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16 Major Firms May Have Received Early Data From Thomson Reuters

179 points by kevando 13y ago

mattip 13y ago
If you're going to engage in an arms war, you better have the best tools. I never really understood how small investors think they can do microtrading, but apparently it is common since the trading sites bombard you with the very latest statistics.
- kevando 13y ago
  http://www.jamesaltucher.com/2011/04/10-reasons-you-should-never-own-stocks-again/ http://www.jamesaltucher.com/2011/04/10-reasons-you-should-n... I know, right. James Altucher has a great post on this, especially like his #3
  - raverbashing 13y ago
    #5 is more to the point All credit rating companies give it a good score All auditing companies agree it's going great All numbers look good All "market analysts" recommend it And then it implodes. Remember what happens when you don't know who the fool on the tables is.
- gizmo 13y ago
  Since all trading sites get a commission on each trade it's no surprise that they don't push people to put their money in a number of Vanguard index funds for 30 years. On some of the investment funds offered by my bank their fees are so high the investment fund will never ever make money for the customer. And yet they shamelessly sell it anyway.
  - ImprovedSilence 13y ago
    I use TDAmeritrade, which actually offers a number of vanguard and iShares ETF's commission free. It really incentivizes investing in those rather than anything else. I know there has to be a catch somewhere on it, but I don't see what it is...
    - gizmo 13y ago
      9 out of 10 times this means TDAmeritrade receives a kickback from Vanguard/iShares whenever you buy their shares. So there is a commission, and it's still being paid by you (albeit indirectly). This kickback doesn't need to be very large because TDAmeritrade isn't doing much work. My guess is that you can't buy shares in Vanguard's low profit margin funds (such as VFIAX - 0.05% expense ratio) without any fees, only Vanguard's high margin funds. Of course, Vanguard wants to steer people to their more profitable investment funds, and paying the sales fee to the bank on behalf of the customer is a good way to do that.
      - ImprovedSilence 13y ago
        Perhaps. I'm quite green when it comes to investing, so I probably haven't paid as much attention to expense ratio as I should have, but I have tried to minimize investments in high expense ratio accounts. The big one for me that I get commish free is IVV, which, if I buy in small chunks monthly isn't too bad at a .07% ratio, no?
        gizmo 13y ago
        IVV is very solid. IVV is competing fiercely with the new competitor VOO and SPY (the 3 funds are effectively identical). Vanguard charges the least (0.05% per year) and SPDR charges the most (0.09%). 3 years ago IVV had an expense ratio of 0.09%, now they're charging 0.07% and I expect their ratio to go down to 0.06% in the next year or two. Vanguard is trying to steal their lunch. So if you get IVV without commission you're benefiting from this price war.
deveac 13y ago
>Specifically, Nanex saw a spike in the milliseconds before 9:54:58 on December 7th, 2012. To be exact, they saw a flurry at 9:54:57.18, nearly a full second before the "third-tier" algorithmic subscribers got their data at 9:54:58 a.m. This is exactly what you would expect to see if someone, or a bunch of someones, had access to the data even before 9:54:58 a.m. In this game you would want to hold your cards until the last possible moment before placing your bets. A phenomenon not unlike what many of us have experienced bidding for an item on ebay. Yet another example of the game being rigged. I don't invest for a living, but I've always thought it folly to approach the exchange in any manner other than a long term diversified one (as an individual investor). Maybe it is my lack of sophistication in the area, but anything else feels like gambling to me.
- kasey_junk 13y ago
  As someone who does work in this industry, a spike before the number is completely explainable without anyone having early knowledge. Lots of market participants are speculators. If you are speculating on the results of the number, you need to make sure your orders are in before it. Everyone in the low latency game knows when the number is coming, so it makes sense for speculation orders to go in when they do. Now if Nanex wanted to prove something, they could show that a high percentage of those orders are consistently on the "right" side of the number, something they haven't done.
  - yummyfajitas 13y ago
    Not only that, but if market makers know volatility is about to increase, they will jump in early to get to the top of the queue.
  - theorique 13y ago
    Absolutely true. A spike in orders in advance of an "important" time implies that people are trading in anticipation of market movements around that time. It does not, on its own, imply that anyone has material, non-public information in advance of anybody else.
  - deveac 13y ago
the_french 13y ago
Can any legally informed HNer explain the probability of criminal prosecution? The article seems to imply that it is un certain that this is illegal, but to me it seems like this is insider trading at the very least and maybe something else (criminal). The article says on this: > There are disagreements as to whether or not this practice is illegal.
- kasey_junk 13y ago
  This is certainly not insider trading. Reuters insiders are not giving out information about internal Reuters information. They are giving out proprietary analysis/research about the economy (specifically employment). There is no law that says everyone needs to have the same access to this.
- yummyfajitas 13y ago
  If Steve Ballmer comes up to you and says "hey buddy, I'm retiring soon, better buy some MS since the price is going up", and you buy, that's insider trading. If I (unrelated to Steve Ballmer) tell you "hey, that guys getting old, he'll probably retire soon", that's not insider trading. Near as I can tell, the Reuters early release is firmly within the category of the latter. I can't see any reason why early release of private research would be illegal.
  - lifeisstillgood 13y ago
    Is there a pricing page on the Reuters site that says "standard", "Two Seconds early" and "One hour early"? If not I suspect its illegal. Al Capone was done for tax evasion, cannot see why Reuters cannot be in breach of a Fair Trading / Sales Act :-)
    - kasey_junk 13y ago
      As the article points out, the contract clearly shows the 3 known levels data distribution times (2 seconds early, on time, 5 minutes delayed). If they were releasing it at other times it would most likely be a contract breach or some other civil matter. But that is a big if. All this article points to to prove that is a disgruntled employee and a Nanex study (all months old) that do not have any proof of early release.
JackFr 13y ago
I don't understand on what legal basis the SEC could force Reuters to stop selling the information to different people at different times. Reuters is simply not under their jurisdiction, and the University of Michigan Survey is not a public good, which everyone is entitled equal access to. On the other hand, the SEC could forbid registered entities from buying the survey before it is generally available. More importantly, I think Taibbi's outrage is misplaced - I don't see a victim here.
- dhimes 13y ago
  I guess the only problem could be if they limited who was allowed to buy the advance information. It just looks like a premium service to me.
  - pmorici 13y ago
    The problem as pointed out in the article is that they didn't disclose that they are doing this to their lower tier customers. It looks like it only became public knowledge once the excerpt from the contract specifying the three tiers was included in the wrongful termination lawsuit.
    - dhimes 13y ago
      I totally missed that. Thank you; I agree that should be corrected.
- kcorbitt 13y ago
  It might be illegal and would definitely be unethical if the subscribers to the lower tier don't even know that a higher tier exists. They would be buying access on the presumption that everyone else were getting the data at the same time. If enough sufficiently large investors receive the data earlier the lower-tier subscribers won't get much benefit from their subscription at all.
- deleted 13y ago
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- 13y ago
yoshakezula 13y ago
Matt Taibbi is the man - he's one of the only investigative journalists to consistently stay on Wall Street's ass and make reading about it entertaining (and not just depressing).
- kasey_junk 13y ago
  Except he is nearly always incorrect in what he is reporting. For instance, in this article he makes a claim that early reuters data leads to front-running. That is just technically wrong. If he is going to report on a subject, understanding the basics of it would be a good start.
  - lifeisstillgood 13y ago
    err, isn't Front-running knowing what your customers are going to do as a trade and getting in first (so if you order my guy to buy IBM, I simply buy some IBM first, then sell it to you, making a little bit off your order). So if I know the results of the orange harvest before you, I can buy frozen OJ futures and sell them to you even if you are not placing an order through me. You still lose out, I still take advantage of my private knowledge. Whats the difference?
    - kasey_junk 13y ago
      The difference is that one is illegal and unethical and the other isn't. There is no promise in the markets that everyone will have all relevant information at the same time and at the same quality. Why should that promise exist? If I spend my time and energy doing more research than you, why should you get the same advantage? What we do have is a promise (cynical folks might say promise is too strong here) that if you are my broker, you can't use my non published order desires to take market positions. We also have a promise that certain covered individuals working for a publicly traded company, cannot release certain material pieces of information about that traded company to anyone early, nor can they trade on that information before it is released. The problem is not private knowledge, there is tons of that in the market, and that is what makes people take different market positions, thus enabling the market to exist. What is problematic is for people to take advantage of information that no one else could conceivably get.
apalmer 13y ago
Honestly Stock Market investing is not nor has it ever been for the common man. The hyper aggressive day trading & HFT sector is not for the common man. As for the slow long term investment route, the biggest section that gets abused by the savvy investors is the institutional pensions and such. Bottom line if you are not going to put in significant effort you are not going to get much out of the stock market except by pure luck, and on average your going to lose... for the common man the effort necessary to make an extra 15% on your yearly income in the stock market, is more than if you did overtime or even went out and got a part time second job to earn that extra 15%
- lifeisstillgood 13y ago
  Can you expand on that - an interesting idea / any proof / demonstration I was told it was always sensible to invest in index trackers with minimal really low admin costs.
- gizmo 13y ago
  Day trading and HFT are not for the common man. But regular long term investing is. Getting a part time job is only a good idea if you have very few assets. Suppose you have 50k in salary and 50k in assets, then it's much easier to earn an extra 5k per year than it is to get an extra 10% return on your investment. However, if you have 50k in salary and 500k in assets the story is the other way around. Investing 500k for 10 years with 6% interest instead of 3% interest leads to gains of 395k and 172k respectively. In this case making an effort in investing your money sensibly will lead to an extra 22k every year. A substantial difference. And as your assets increase your investment strategy only becomes more important. Then there's the issue that not investing your money simply isn't a viable option. Inflation will chip away at your money at 3% per year, so you lose 25% of your money every 10 years if you stick your money in a checking account. Then there's the issue of employer-based 401k matching. You pretty much have to invest here, otherwise you lose out on free money. And if you just pick some investment funds at random you're going to do very poorly indeed (because many 401k funds are basically scams)[1]. [1] See http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/ http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/
mkramlich 13y ago
I deduced a long time ago that the "Wall Street + Washington DC + Big Media" combined entity/ecosystem is rife with front-running tailored to the Big Money players.
smewpy 13y ago
If there is one thing I've managed to become sure of in my time on earth, it is that existing financial systems are explicitly designed by the status quo to be abused by the status quo.
brudgers 13y ago
Ask HN: Why can't I spot the sucker in the stock market?
malandrew 13y ago
From the point of view of maintaining a just society, the big problem with allowing things like this is inconsistency in enforcement. Either you level the playing field with respect to informational advantages across the board, and you prosecute bad actors with impunity, thus making it unattractive to bad actors, leaving only good-faith actors participating. Or you make it a caveat-emptor market, where no actor has any guarantee of a fair trade, leaving everyone to question any trade they want to participate in. This will drive out all the good-faith actors that know the game is rigged and not in their favor and it will leave only actors who are trading on the idea that they think that the fool at the table is not themselves. Personally, I'd be very curious to see two parallel markets for securities: one that is completely unregulated where anything goes and one where any bad actor is prosecuted to the fullest extent of the law, including multi-year jail sentences and fines that are many multiples of past ill-gotten gains. This would leave every actor with the choice of participating in the market they want to participate in, including both investors and companies. Companies could choose to list their securities on one just one of those two exchanges or both, and investors could invest only in companies on one exchange or on both exchanges. The problem with the status quo is that the only actor who knows what exchange they are playing in is is the bad actor. The good actor often will not know that his counterparty is acting in good faith or is corrupting the system until after losses are suffered. Creating a market for markets, where you can choose between unregulated and regulated markets, allows actors to choose which system they prefer to participate in and leaves regulators free to actually enforce the regulations without being soft for fear of what it may do to the market itself, which is exactly what happened in the 2008 crisis. Regulators were scared shitless of really prosecuting bad actors for fear of plunging the world further into a recession.
- javert 13y ago
  Sounds good to me. The regulators will never allow it, though. It decreases their own power. They would call the unregulated markets a danger to the economy as a whole. (Ironic, isn't it? Since the "Great Recession" was caused by government, as well as the fact that we're still in a slump and will be until there is major political change.) The business of the SEC is to nanny rich adults, and nobody wants that job because they just care so much about those rich adults and truly want to force them to do the best things for themselves. As if forcing people to be good were even possible.
Mikeb85 13y ago
If it's survey data, it seems as though Thomson Reuters should be able to release it however they want to release it. For individual investors, sitting on the sidelines, watching the carnage and then jumping in is probably the best play. No small investor can beat the machines at their own game, but you can most definitely take advantage of the swings in the market caused by the machines...
josho 13y ago
It strikes me that there is now enough evidence that high frequency trading & algorithmic traders are a blight on the markets. They should either be banned, or protections put in place to negate the arms race they cause. I see this 'early data' as part of that arms race. Does anyone have any evidence whatsoever that high frequency trading is a benefit? I've read arguments that they are market makers by creating liquidity. But, I've yet to read a compelling explanation as to how they actually achieve that, nor how its provably valuable to the market as a whole.
- HockeyPlayer 13y ago
  Chris Stucchio addresses this at http://www.chrisstucchio.com/blog/2012/hft_apology2.html http://www.chrisstucchio.com/blog/2012/hft_apology2.html He links to the HN comments as well.
- hft_throwaway 13y ago
  I'm sure some HFTs engage in event-driven strategies like this, but it's not their bread and butter. Most HFT strategies can be thought of almost like a lubricant that makes markets operate more smoothly and efficiently by moving liquidity to where it's needed. Market makers move liquidity across time, matching up buyers and sellers who arrive at different rates and possibly on different exchanges. They do this by posting two-way prices and managing their inventory risk. Since placing limit orders gives a free option to other more informed traders, HFT MMs must be very skilled at predicting short-term price movements and adjusting their quotes quickly based on these predictions. They attempt to profit on the difference in their buy and sell prices net of fees. The market maker is buying when potentially informed sellers enter the market and selling when buyers enter the market, and prices often move against them. In reality if they are good at predicting prices and managing risk they will capture a fraction of the spread. This activity dampens volatility since there are more ready buyers and sellers in the market which keeps prices close to fair value rather than moving abruptly simply because of a short-term imbalance in the number of buyers/sellers. For a counter example of this look at the Bitcoin market which is relatively illiquid and large orders can move the price substantially. Arbitrage is another common HFT strategy where they are moving liquidity and price discovery from one product to another. An example would be trading an ETF vs. the basket of stocks it contains. If the basket is cheap relative to the ETF, the HFT firm will buy the basket of stocks and sell the ETF and realize a profit by either unwinding the trade or creating/redeeming the ETF/basket. This activity keeps prices fair so when you buy shares in an ETF they have very little tracking error relative to the underlying basket of stocks. Because computers can trade for almost no margin, trades like this are extremely competitive to the point where most major ETFs essentially never trade at a discount or premium. The reason market-making HFT is especially beneficial is because it can operate at such low margins. Human market makers had to charge wide bid-ask spreads because one floor trader could only manage a handful of products at once so they need to make more money in each product. In today's world a small team could run automated market-making on a thousand symbols or more. They're happy making a penny spread or even less since they cast such a wide net. Financial intermediaries have always existed since buyers and sellers rarely arrive at the exact same time and place. Automating this process is far more efficient than doing it by hand. Was there so much moral outrage and misunderstanding when manned telephone switchboards were replaced by computers? There are real issues in the US market structure (internalization/payment for order flow, poor tick size choices that encourage penny jumping in high-priced stocks and jockeying for queue position in cheap ones, excessive number of exchanges some created just to offer different fee structures, tiered rebates, etc.) but HFT generally has positive effects on market quality.
ShabbyDoo 13y ago
The article suggests that more than a few seconds of privileged access to an important economic indicator would have little value due to the speed of algorithmic market participants. I disagree. Imagine that you knew this morning's unemployment number a second before everyone else. Could you have become a bazillionaire? No. Your potential windfall would be limited by how much of a position you could take on without moving the prices of instruments past the point of where they likely would end-up after the general availability of this economic indicator. Order books are fairly light right before a number is released because most participants presume themselves to be the victim of a better-informed trader if the option they "wrote" by putting an order on the book is exercised. So, you as a well-informed trader would have limited opportunity to take on position without paying at least as much as the likely value of that position after everyone knows what you knew a second beforehand. Conversely, imagine that you knew a day or two ahead of time what this morning's unemployment number would be. You could slowly build up a huge position and make orders of magnitude more.
dbuder 13y ago
Obvious material non public information, mosaic does not apply. It is always mentioned how subscribers get Chicago PMI data early, never for Michigan. I would not be surprised if this practice wasn't widespread across other numbers. HFT doing their usual paying for an advantage that others don't even know they have.
na85 13y ago
Quite frankly I believe there should be a cooldown period between trades, with the effect of eliminating the practice known as High Frequency Trading.

179 points by kevando 13y ago

If you're going to engage in an arms war, you better have the best tools. I never really understood how small investors think they can do microtrading, but apparently it is common since the trading sites bombard you with the very latest statistics.

kevando 13y ago
http://www.jamesaltucher.com/2011/04/10-reasons-you-should-never-own-stocks-again/ http://www.jamesaltucher.com/2011/04/10-reasons-you-should-n... I know, right. James Altucher has a great post on this, especially like his #3
- raverbashing 13y ago
  #5 is more to the point All credit rating companies give it a good score All auditing companies agree it's going great All numbers look good All "market analysts" recommend it And then it implodes. Remember what happens when you don't know who the fool on the tables is.
gizmo 13y ago
Since all trading sites get a commission on each trade it's no surprise that they don't push people to put their money in a number of Vanguard index funds for 30 years. On some of the investment funds offered by my bank their fees are so high the investment fund will never ever make money for the customer. And yet they shamelessly sell it anyway.
- ImprovedSilence 13y ago
  I use TDAmeritrade, which actually offers a number of vanguard and iShares ETF's commission free. It really incentivizes investing in those rather than anything else. I know there has to be a catch somewhere on it, but I don't see what it is...
  - gizmo 13y ago
    9 out of 10 times this means TDAmeritrade receives a kickback from Vanguard/iShares whenever you buy their shares. So there is a commission, and it's still being paid by you (albeit indirectly). This kickback doesn't need to be very large because TDAmeritrade isn't doing much work. My guess is that you can't buy shares in Vanguard's low profit margin funds (such as VFIAX - 0.05% expense ratio) without any fees, only Vanguard's high margin funds. Of course, Vanguard wants to steer people to their more profitable investment funds, and paying the sales fee to the bank on behalf of the customer is a good way to do that.
    - ImprovedSilence 13y ago
      Perhaps. I'm quite green when it comes to investing, so I probably haven't paid as much attention to expense ratio as I should have, but I have tried to minimize investments in high expense ratio accounts. The big one for me that I get commish free is IVV, which, if I buy in small chunks monthly isn't too bad at a .07% ratio, no?
      - gizmo 13y ago
        IVV is very solid. IVV is competing fiercely with the new competitor VOO and SPY (the 3 funds are effectively identical). Vanguard charges the least (0.05% per year) and SPDR charges the most (0.09%). 3 years ago IVV had an expense ratio of 0.09%, now they're charging 0.07% and I expect their ratio to go down to 0.06% in the next year or two. Vanguard is trying to steal their lunch. So if you get IVV without commission you're benefiting from this price war.

deveac 13y ago

>Specifically, Nanex saw a spike in the milliseconds before 9:54:58 on December 7th, 2012. To be exact, they saw a flurry at 9:54:57.18, nearly a full second before the "third-tier" algorithmic subscribers got their data at 9:54:58 a.m. This is exactly what you would expect to see if someone, or a bunch of someones, had access to the data even before 9:54:58 a.m. In this game you would want to hold your cards until the last possible moment before placing your bets. A phenomenon not unlike what many of us have experienced bidding for an item on ebay. Yet another example of the game being rigged. I don't invest for a living, but I've always thought it folly to approach the exchange in any manner other than a long term diversified one (as an individual investor). Maybe it is my lack of sophistication in the area, but anything else feels like gambling to me.

kasey_junk 13y ago
As someone who does work in this industry, a spike before the number is completely explainable without anyone having early knowledge. Lots of market participants are speculators. If you are speculating on the results of the number, you need to make sure your orders are in before it. Everyone in the low latency game knows when the number is coming, so it makes sense for speculation orders to go in when they do. Now if Nanex wanted to prove something, they could show that a high percentage of those orders are consistently on the "right" side of the number, something they haven't done.
- yummyfajitas 13y ago
  Not only that, but if market makers know volatility is about to increase, they will jump in early to get to the top of the queue.
- theorique 13y ago
  Absolutely true. A spike in orders in advance of an "important" time implies that people are trading in anticipation of market movements around that time. It does not, on its own, imply that anyone has material, non-public information in advance of anybody else.
- deveac 13y ago

the_french 13y ago

Can any legally informed HNer explain the probability of criminal prosecution? The article seems to imply that it is un certain that this is illegal, but to me it seems like this is insider trading at the very least and maybe something else (criminal). The article says on this: > There are disagreements as to whether or not this practice is illegal.

kasey_junk 13y ago
This is certainly not insider trading. Reuters insiders are not giving out information about internal Reuters information. They are giving out proprietary analysis/research about the economy (specifically employment). There is no law that says everyone needs to have the same access to this.
yummyfajitas 13y ago
If Steve Ballmer comes up to you and says "hey buddy, I'm retiring soon, better buy some MS since the price is going up", and you buy, that's insider trading. If I (unrelated to Steve Ballmer) tell you "hey, that guys getting old, he'll probably retire soon", that's not insider trading. Near as I can tell, the Reuters early release is firmly within the category of the latter. I can't see any reason why early release of private research would be illegal.
- lifeisstillgood 13y ago
  Is there a pricing page on the Reuters site that says "standard", "Two Seconds early" and "One hour early"? If not I suspect its illegal. Al Capone was done for tax evasion, cannot see why Reuters cannot be in breach of a Fair Trading / Sales Act :-)
  - kasey_junk 13y ago
    As the article points out, the contract clearly shows the 3 known levels data distribution times (2 seconds early, on time, 5 minutes delayed). If they were releasing it at other times it would most likely be a contract breach or some other civil matter. But that is a big if. All this article points to to prove that is a disgruntled employee and a Nanex study (all months old) that do not have any proof of early release.

JackFr 13y ago

I don't understand on what legal basis the SEC could force Reuters to stop selling the information to different people at different times. Reuters is simply not under their jurisdiction, and the University of Michigan Survey is not a public good, which everyone is entitled equal access to. On the other hand, the SEC could forbid registered entities from buying the survey before it is generally available. More importantly, I think Taibbi's outrage is misplaced - I don't see a victim here.

dhimes 13y ago
I guess the only problem could be if they limited who was allowed to buy the advance information. It just looks like a premium service to me.
- pmorici 13y ago
  The problem as pointed out in the article is that they didn't disclose that they are doing this to their lower tier customers. It looks like it only became public knowledge once the excerpt from the contract specifying the three tiers was included in the wrongful termination lawsuit.
  - dhimes 13y ago
    I totally missed that. Thank you; I agree that should be corrected.
kcorbitt 13y ago
It might be illegal and would definitely be unethical if the subscribers to the lower tier don't even know that a higher tier exists. They would be buying access on the presumption that everyone else were getting the data at the same time. If enough sufficiently large investors receive the data earlier the lower-tier subscribers won't get much benefit from their subscription at all.
deleted 13y ago
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13y ago

yoshakezula 13y ago

Matt Taibbi is the man - he's one of the only investigative journalists to consistently stay on Wall Street's ass and make reading about it entertaining (and not just depressing).

kasey_junk 13y ago
Except he is nearly always incorrect in what he is reporting. For instance, in this article he makes a claim that early reuters data leads to front-running. That is just technically wrong. If he is going to report on a subject, understanding the basics of it would be a good start.
- lifeisstillgood 13y ago
  err, isn't Front-running knowing what your customers are going to do as a trade and getting in first (so if you order my guy to buy IBM, I simply buy some IBM first, then sell it to you, making a little bit off your order). So if I know the results of the orange harvest before you, I can buy frozen OJ futures and sell them to you even if you are not placing an order through me. You still lose out, I still take advantage of my private knowledge. Whats the difference?
  - kasey_junk 13y ago
    The difference is that one is illegal and unethical and the other isn't. There is no promise in the markets that everyone will have all relevant information at the same time and at the same quality. Why should that promise exist? If I spend my time and energy doing more research than you, why should you get the same advantage? What we do have is a promise (cynical folks might say promise is too strong here) that if you are my broker, you can't use my non published order desires to take market positions. We also have a promise that certain covered individuals working for a publicly traded company, cannot release certain material pieces of information about that traded company to anyone early, nor can they trade on that information before it is released. The problem is not private knowledge, there is tons of that in the market, and that is what makes people take different market positions, thus enabling the market to exist. What is problematic is for people to take advantage of information that no one else could conceivably get.

apalmer 13y ago

Honestly Stock Market investing is not nor has it ever been for the common man. The hyper aggressive day trading & HFT sector is not for the common man. As for the slow long term investment route, the biggest section that gets abused by the savvy investors is the institutional pensions and such. Bottom line if you are not going to put in significant effort you are not going to get much out of the stock market except by pure luck, and on average your going to lose... for the common man the effort necessary to make an extra 15% on your yearly income in the stock market, is more than if you did overtime or even went out and got a part time second job to earn that extra 15%

lifeisstillgood 13y ago
Can you expand on that - an interesting idea / any proof / demonstration I was told it was always sensible to invest in index trackers with minimal really low admin costs.
gizmo 13y ago
Day trading and HFT are not for the common man. But regular long term investing is. Getting a part time job is only a good idea if you have very few assets. Suppose you have 50k in salary and 50k in assets, then it's much easier to earn an extra 5k per year than it is to get an extra 10% return on your investment. However, if you have 50k in salary and 500k in assets the story is the other way around. Investing 500k for 10 years with 6% interest instead of 3% interest leads to gains of 395k and 172k respectively. In this case making an effort in investing your money sensibly will lead to an extra 22k every year. A substantial difference. And as your assets increase your investment strategy only becomes more important. Then there's the issue that not investing your money simply isn't a viable option. Inflation will chip away at your money at 3% per year, so you lose 25% of your money every 10 years if you stick your money in a checking account. Then there's the issue of employer-based 401k matching. You pretty much have to invest here, otherwise you lose out on free money. And if you just pick some investment funds at random you're going to do very poorly indeed (because many 401k funds are basically scams)[1]. [1] See http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/ http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/

mkramlich 13y ago

I deduced a long time ago that the "Wall Street + Washington DC + Big Media" combined entity/ecosystem is rife with front-running tailored to the Big Money players.

smewpy 13y ago

If there is one thing I've managed to become sure of in my time on earth, it is that existing financial systems are explicitly designed by the status quo to be abused by the status quo.

brudgers 13y ago

Ask HN: Why can't I spot the sucker in the stock market?

malandrew 13y ago

From the point of view of maintaining a just society, the big problem with allowing things like this is inconsistency in enforcement. Either you level the playing field with respect to informational advantages across the board, and you prosecute bad actors with impunity, thus making it unattractive to bad actors, leaving only good-faith actors participating. Or you make it a caveat-emptor market, where no actor has any guarantee of a fair trade, leaving everyone to question any trade they want to participate in. This will drive out all the good-faith actors that know the game is rigged and not in their favor and it will leave only actors who are trading on the idea that they think that the fool at the table is not themselves. Personally, I'd be very curious to see two parallel markets for securities: one that is completely unregulated where anything goes and one where any bad actor is prosecuted to the fullest extent of the law, including multi-year jail sentences and fines that are many multiples of past ill-gotten gains. This would leave every actor with the choice of participating in the market they want to participate in, including both investors and companies. Companies could choose to list their securities on one just one of those two exchanges or both, and investors could invest only in companies on one exchange or on both exchanges. The problem with the status quo is that the only actor who knows what exchange they are playing in is is the bad actor. The good actor often will not know that his counterparty is acting in good faith or is corrupting the system until after losses are suffered. Creating a market for markets, where you can choose between unregulated and regulated markets, allows actors to choose which system they prefer to participate in and leaves regulators free to actually enforce the regulations without being soft for fear of what it may do to the market itself, which is exactly what happened in the 2008 crisis. Regulators were scared shitless of really prosecuting bad actors for fear of plunging the world further into a recession.

javert 13y ago
Sounds good to me. The regulators will never allow it, though. It decreases their own power. They would call the unregulated markets a danger to the economy as a whole. (Ironic, isn't it? Since the "Great Recession" was caused by government, as well as the fact that we're still in a slump and will be until there is major political change.) The business of the SEC is to nanny rich adults, and nobody wants that job because they just care so much about those rich adults and truly want to force them to do the best things for themselves. As if forcing people to be good were even possible.

Mikeb85 13y ago

If it's survey data, it seems as though Thomson Reuters should be able to release it however they want to release it. For individual investors, sitting on the sidelines, watching the carnage and then jumping in is probably the best play. No small investor can beat the machines at their own game, but you can most definitely take advantage of the swings in the market caused by the machines...

josho 13y ago

It strikes me that there is now enough evidence that high frequency trading & algorithmic traders are a blight on the markets. They should either be banned, or protections put in place to negate the arms race they cause. I see this 'early data' as part of that arms race. Does anyone have any evidence whatsoever that high frequency trading is a benefit? I've read arguments that they are market makers by creating liquidity. But, I've yet to read a compelling explanation as to how they actually achieve that, nor how its provably valuable to the market as a whole.

HockeyPlayer 13y ago
Chris Stucchio addresses this at http://www.chrisstucchio.com/blog/2012/hft_apology2.html http://www.chrisstucchio.com/blog/2012/hft_apology2.html He links to the HN comments as well.
hft_throwaway 13y ago
I'm sure some HFTs engage in event-driven strategies like this, but it's not their bread and butter. Most HFT strategies can be thought of almost like a lubricant that makes markets operate more smoothly and efficiently by moving liquidity to where it's needed. Market makers move liquidity across time, matching up buyers and sellers who arrive at different rates and possibly on different exchanges. They do this by posting two-way prices and managing their inventory risk. Since placing limit orders gives a free option to other more informed traders, HFT MMs must be very skilled at predicting short-term price movements and adjusting their quotes quickly based on these predictions. They attempt to profit on the difference in their buy and sell prices net of fees. The market maker is buying when potentially informed sellers enter the market and selling when buyers enter the market, and prices often move against them. In reality if they are good at predicting prices and managing risk they will capture a fraction of the spread. This activity dampens volatility since there are more ready buyers and sellers in the market which keeps prices close to fair value rather than moving abruptly simply because of a short-term imbalance in the number of buyers/sellers. For a counter example of this look at the Bitcoin market which is relatively illiquid and large orders can move the price substantially. Arbitrage is another common HFT strategy where they are moving liquidity and price discovery from one product to another. An example would be trading an ETF vs. the basket of stocks it contains. If the basket is cheap relative to the ETF, the HFT firm will buy the basket of stocks and sell the ETF and realize a profit by either unwinding the trade or creating/redeeming the ETF/basket. This activity keeps prices fair so when you buy shares in an ETF they have very little tracking error relative to the underlying basket of stocks. Because computers can trade for almost no margin, trades like this are extremely competitive to the point where most major ETFs essentially never trade at a discount or premium. The reason market-making HFT is especially beneficial is because it can operate at such low margins. Human market makers had to charge wide bid-ask spreads because one floor trader could only manage a handful of products at once so they need to make more money in each product. In today's world a small team could run automated market-making on a thousand symbols or more. They're happy making a penny spread or even less since they cast such a wide net. Financial intermediaries have always existed since buyers and sellers rarely arrive at the exact same time and place. Automating this process is far more efficient than doing it by hand. Was there so much moral outrage and misunderstanding when manned telephone switchboards were replaced by computers? There are real issues in the US market structure (internalization/payment for order flow, poor tick size choices that encourage penny jumping in high-priced stocks and jockeying for queue position in cheap ones, excessive number of exchanges some created just to offer different fee structures, tiered rebates, etc.) but HFT generally has positive effects on market quality.

ShabbyDoo 13y ago

The article suggests that more than a few seconds of privileged access to an important economic indicator would have little value due to the speed of algorithmic market participants. I disagree. Imagine that you knew this morning's unemployment number a second before everyone else. Could you have become a bazillionaire? No. Your potential windfall would be limited by how much of a position you could take on without moving the prices of instruments past the point of where they likely would end-up after the general availability of this economic indicator. Order books are fairly light right before a number is released because most participants presume themselves to be the victim of a better-informed trader if the option they "wrote" by putting an order on the book is exercised. So, you as a well-informed trader would have limited opportunity to take on position without paying at least as much as the likely value of that position after everyone knows what you knew a second beforehand. Conversely, imagine that you knew a day or two ahead of time what this morning's unemployment number would be. You could slowly build up a huge position and make orders of magnitude more.

dbuder 13y ago

Obvious material non public information, mosaic does not apply. It is always mentioned how subscribers get Chicago PMI data early, never for Michigan. I would not be surprised if this practice wasn't widespread across other numbers. HFT doing their usual paying for an advantage that others don't even know they have.

na85 13y ago

Quite frankly I believe there should be a cooldown period between trades, with the effect of eliminating the practice known as High Frequency Trading.