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It is really too bad folks keep pushing technical trading platforms to the public. The promise of quick money to be made in a sea of billions of dollars might s

It is really too bad folks keep pushing technical trading platforms to the public. The promise of quick money to be made in a sea of billions of dollars might seem innocuous, but it's (a) bad for the market and (b) bad for society. It's bad for the market because collectively, the buying and selling of shares based on anything other than company fundamentals (earnings, cash flow, projected growth, etc) distorts the price of the company. Unfortunately, because of our hunger to make money fast, there are too many of us (including large hedge-funds) playing this game, and the effects on price movement are very real. And when prices no longer reflect the company fundamentals, all sorts of bad things happen: Management is pressured to take extraordinary actions just to mitigate the market situation (stock splits/reverse-splits, stock buy-backs, accounting tricks, etc), employees freak out and quit, long-term investors get nervous, potentially fruitful M&As fail to happen, etc. (The argument that technical/high-frequency trading improves the liquidity of the market is the biggest bullshit, cop-out answer ever: The only people that benefit from this type of instant liquidity are short-term, short-sighted traders ... such as the very people who advocate this type of trading, and not long-term investors!). As for the societal cost, technical trading educates and perpetuates the myth that the stock market is a big gambling house, and not a means to become an owner of a company. To paraphrase Warren Buffett, every time you think about buying stock you should think of it the same way as if you were buying a mom-and-pop shop, like a pizza place. Is the price you're paying roughly equivalent to - or better than - how much you'd expect to make by pocketing the profits of the shop over the lifetime of the business? I hate to leave completely negative feedback, so at least I'll give that this tool looks spiffy. UPDATE: It seems like I'm getting a lot of responses from traders here. Already answered some, can't answer them all. Please sleep over these comments and think about what you could be doing with your time. Life's short.

smoorman1024 14y ago
What about statistical arbitrage?
bensw 14y ago
The liquidity argument is not a "cop-out." Due to algotrading, spreads have been tightened and cost of entry/exit have been lowered. While there are some problems with algorithmic trading, the alternative (going back to the specialist model) is downright insane. If you think algotraders are "ruining" the market and society, then, the specialists and traders were actively scamming everyone. I'm glad that you have at least done a little bit of research, unlike the majority of articles that came out after Knightmare, but algorithmic trading is a net positive for both the market and society.
- arturadib 14y ago
  Who gives a rats ass about shaving off spread points? Only "traders" - not long-term investors. Also, I have done more than "a bit of research" on the topic (I'm ashamed I was once so innocent as to make money with stat arbitrage, now I know better). > but algorithmic trading is a net positive for both the market and society Oh yeah? How exactly?
  - bensw 14y ago
    Not sure how citing that spreads have been tightened since the advent of algotrading is "prejudice" or "opinon."
bensw 14y ago
There are many forms of algorithmic trading--some harmful (including playing games with the order book, canceling orders, etc). The types that this site seem to assist with are not those types.
cynicalkane 14y ago
Liquidity is the reason you can click a button on E-Trade and get your trades almost instantly, for between zero and a few more pennies than what traders would pay, plus a $9.99 commission. This was absolutely not the case before computer trading and electronic markets. The "good old days" of human traders where when you'd pay fifty bucks plus one percent to a broker who would almost certainly front-run your trades, and the best spreads were at least 1/8. Nowdays the worst that could happen is an HFT might, perfectly legally, place an order a split second faster and extract fractions of a penny as they narrow the spread for everyone. Please forgive me if I don't consider this a disaster for investors, hedgers, mutual funds, and other consumers of markets that they can quickly execute orders close to the market price.
- arturadib 14y ago
  > Liquidity is the reason you can click a button on E-Trade and get your trades almost instantly I personally don't care that my trade happens in a second or a minute because I'm a long-term investor - someone who wants to become a company owner, as I explained above, and not yet another hacker who couldn't care less about the long-term health of the company I'm buying. My point is that if folks care about liquidity on the order of seconds/sub-seconds, they are themselves falling into the short-term trading BS (and consequently continuously distorting company prices). Please stop perpetuating this insanity. Here's a timely article by Mark Cuban fresh out of the oven to help clarify my point: http://blogmaverick.com/2012/09/21/what-business-is-wall-street-in-3/ http://blogmaverick.com/2012/09/21/what-business-is-wall-str...
  - cynicalkane 14y ago
    Look, I'm talking about $50 and 1/8 spreads in 70s and 80s dollars. A low income investor from that time period might only have 3 or 4 digits to sock away in the market per year, Wall Street taking a huge bite every time. Then there are index funds and ETFs which need to get their costs as low as possible to benefit lay investors. If you think big commissions and spreads are inconsequential, you are factually incorrect. If you think trading doesn't narrow spreads or lower costs, you are also incorrect. Finally, if you think trading qua trading distorts prices, there's almost no data that supports this and huge bodies of economic literature to the contrary. This isn't a matter of opinion.
_lakai_ 14y ago
It's interesting that you would quote Warren Buffett who is only one of the largest derivative traders on the PLANET.
Permit 14y ago
>Management is pressured to take extraordinary actions just to mitigate the market situation (stock splits/reverse-splits, stock buy-backs, accounting tricks, etc), employees freak out and quit, long-term investors get nervous, potentially fruitful M&As fail to happen, etc. Oh please, if anything accounting tricks are more likely to be prevalent in a fundamentally traded market. When your company is traded solely upon earnings, you don't think you'd have more motivation to toy with those earnings numbers? >As for the societal cost, technical trading educates and perpetuates the myth that the stock market is a big gambling house, and not a means to become an owner of a company. To paraphrase Warren Buffett, every time you think about buying stock you should think of it the same way as if you were buying a mom-and-pop shop, like a pizza place. Is the price you're paying roughly equivalent to - or better than - how much you'd expect to make by pocketing the profits of the shop over the lifetime of the business? What is this? Some kind of argument from the moral high ground? The people who treat the stock market as a gambling opportunity will quickly be liquidated, and I can't imagine why one should feel sorry for them.
beagle3 14y ago
> It is really too bad folks keep pushing technical trading platforms to the public. The promise of quick money to be made in a sea of billions of dollars might seem innocuous, but it's (a) bad for the market and (b) bad for society. Whoa. Get off the high horse. I don't disagree with you, but the problem is not with "the folks who keep pushing stuff to the public". It's no different than a lottery, a casino, or selling cigarettes -- or for that matter, sugared drinks or unhealthy french fries. Many activities are self-harming and potentially society harming. Usually, as a "free" society, we find the self harm acceptable, and the society harm acceptable to a point (based on magnitude of effect to entire society), mostly because experimentation IS required. I read your post as equivalent to "I hope people who make and sell cigarettes would stop, because it's not good for anyone other than themselves". Which I agree with, but it's a useless rant. The only way to fight this is regulatory. However, thanks to regulatory capture, a significant revision will happen, if at all, only after the next huge crisis.
prsutherland 14y ago
Pushing technical trading platforms to the public? I don't follow how there is an overgeneralized public here, or how they are pushing something. They are releasing a tool to those who want to use it. What companies like this do makes the RESEARCH for quant trading available to those who otherwise wouldn't have access. The organizations and people with the means to buy or build their own tools to do this were already doing it. Whether or not they are doing something that benefits the greater good is neither here nor there. Saying those tools shouldn't be available to the general public is analogous to the old gun ownership argument. If guns are outlawed, only the outlaws will have guns. If only a limited few have the means to do quant research, it puts those who don't have access to those tools at a dangerous disadvantage. Yes, there are risks to any sort of paradigm shift, but limiting the accessibility will hurt those who don't have access. If you (being someone who doesn't have the means) are unable to adapt to the changes, then you perish.
kevinpet 14y ago
I doubt you or I are actually qualified to comment on whether the net externalities of HFT are positive or negative. You are incorrect that there are no positive externalities. You might not care about your trades happening quickly, but that liquidity is what allows them to execute at a good price and also a part of what makes indexing possible. I totally agree on the wisdom of unsophisticated investors who think they can back test some "strategy" based on trends and support levels and so on and then actually go and make money. It's unlikely to work, they probably have no understanding of what their actual risks are (I'm talking probabilities, not just value at risk at any given time), and they are losing money on trading fees unless they can actually point to some competitive advantage they have over other traders.
fawce 14y ago
I agree with a lot of what you say, but I think it is important to point out that algorithms can invest too. They don't only trade. Anytime you use software to buy or sell securities, people assume it is technical trading, or worse, high-frequency trading. The truth is there aren't enough people working on making algorithms that invest rather than trade, because the ROI for trading is more apparent. I work at Quantopian, and our goal is to make it possible for more people to explore algorithmic investing. I agree the social utility of from increasing liquidity from current levels is at best diminishing returns, but algorithms could bring the same drop in costs and increase in quality for money management that it brought to trading. That's a benefit to individuals, pension funds, charitable endowments, and anyone else that has to save and plan for the future. Financial professions couldn't have a worse rap these days, much of it deserved, but there are real social problems that require financial solutions. People need to save for retirement, plan for the kids' college tuition, and take on mortgages. I think it is really good for society to have smart people work on investment management. Especially if they are automating, collaborating, and discussing their work openly - the opposite of today's Wall Street. I like that QuantBlock did something original, and I love that they are striving for really broad access. We think the key to advancing algorithmic investment is to create more access so smart hackers can tinker with investment strategies. Those folks should be able to explore and test ideas/algos without spending a few years building a backtester, or a few years' of salary on data. That's why our backtester is free to use at quantopian.com, and why the source code will be released at PyData NYC (http://blog.quantopian.com/pydatanyc-here-we-come/ http://blog.quantopian.com/pydatanyc-here-we-come/). I wrote more about where we want Quantopian to go, and where I think finance needs to go on our blog: http://blog.quantopian.com/quantopian-manifesto/ http://blog.quantopian.com/quantopian-manifesto/

smoorman1024 14y ago

What about statistical arbitrage?

bensw 14y ago

The liquidity argument is not a "cop-out." Due to algotrading, spreads have been tightened and cost of entry/exit have been lowered. While there are some problems with algorithmic trading, the alternative (going back to the specialist model) is downright insane. If you think algotraders are "ruining" the market and society, then, the specialists and traders were actively scamming everyone. I'm glad that you have at least done a little bit of research, unlike the majority of articles that came out after Knightmare, but algorithmic trading is a net positive for both the market and society.

arturadib 14y ago
Who gives a rats ass about shaving off spread points? Only "traders" - not long-term investors. Also, I have done more than "a bit of research" on the topic (I'm ashamed I was once so innocent as to make money with stat arbitrage, now I know better). > but algorithmic trading is a net positive for both the market and society Oh yeah? How exactly?
- bensw 14y ago
  Not sure how citing that spreads have been tightened since the advent of algotrading is "prejudice" or "opinon."

bensw 14y ago

There are many forms of algorithmic trading--some harmful (including playing games with the order book, canceling orders, etc). The types that this site seem to assist with are not those types.

cynicalkane 14y ago

Liquidity is the reason you can click a button on E-Trade and get your trades almost instantly, for between zero and a few more pennies than what traders would pay, plus a $9.99 commission. This was absolutely not the case before computer trading and electronic markets. The "good old days" of human traders where when you'd pay fifty bucks plus one percent to a broker who would almost certainly front-run your trades, and the best spreads were at least 1/8. Nowdays the worst that could happen is an HFT might, perfectly legally, place an order a split second faster and extract fractions of a penny as they narrow the spread for everyone. Please forgive me if I don't consider this a disaster for investors, hedgers, mutual funds, and other consumers of markets that they can quickly execute orders close to the market price.

arturadib 14y ago
> Liquidity is the reason you can click a button on E-Trade and get your trades almost instantly I personally don't care that my trade happens in a second or a minute because I'm a long-term investor - someone who wants to become a company owner, as I explained above, and not yet another hacker who couldn't care less about the long-term health of the company I'm buying. My point is that if folks care about liquidity on the order of seconds/sub-seconds, they are themselves falling into the short-term trading BS (and consequently continuously distorting company prices). Please stop perpetuating this insanity. Here's a timely article by Mark Cuban fresh out of the oven to help clarify my point: http://blogmaverick.com/2012/09/21/what-business-is-wall-street-in-3/ http://blogmaverick.com/2012/09/21/what-business-is-wall-str...
- cynicalkane 14y ago
  Look, I'm talking about $50 and 1/8 spreads in 70s and 80s dollars. A low income investor from that time period might only have 3 or 4 digits to sock away in the market per year, Wall Street taking a huge bite every time. Then there are index funds and ETFs which need to get their costs as low as possible to benefit lay investors. If you think big commissions and spreads are inconsequential, you are factually incorrect. If you think trading doesn't narrow spreads or lower costs, you are also incorrect. Finally, if you think trading qua trading distorts prices, there's almost no data that supports this and huge bodies of economic literature to the contrary. This isn't a matter of opinion.

_lakai_ 14y ago

It's interesting that you would quote Warren Buffett who is only one of the largest derivative traders on the PLANET.

Permit 14y ago

>Management is pressured to take extraordinary actions just to mitigate the market situation (stock splits/reverse-splits, stock buy-backs, accounting tricks, etc), employees freak out and quit, long-term investors get nervous, potentially fruitful M&As fail to happen, etc. Oh please, if anything accounting tricks are more likely to be prevalent in a fundamentally traded market. When your company is traded solely upon earnings, you don't think you'd have more motivation to toy with those earnings numbers? >As for the societal cost, technical trading educates and perpetuates the myth that the stock market is a big gambling house, and not a means to become an owner of a company. To paraphrase Warren Buffett, every time you think about buying stock you should think of it the same way as if you were buying a mom-and-pop shop, like a pizza place. Is the price you're paying roughly equivalent to - or better than - how much you'd expect to make by pocketing the profits of the shop over the lifetime of the business? What is this? Some kind of argument from the moral high ground? The people who treat the stock market as a gambling opportunity will quickly be liquidated, and I can't imagine why one should feel sorry for them.

beagle3 14y ago

> It is really too bad folks keep pushing technical trading platforms to the public. The promise of quick money to be made in a sea of billions of dollars might seem innocuous, but it's (a) bad for the market and (b) bad for society. Whoa. Get off the high horse. I don't disagree with you, but the problem is not with "the folks who keep pushing stuff to the public". It's no different than a lottery, a casino, or selling cigarettes -- or for that matter, sugared drinks or unhealthy french fries. Many activities are self-harming and potentially society harming. Usually, as a "free" society, we find the self harm acceptable, and the society harm acceptable to a point (based on magnitude of effect to entire society), mostly because experimentation IS required. I read your post as equivalent to "I hope people who make and sell cigarettes would stop, because it's not good for anyone other than themselves". Which I agree with, but it's a useless rant. The only way to fight this is regulatory. However, thanks to regulatory capture, a significant revision will happen, if at all, only after the next huge crisis.

prsutherland 14y ago

Pushing technical trading platforms to the public? I don't follow how there is an overgeneralized public here, or how they are pushing something. They are releasing a tool to those who want to use it. What companies like this do makes the RESEARCH for quant trading available to those who otherwise wouldn't have access. The organizations and people with the means to buy or build their own tools to do this were already doing it. Whether or not they are doing something that benefits the greater good is neither here nor there. Saying those tools shouldn't be available to the general public is analogous to the old gun ownership argument. If guns are outlawed, only the outlaws will have guns. If only a limited few have the means to do quant research, it puts those who don't have access to those tools at a dangerous disadvantage. Yes, there are risks to any sort of paradigm shift, but limiting the accessibility will hurt those who don't have access. If you (being someone who doesn't have the means) are unable to adapt to the changes, then you perish.

kevinpet 14y ago

I doubt you or I are actually qualified to comment on whether the net externalities of HFT are positive or negative. You are incorrect that there are no positive externalities. You might not care about your trades happening quickly, but that liquidity is what allows them to execute at a good price and also a part of what makes indexing possible. I totally agree on the wisdom of unsophisticated investors who think they can back test some "strategy" based on trends and support levels and so on and then actually go and make money. It's unlikely to work, they probably have no understanding of what their actual risks are (I'm talking probabilities, not just value at risk at any given time), and they are losing money on trading fees unless they can actually point to some competitive advantage they have over other traders.

fawce 14y ago

I agree with a lot of what you say, but I think it is important to point out that algorithms can invest too. They don't only trade. Anytime you use software to buy or sell securities, people assume it is technical trading, or worse, high-frequency trading. The truth is there aren't enough people working on making algorithms that invest rather than trade, because the ROI for trading is more apparent. I work at Quantopian, and our goal is to make it possible for more people to explore algorithmic investing. I agree the social utility of from increasing liquidity from current levels is at best diminishing returns, but algorithms could bring the same drop in costs and increase in quality for money management that it brought to trading. That's a benefit to individuals, pension funds, charitable endowments, and anyone else that has to save and plan for the future. Financial professions couldn't have a worse rap these days, much of it deserved, but there are real social problems that require financial solutions. People need to save for retirement, plan for the kids' college tuition, and take on mortgages. I think it is really good for society to have smart people work on investment management. Especially if they are automating, collaborating, and discussing their work openly - the opposite of today's Wall Street. I like that QuantBlock did something original, and I love that they are striving for really broad access. We think the key to advancing algorithmic investment is to create more access so smart hackers can tinker with investment strategies. Those folks should be able to explore and test ideas/algos without spending a few years building a backtester, or a few years' of salary on data. That's why our backtester is free to use at quantopian.com, and why the source code will be released at PyData NYC (http://blog.quantopian.com/pydatanyc-here-we-come/ http://blog.quantopian.com/pydatanyc-here-we-come/). I wrote more about where we want Quantopian to go, and where I think finance needs to go on our blog: http://blog.quantopian.com/quantopian-manifesto/ http://blog.quantopian.com/quantopian-manifesto/