7 ms·

When one market participant breaks the market with his crappy program, that's a huge problem for the companies that use the public markets to raise money - the

When one market participant breaks the market with his crappy program, that's a huge problem for the companies that use the public markets to raise money - the entire reason the markets exist. There was plenty of liquidity in the 90's and before to fulfill that function, even with the huge spreads back then. You are missing the forest for the trees.

flyinglizard 14y ago
Breaking the market with a crappy program costs the responsible firm tons of money, up to a complete insolvency. This system is mostly self-balancing.
- damoncali 14y ago
  Mostly. Until it isn't. It only takes one really bad screw up to cause a boatload of damage.
  - icelancer 14y ago
    To the firm who is responsible. If they are buying up securities at well below-market rates, the problem solves itself.
    - damoncali 14y ago
      And anyone relying on that firm. What happens if a major bank pulls a Knight and blinks out of existence? Can this happen? I don't know. The answer to that question should be an emphatic "no."
nickpinkston 14y ago
There are already triggers in place now to stop trading when it gets out of reasonable bounds not right? Say like a x% shift throws an alarm that halts orders until a human looks at the situation, etc. I like the ticking exchanges (like the FTSE does not right?) where it "ticks" on the microsecond or some such so some of the clever hacks (locating near the datacenter) are eliminated. The real question at stake here is do we want to hold back real algorithmic innovation that we actually want? Of course we need to have alarms to head-off flash crashes, but we want a lot of great people working on getting information into the market as fast as possible right? I mean the end goal as I see it is the replace of most traders to algorithms that bring prices closer to market with better/faster information.
- damoncali 14y ago
  I would disagree. We do not need innovation. We need stable functioning markets, which is a goal that is in direct conflict with innovative trading. The system, and the participants' confidence in that system is of far greater importance than the efficiency of the system, and infinitely more important than the opportunity for some smart computer guys to make a buck doing essentially nothing of value. "As fast as possible" should not be the goal. "As fast as necessary" should be, and we are well beyond that.
andylei 14y ago
YOU are missing the forest for the trees. When the a stock is misvalued for about twenty minutes on the public markets, NO ONE raising money in the public markets (in the form of IPOs or secondary offerings) loses money. Not a single one. Also, you're just wrong about the reason the market exists. The market is just as much about people trying to raise money as it is about people wanting to transfer risk. > There was plenty of liquidity in the 90's and before to fulfill that function, even with the huge spreads back then Are you saying things were great back then? why would anyone want to pay huge spreads?
- damoncali 14y ago
  Why do you assume small, temporary mispricings are the worst that can happen? It's all connected.
  - andylei 14y ago
    >> It's all connected. is that really the best argument you have?
    - damoncali 14y ago
      Yep. I believe that the stability of the markets is of vital importance to civilized society, and computers (among other things) can endanger that system when used recklessly. We have clear evidence that the people writing this code often enough do not give a shit. And that is a problem. I'm just saying that there ought to be some thought put into how much we need to push innovative techniques when the stakes are so high. We almost broke everything in 2008 with derivatives and leverage. We out to think about how similarly scoped problems can arise when mathematicians are allowed to get creative before it happens. It only takes once.
      - andylei 14y ago
        none of the things you said describe a mechanism for how hft can topple society / endanger markets / other non specific harms. seriously, reread your comment. now apply it to online shopping, telephone systems, satellites, air traffic control, etc. it applies to literally everything involving technology. should it all be banned?
bd_at_rivenhill 14y ago
Any electronic trading system is capable of experiencing severe errors that have nothing to do with HFT; some of the most common examples involve manually keying an incorrect price or size for an outgoing order. The sort of safety mechanisms implemented by the exchange (which shouldn't permit errors by member firms from damaging the market) to prevent these sort of problems are similar to the sort of mechanisms that can prevent crashes from faulty automatic trading programs.

flyinglizard 14y ago

Breaking the market with a crappy program costs the responsible firm tons of money, up to a complete insolvency. This system is mostly self-balancing.

damoncali 14y ago
Mostly. Until it isn't. It only takes one really bad screw up to cause a boatload of damage.
- icelancer 14y ago
  To the firm who is responsible. If they are buying up securities at well below-market rates, the problem solves itself.
  - damoncali 14y ago
    And anyone relying on that firm. What happens if a major bank pulls a Knight and blinks out of existence? Can this happen? I don't know. The answer to that question should be an emphatic "no."

nickpinkston 14y ago

There are already triggers in place now to stop trading when it gets out of reasonable bounds not right? Say like a x% shift throws an alarm that halts orders until a human looks at the situation, etc. I like the ticking exchanges (like the FTSE does not right?) where it "ticks" on the microsecond or some such so some of the clever hacks (locating near the datacenter) are eliminated. The real question at stake here is do we want to hold back real algorithmic innovation that we actually want? Of course we need to have alarms to head-off flash crashes, but we want a lot of great people working on getting information into the market as fast as possible right? I mean the end goal as I see it is the replace of most traders to algorithms that bring prices closer to market with better/faster information.

damoncali 14y ago
I would disagree. We do not need innovation. We need stable functioning markets, which is a goal that is in direct conflict with innovative trading. The system, and the participants' confidence in that system is of far greater importance than the efficiency of the system, and infinitely more important than the opportunity for some smart computer guys to make a buck doing essentially nothing of value. "As fast as possible" should not be the goal. "As fast as necessary" should be, and we are well beyond that.

andylei 14y ago

YOU are missing the forest for the trees. When the a stock is misvalued for about twenty minutes on the public markets, NO ONE raising money in the public markets (in the form of IPOs or secondary offerings) loses money. Not a single one. Also, you're just wrong about the reason the market exists. The market is just as much about people trying to raise money as it is about people wanting to transfer risk. > There was plenty of liquidity in the 90's and before to fulfill that function, even with the huge spreads back then Are you saying things were great back then? why would anyone want to pay huge spreads?

damoncali 14y ago
Why do you assume small, temporary mispricings are the worst that can happen? It's all connected.
- andylei 14y ago
  >> It's all connected. is that really the best argument you have?
  - damoncali 14y ago
    Yep. I believe that the stability of the markets is of vital importance to civilized society, and computers (among other things) can endanger that system when used recklessly. We have clear evidence that the people writing this code often enough do not give a shit. And that is a problem. I'm just saying that there ought to be some thought put into how much we need to push innovative techniques when the stakes are so high. We almost broke everything in 2008 with derivatives and leverage. We out to think about how similarly scoped problems can arise when mathematicians are allowed to get creative before it happens. It only takes once.
    - andylei 14y ago
      none of the things you said describe a mechanism for how hft can topple society / endanger markets / other non specific harms. seriously, reread your comment. now apply it to online shopping, telephone systems, satellites, air traffic control, etc. it applies to literally everything involving technology. should it all be banned?

bd_at_rivenhill 14y ago

Any electronic trading system is capable of experiencing severe errors that have nothing to do with HFT; some of the most common examples involve manually keying an incorrect price or size for an outgoing order. The sort of safety mechanisms implemented by the exchange (which shouldn't permit errors by member firms from damaging the market) to prevent these sort of problems are similar to the sort of mechanisms that can prevent crashes from faulty automatic trading programs.