9 ms·

Too Dumb to Fail?

82 points by kenshi 16y ago

wheaties 16y ago
Wow, that's just idiocy. What do they think some HFT algo's do?
aneth 16y ago
The systems they manipulated were systems that were likewise designed to outwit dumb human and computer traders. I can see there is some distinction if you make trades purely for the purpose of invoking a reaction from other traders, but an intelligent AI system will discover this effect and do the same thing, albeit without any explicit human intention behind.
- borism 16y ago
  "intelligent AI systems" don't do HFT
andjones 16y ago
This reminds me of the scene in "The Social Network" where Mark Zuckerburg sits in front of the Harvard disciplinary board for hacking into house face books to harvest student images. The Zuckerburg in the movie thought that he deserved credit for pointing out security vulnerabilities in the Harvard network. I do not believe the actions of these traders (or Zuckerburg) were correct. That being said, I still think their actions have value. One way we learn is through our mistakes. There are many proprietary electronic trading platforms. Who checks them for bugs? Who checks them for accuracy or possible manipulation? I do not think these Norwegian programmers should be gaming a trading robot. At the same time, the SEC and other market regulators need to uphold their end of the bargain. If they would like to see a fair market, I think they should check trading robots for possible manipulation.
karzeem 16y ago
This reminds me a little of the kid who "hacked" into Sarah Palin's email by guessing her easily guessable security questions. One on hand, if someone is sufficiently careless or stupid, it's unfair to punish you for helping yourself to the fruits of their carelessness. But on the other hand, you have to respect people's desire not to be exploited. If you leave laptop in a park for 10 minutes, it's wrong for someone to hop on and use it, even if you should have known better than to leave it unattended. I have less sympathy for this exploited bot, though, since you go in knowing the stock market can be a ruthlessly zero-sum kind of place.
- pavel_lishin 16y ago
  I'd compare this to leaving your house's front door unlocked and open. You're an idiot, but if someone walks in and trashes the place, they still committed a crime. That's my brain talking, of course. My gut reaction is to say, "stupid is as stupid does", and blame the person who wrote a buggy piece of software.
  - tdoggette 16y ago
    If you can guess how a person will react to market fluctuations and make money off of it, is that a crime?
    - Daniel_Newby 16y ago
      It is if the counterparty bought themselves a government regulator.
    - gaius 16y ago
      Is it a crime to hustle at pool or poker?
    - yummyfajitas 16y ago
      If you cause the fluctuations, yes. It's called "market manipulation" and it has been illegal for a very long time.
  - tapp 16y ago
    > I'd compare this to leaving your house's front door unlocked and open. You're an idiot, but if someone walks in and trashes the place, they still committed a crime. I disagree. The classic, respectable "value investor" takes advantage of other speculators mistakes by finding stocks who's value is irrationally low or high and betting against them. What's the moral difference? If automated trading systems can't handle someone playing back at them without causing a "flash crash" then that's an argument against letting automated systems trade (at least under current regs) not an argument against the opponents who outsmarted one.
  - 16y ago
Dylanlacey 16y ago
Isn't the entire market about manipulating people's perceptions?
rbarooah 16y ago
This might turn out to be fairly straightforward if the 'discovery' of the flaw took place through industrial espionage or breach of contract.
- dagw 16y ago
  According to the court documents he noticed strange patterns in orders being placed on a stock he was trading and through careful observations of these patterns over several month in 2006 he managed to conclude that there was an algorithm at the other end and managed to reverse engineer how that algorithm worked. He apparently also documented his findings and conclusions on a trading forum so there might have been other people out there doing the same thing that haven't been caught.
Murkin 16y ago
The problem here is not the outwitting - but rather the manipulation: If I _know_ that a news item about a major law suite against a company will bring down it stock (predict behavior of others) - trading is valid. If I create a false news item in an attempt to bring down the stock - jail. They didn't analyze current affairs to guess how the trading algorithm will respond, rather they used it to manipulate the stock price.
known 16y ago
They tried http://en.wikipedia.org/wiki/Pump_and_dump http://en.wikipedia.org/wiki/Pump_and_dump which is illegal.
- dagw 16y ago
  This was not a pump and dump scheme. Pump and dump involves manipulating the price via spreading false information, which is not at all what they did. They manipulated the price by actually executing trades and predicting how (certain parts of) the market would react to those trades.
  - yummyfajitas 16y ago
    True, it's not pump&dump. It's "painting the tape". Still illegal. http://www.investopedia.com/terms/p/paintingthetape.asp http://www.investopedia.com/terms/p/paintingthetape.asp
obiterdictum 16y ago
"The two men worked out how the computerised system would react to certain trading patterns – allowing them to influence the price of low-volume stocks." The key phrase here is "influence the price". Taking the quote at face value, they deliberately tried to manipulate the market. Also, there seems to be a knee-jerk reaction to HFT in the comments to this story posted anywhere. If you just run an algo, it doesn't automatically mean you manipulate the market.
borism 16y ago
here're the court proceedings in norwegian: http://multimedia.dn.no/archive/00198/Dom_robotsaken_198967a.pdf http://multimedia.dn.no/archive/00198/Dom_robotsaken_198967a... description of what they did from another forum: - TMB is showing 5k bid @ 9.7 / 5k ask @ 10 - Norwegian viking takes out the ask - TMB increases the bid to 9.8 and the ask to 10.1 - Viking is a violent heathen so he continues to hit the ask, though with less size - Iterate this for a couple of steps - Suddenly the viking feels full and decides to drop his inventory at TMB's bid, and then he repeats the same procedure but by shorting in several steps instead Looks like incredibly dumb system to me. Albeit that was 2007 when the HFT arms race has just begun.
ramy_d 16y ago
i'm a little confused about how this trade stuff works. How are high speed trading systems not manipulating the market by making faster than human trades/micro-transactions? how is it market manipulation if someone automates a patterned behaviour of trading and someone else exploits that behaviour to their advantage at the expense of 1 and only 1 party, the one overseeing the automated transactions. if only the one HFT machine is affected, or exploited, how is it that exploiting a patterned behaviour isn't considered to be a mistake, or a bad decision, on the part of the HFT algorithm but instead considered a manipulation of stock? if the exploit was subtle enough that no human trader could distinguish it happening, or if a human trader would never fall for the exploit (as a matter of common sense)then could the exploit be attributed to a bad algorithm and by extension a mistake by the trader who owns the HFT machine?

82 points by kenshi 16y ago

Wow, that's just idiocy. What do they think some HFT algo's do?

aneth 16y ago

The systems they manipulated were systems that were likewise designed to outwit dumb human and computer traders. I can see there is some distinction if you make trades purely for the purpose of invoking a reaction from other traders, but an intelligent AI system will discover this effect and do the same thing, albeit without any explicit human intention behind.

borism 16y ago
"intelligent AI systems" don't do HFT

andjones 16y ago

This reminds me of the scene in "The Social Network" where Mark Zuckerburg sits in front of the Harvard disciplinary board for hacking into house face books to harvest student images. The Zuckerburg in the movie thought that he deserved credit for pointing out security vulnerabilities in the Harvard network. I do not believe the actions of these traders (or Zuckerburg) were correct. That being said, I still think their actions have value. One way we learn is through our mistakes. There are many proprietary electronic trading platforms. Who checks them for bugs? Who checks them for accuracy or possible manipulation? I do not think these Norwegian programmers should be gaming a trading robot. At the same time, the SEC and other market regulators need to uphold their end of the bargain. If they would like to see a fair market, I think they should check trading robots for possible manipulation.

karzeem 16y ago

This reminds me a little of the kid who "hacked" into Sarah Palin's email by guessing her easily guessable security questions. One on hand, if someone is sufficiently careless or stupid, it's unfair to punish you for helping yourself to the fruits of their carelessness. But on the other hand, you have to respect people's desire not to be exploited. If you leave laptop in a park for 10 minutes, it's wrong for someone to hop on and use it, even if you should have known better than to leave it unattended. I have less sympathy for this exploited bot, though, since you go in knowing the stock market can be a ruthlessly zero-sum kind of place.

pavel_lishin 16y ago
I'd compare this to leaving your house's front door unlocked and open. You're an idiot, but if someone walks in and trashes the place, they still committed a crime. That's my brain talking, of course. My gut reaction is to say, "stupid is as stupid does", and blame the person who wrote a buggy piece of software.
- tdoggette 16y ago
  If you can guess how a person will react to market fluctuations and make money off of it, is that a crime?
  - Daniel_Newby 16y ago
    It is if the counterparty bought themselves a government regulator.
  - gaius 16y ago
    Is it a crime to hustle at pool or poker?
  - yummyfajitas 16y ago
    If you cause the fluctuations, yes. It's called "market manipulation" and it has been illegal for a very long time.
- tapp 16y ago
  > I'd compare this to leaving your house's front door unlocked and open. You're an idiot, but if someone walks in and trashes the place, they still committed a crime. I disagree. The classic, respectable "value investor" takes advantage of other speculators mistakes by finding stocks who's value is irrationally low or high and betting against them. What's the moral difference? If automated trading systems can't handle someone playing back at them without causing a "flash crash" then that's an argument against letting automated systems trade (at least under current regs) not an argument against the opponents who outsmarted one.
- 16y ago

Dylanlacey 16y ago

Isn't the entire market about manipulating people's perceptions?

rbarooah 16y ago

This might turn out to be fairly straightforward if the 'discovery' of the flaw took place through industrial espionage or breach of contract.

dagw 16y ago
According to the court documents he noticed strange patterns in orders being placed on a stock he was trading and through careful observations of these patterns over several month in 2006 he managed to conclude that there was an algorithm at the other end and managed to reverse engineer how that algorithm worked. He apparently also documented his findings and conclusions on a trading forum so there might have been other people out there doing the same thing that haven't been caught.

Murkin 16y ago

The problem here is not the outwitting - but rather the manipulation: If I _know_ that a news item about a major law suite against a company will bring down it stock (predict behavior of others) - trading is valid. If I create a false news item in an attempt to bring down the stock - jail. They didn't analyze current affairs to guess how the trading algorithm will respond, rather they used it to manipulate the stock price.

known 16y ago

They tried http://en.wikipedia.org/wiki/Pump_and_dump http://en.wikipedia.org/wiki/Pump_and_dump which is illegal.

dagw 16y ago
This was not a pump and dump scheme. Pump and dump involves manipulating the price via spreading false information, which is not at all what they did. They manipulated the price by actually executing trades and predicting how (certain parts of) the market would react to those trades.
- yummyfajitas 16y ago
  True, it's not pump&dump. It's "painting the tape". Still illegal. http://www.investopedia.com/terms/p/paintingthetape.asp http://www.investopedia.com/terms/p/paintingthetape.asp

obiterdictum 16y ago

"The two men worked out how the computerised system would react to certain trading patterns – allowing them to influence the price of low-volume stocks." The key phrase here is "influence the price". Taking the quote at face value, they deliberately tried to manipulate the market. Also, there seems to be a knee-jerk reaction to HFT in the comments to this story posted anywhere. If you just run an algo, it doesn't automatically mean you manipulate the market.

borism 16y ago

here're the court proceedings in norwegian: http://multimedia.dn.no/archive/00198/Dom_robotsaken_198967a.pdf http://multimedia.dn.no/archive/00198/Dom_robotsaken_198967a... description of what they did from another forum: - TMB is showing 5k bid @ 9.7 / 5k ask @ 10 - Norwegian viking takes out the ask - TMB increases the bid to 9.8 and the ask to 10.1 - Viking is a violent heathen so he continues to hit the ask, though with less size - Iterate this for a couple of steps - Suddenly the viking feels full and decides to drop his inventory at TMB's bid, and then he repeats the same procedure but by shorting in several steps instead Looks like incredibly dumb system to me. Albeit that was 2007 when the HFT arms race has just begun.

ramy_d 16y ago

i'm a little confused about how this trade stuff works. How are high speed trading systems not manipulating the market by making faster than human trades/micro-transactions? how is it market manipulation if someone automates a patterned behaviour of trading and someone else exploits that behaviour to their advantage at the expense of 1 and only 1 party, the one overseeing the automated transactions. if only the one HFT machine is affected, or exploited, how is it that exploiting a patterned behaviour isn't considered to be a mistake, or a bad decision, on the part of the HFT algorithm but instead considered a manipulation of stock? if the exploit was subtle enough that no human trader could distinguish it happening, or if a human trader would never fall for the exploit (as a matter of common sense)then could the exploit be attributed to a bad algorithm and by extension a mistake by the trader who owns the HFT machine?