well-coded" terminals to trigger a feedback loop. I am interested to know if the stop command was a "save your own skin" move or a "save the market" safeguard.

_delirium 16y ago
It seems like they're most likely to perform a positive service if they're a minority of trades, also. Pretty much any kind of market starts going wonky when the people using the market for its official purpose (buying/selling the underlying entity due to real demand for it) aren't a comfortable majority of total transactions. You end up with weird feedback effects where the market looks more like a dynamical system responding to its internal patterns, rather than a clearing-house for settling external supply/demand.
losvedir 16y ago
>I am interested to know if the stop command was a "save your own skin" move or a "save the market" safeguard. Definitely "save your own skin." The consequences can be dire when trades are "busted" (as many were). Consider this hypothetical situation: Shares of a stock are trading at $50. After that plunge on Thursday, it's trading at $18, and an algorithm jumps in. The shares rally and at $22, the algorithm sells the shares for a quick profit, and calls it a day. The shares go back to $45 by the end of the day. (This is basically what happened). The next day, NASDAQ rules that all trades at a price below 40% of the price before the plunge [are invalid](http://www.streetinsider.com/Insiders+Blog/NASDAQ+Busts+A+Number+of+Trades,+But+Says+Its+System+Ran+Problem-Free+During+the+Crash/5607699.html http://www.streetinsider.com/Insiders+Blog/NASDAQ+Busts+A+Nu...). Now that purchase at $18 didn't happen, but the sale at $22 did, and the high frequency trader is short the stock at $22, with the current price $45. That's why lots of high frequency trading shops shut down when trades are in danger of being busted. Note: I don't do high frequency trading, this was just from interested reading after that plunge happened last Thursday. It seems bizarre to me that they can rule a purchase invalid but keep the sale, but I believe that's what happens.
- djb_hackernews 16y ago
  Can I get a link to that? Not doubting you, but I am very skeptical. That seems like a nightmare for whoever has to find those shares to fill the short order.
  - losvedir 16y ago
    I wish I could find a good source. Basically I heard it from people like these (http://www.elitetrader.com/vb/showthread.php?threadid=198241 http://www.elitetrader.com/vb/showthread.php?threadid=198241), but I don't know for sure they're not just echoing what they heard (like I just did). There was one guy I remember reading, who seemed pretty authoritative, who echoed it, but I can't find a link to him.
- bryanh 16y ago
  That explains it very well. I wasn't entirely sure if the stop command came from fear of retribution as the house came tumbling down or not. It was pretty apparent it was a self-made decision.

by bryanh 16y ago

_delirium 16y ago

It seems like they're most likely to perform a positive service if they're a minority of trades, also. Pretty much any kind of market starts going wonky when the people using the market for its official purpose (buying/selling the underlying entity due to real demand for it) aren't a comfortable majority of total transactions. You end up with weird feedback effects where the market looks more like a dynamical system responding to its internal patterns, rather than a clearing-house for settling external supply/demand.

losvedir 16y ago

>I am interested to know if the stop command was a "save your own skin" move or a "save the market" safeguard. Definitely "save your own skin." The consequences can be dire when trades are "busted" (as many were). Consider this hypothetical situation: Shares of a stock are trading at $50. After that plunge on Thursday, it's trading at $18, and an algorithm jumps in. The shares rally and at $22, the algorithm sells the shares for a quick profit, and calls it a day. The shares go back to $45 by the end of the day. (This is basically what happened). The next day, NASDAQ rules that all trades at a price below 40% of the price before the plunge [are invalid](http://www.streetinsider.com/Insiders+Blog/NASDAQ+Busts+A+Number+of+Trades,+But+Says+Its+System+Ran+Problem-Free+During+the+Crash/5607699.html http://www.streetinsider.com/Insiders+Blog/NASDAQ+Busts+A+Nu...). Now that purchase at $18 didn't happen, but the sale at $22 did, and the high frequency trader is short the stock at $22, with the current price $45. That's why lots of high frequency trading shops shut down when trades are in danger of being busted. Note: I don't do high frequency trading, this was just from interested reading after that plunge happened last Thursday. It seems bizarre to me that they can rule a purchase invalid but keep the sale, but I believe that's what happens.

djb_hackernews 16y ago
Can I get a link to that? Not doubting you, but I am very skeptical. That seems like a nightmare for whoever has to find those shares to fill the short order.
- losvedir 16y ago
  I wish I could find a good source. Basically I heard it from people like these (http://www.elitetrader.com/vb/showthread.php?threadid=198241 http://www.elitetrader.com/vb/showthread.php?threadid=198241), but I don't know for sure they're not just echoing what they heard (like I just did). There was one guy I remember reading, who seemed pretty authoritative, who echoed it, but I can't find a link to him.
bryanh 16y ago
That explains it very well. I wasn't entirely sure if the stop command came from fear of retribution as the house came tumbling down or not. It was pretty apparent it was a self-made decision.