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I am very unfamiliar with how the financial market works, maybe someone here on HN can answer this question: How can a single person with an internet connectio

by LeonM 7y ago

I am very unfamiliar with how the financial market works, maybe someone here on HN can answer this question: How can a single person with an internet connection (that's my understanding of the 'from his parents home' part) trigger an event that causes US markets to crash and wipe (albeit temporarily) billions of dollars? I mean, this guy was 'only' in it for the money. Could someone with much worse motives just trigger a crash like this on demand?

RobRivera 7y ago
In trading there is a queue for buys and sells, marked at quantity and price. This describes an attribute for that market called liquidity. I have, at a given timestamp, a queue of orders that must be fulfilled in accordance with a strict set of rules. By playing the rules and advertising bids with a lowlatency connection fast enough to impact the bid price, whilst canceling and not fulfilling that order, say 250us later. You can make a position to take advantage of that artificial price move that you caused. This is called spoofing.
- LeonM 7y ago
  Thanks for the explanation! But the article says that Sarao did this from his parent's house. Would a residential internet connection be sufficient to perform such spoofing? The way you describe it, spoofing sounds like an easy way to make money, as long as you have enough capital and a fast internet connection, like with arbitrage. But there must be some limitation to this, right? Could anyone (like me) do spoofing and cause a flash crash?
  - RobRivera 7y ago
    It's possible to buy a colo at an exchange for $$$ and push to prod from the house. Algorithmic trading is...algorithmic. trade decisions are encoded into the algorithm, decisions based on market feed info such as last executed orders, volume, etc. The idea is you take a previous trading intraday execution data set, profile out volume per second, execution prices, etc. Then encode a proprietary datascience backed decision tree for dispatching buy sell messages. No human in theol loop.
  - _underfl0w_ 7y ago
    In this case "from his parents' house" could mean that's where _he_ was acting from. The code in question could have been executed on an AWS instance or some other cloud hosting provider with insane connection speeds and computing resources (just speculation).
- BoiledCabbage 7y ago
  Why not put in a rule that every bid must stay in effect for 5 seconds? What's the market benefit to allowing a bid to be cancelled 250us later? Seems like only really useful for manipulation.

by LeonM 7y ago

RobRivera 7y ago

In trading there is a queue for buys and sells, marked at quantity and price. This describes an attribute for that market called liquidity. I have, at a given timestamp, a queue of orders that must be fulfilled in accordance with a strict set of rules. By playing the rules and advertising bids with a lowlatency connection fast enough to impact the bid price, whilst canceling and not fulfilling that order, say 250us later. You can make a position to take advantage of that artificial price move that you caused. This is called spoofing.

LeonM 7y ago
Thanks for the explanation! But the article says that Sarao did this from his parent's house. Would a residential internet connection be sufficient to perform such spoofing? The way you describe it, spoofing sounds like an easy way to make money, as long as you have enough capital and a fast internet connection, like with arbitrage. But there must be some limitation to this, right? Could anyone (like me) do spoofing and cause a flash crash?
- RobRivera 7y ago
  It's possible to buy a colo at an exchange for $$$ and push to prod from the house. Algorithmic trading is...algorithmic. trade decisions are encoded into the algorithm, decisions based on market feed info such as last executed orders, volume, etc. The idea is you take a previous trading intraday execution data set, profile out volume per second, execution prices, etc. Then encode a proprietary datascience backed decision tree for dispatching buy sell messages. No human in theol loop.
- _underfl0w_ 7y ago
  In this case "from his parents' house" could mean that's where _he_ was acting from. The code in question could have been executed on an AWS instance or some other cloud hosting provider with insane connection speeds and computing resources (just speculation).
BoiledCabbage 7y ago
Why not put in a rule that every bid must stay in effect for 5 seconds? What's the market benefit to allowing a bid to be cancelled 250us later? Seems like only really useful for manipulation.