8 ms·

The invisible hand that pushed Apple up and down for six years

86 points by pedalpete 13y ago

Aloha 13y ago
Huh, Interesting. Another sign in my mind that high frequency trading is a bad idea, and in my opinion encourages bad behavior among everyone who touches it.
- elemeno 13y ago
  The conclusion wasn't that this was caused by HFT but because NASDAQ and the NYSE only showed trades that had a size of 100 or greater in their public feeds. Since a 100 shares of APPL is worth $50,000+, there's a lot of trades being made for less than 100 shares and, until the reporting changes made a few weeks ago, they didn't show up on the public feed. This means that trade volume wasn't being reported accurately, and that the public feed wasn't representative of the active price of a stock like APPL - which is a fairly big deal when, according to the article, 45% of APPL trades are in lot sizes of under 100 shares. For professional traders (and here's the only place where HFT is relevant) it's not a big deal since they don't use the public feeds but instead pay for feeds from the exchanges which include all trades.
  - crag 13y ago
    It's a big deal to everyone who is not a "professional" trader. Oh and by the way, HFT mostly trade low volume at high speed. In other words, trading 5 shares of Apple 5 million times an hour. That makes money. It's not about the big pay-off. It's about the pennies all adding up. And also explain why the stock was wildly moving all over the place. Personally I think this type of trading should be illegal. Right now, unless you have a data center right next to the exchange you are trading at a disadvantage. And it just adds to the many reason why I think the game is rigged. To favor the big houses. You're almost better off at Vegas.
    - cmdkeen 13y ago
      If you're investing over anything approaching the short term then it is exactly like playing at Vegas, except the card counters aren't banned. If you invest, i.e. over 10+ years then HFT doesn't matter other than giving you better liquidity and lower spreads. There is much, much less competition in that space, no computer trading and you are capable of actually doing research. Investing and watching daily stock moves is a sure fire way of losing your hair and becoming miserable.
      - crag 13y ago
        "Investing and watching daily stock moves is a sure fire way of losing your hair and becoming miserable." Agreed.
      - pbhjpbhj 13y ago
        >If you invest, i.e. over 10+ years then HFT doesn't matter // Is there any proof of this. How long have we had this sort of HFT? Strikes me that HFT is extracting value from the market. The prices are usually relatively stable they're increasing the draw of money away from smaller traders but also removing value overall (in the form of money) from the system and not adding much value. Yes, liquidity, yadda-yadda but surely market liquidity is no greater now but HFT is far more effectively removing money (a proxy for the value extracted). In other words other people are creating value and HFT is a sink for it. The bar to entry to the HFT camp means there should be an overall movement of capital towards the most wealthy in this sort of system.
        IanDrake 13y ago
        >Strikes me that HFT is extracting value from the market. The prices are usually relatively stable they're increasing the draw of money away from smaller traders but also removing value overall (in the form of money) from the system and not adding much value. Can you explain how that works?
        hfttrader 13y ago
        Why are the other people creating value, while HFT traders do not? Both types of players extract value from the market, while improving market efficiency. HFT definitely has high entry costs (10's of millions of dollars), and firms that aren't serious about HFT can't participate. Note that HFT only makes 2 billion a year, so they aren't actually missing out on that much. HFT just isn't a very big space, compared to long term investing, and doesn't represent very much movement of capital. (The wealthy don't really invest in HFT, since HFT firms generally don't accept outside capital, or need any substantial amount of capital to operate)
  - TheAnimus 13y ago
    Indeed, this is a bit of a non-story. Lower volume customers have lower fixed costs, they generally get much worse quotes (higher spreads) too. The fact is whilst $56k might sound like a lot to some person day trader, it is nothing compared to the actual market cap of the stock. It also has absolutely nothing to do with the use of HFT. HFT only competes against other HFT. There is nothing here to suggest it has been effecting the price for the small customers (normally this is what HFT is credited at doing well, providing liquidity and removing pricing inefficencies) People hate HFT because it can go 'screwy'.
    - crag 13y ago
      Actually HFT does manipulate the overall price of the share. In the public markets. And that's the problem.
      - yummyfajitas 13y ago
        How? Can you explain the specific mechanism (i.e., what orders are placed by which party and when) and the role that "high frequency" plays in the mechanism?
        mschuster91 13y ago
        Just remember that Knight Capital episode. Algorithm ran amok, they lost a decent chunk of money (460M US$!) and were bought out a couple of weeks later (http://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock_trading_disruption http://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock...).
        hfttrader 13y ago
        That isn't really an example of market manipulation. Market manipulation is an intentional manipulation of the market. (http://en.wikipedia.org/wiki/Market_manipulation http://en.wikipedia.org/wiki/Market_manipulation) The Knight Capital incident was an example of a firm performing bad trades due to an error in their systems. Their behavior certainly wasn't intentional or profitable. HFT isn't based on market manipulation. Some HFT firms perform market manipulation, as do some non HFT firms, but this practice is illegal. (For example, newedge was recently fined for market manipulation)
- mwilcox 13y ago
  Just look at the BTC market..
  - einrealist 13y ago
    You mean that? http://www.reddit.com/r/Bitcoin/comments/1t9buu/sky_broadband_has_now_decided_bitcoin_related/ http://www.reddit.com/r/Bitcoin/comments/1t9buu/sky_broadban...
- programminggeek 13y ago
  Replace HFT with money and you're on the right track. The bad behavior in terms of investing will always exist because of greed. Greed will always exist as long as humans exist.
- chollida1 13y ago
  I find this sad. The article doesn't blame HFT in anyway and yet the top comment is an "add nothing to the discussion, just give me karma" throw away comment. Hacker news seems to be doing alot of knee jerk reaction voting here. What exactly about the article gave you "another sign" that HFT is a bad idea? There are certainly things that HFT firms do that aren't great, but this article doesn't point out any.
  - Aloha 13y ago
    I would have backed the comment up further with more comments, but I went to bed. Beyond that, I dont like HFT because I believe it increases volatility, and even if I'm wrong on that point it's also not something the average Joe can participate in, money or not.
    - the_watcher 13y ago
      Not being something the average Joe can participate in isn't by definition bad. There are lots of things the average Joe cannot participate in (for example, charging others money in exchange for legal advice, or performing surgery) that I assume you are in favor of. In some cases it's not optimal (requiring bar passage and a law degree to be a lawyer is arguably just a method to restrict competition in an area where all of the necessary material is publicly available, plus law school notoriously does not prepare you to be a lawyer), in others it is (the consequences of an improperly trained surgeon, or pilot are disastrous).
pjin 13y ago
Here's the original Nanex source in question: http://www.nanex.net/aqck2/4500.html http://www.nanex.net/aqck2/4500.html
miralabs 13y ago
some institutional trades aren't available for the public to see.. http://en.wikipedia.org/wiki/Dark_liquidity#Dark_pools http://en.wikipedia.org/wiki/Dark_liquidity#Dark_pools
- ahfttrader 13y ago
  False. Some institutional ORDERS aren't available to see. The trades must be reported.
  - miralabs 13y ago
    agreed they need to be reported but its only after, you won't be able to see them via the normal bid/ask volume from your broker for example.
    - ahfttrader 13y ago
      The normal bid/ask is not trades. It is orders. This is the same as OTC, which is not a new technological development.
minimax 13y ago
This article (and the comments here on HN) are cringe inducing. The author of the post has no idea how financial markets work. None. So what if 45% of all trades were odd lots? What was the value of those trades relative to the trades that were on the tape? It's a simple and obvious (and important) question that they don't address in the article because the article is all about pushing some BS agenda that AAPL was somehow being manipulated. Are we really supposed to expect that a bunch of one lot trades were pushing AAPL "to extraordinary highs and confidence-shattering lows"? Are we really supposed to believe that the mom and pop investing public makes trading decisions based on the tiniest orders on the tape? This article is complete joke and if this is the kind of financial markets reporting you're reading you are grossly misinformed about how the markets actually work.
- anonu 13y ago
  Totally agree: cringe inducing article. The paragraph that really got me was the following: "Why does this matter? For one thing it means that for years, trading volume in Apple was being misreported -- a situation that can lead to a stock being mis-priced. The system also advantaged one kind of trader over another." This is wrong on so many levels. Trading volume was not "misreported" it was simply under reported. There is absolutely nothing wrong with that. And it certainly would not lead to any mis-pricings. There is absolutely no way this could advantage one trader over another... none.
  - bryanlarsen 13y ago
    If there was no advantage to be had, why do computer algorithms include "price discovery" odd lot trades? Honest question, you probably know better than the original reporter does...
    - anonu 13y ago
      Under-reported volume in AAPL cannot advantage one trader over another. I don't disagree, however, that odd-lots can be used by HFTs/algos for price-discovery. I don't think that this necessarily disadvantages any market participants. Odd lot pings are just ways for HFTs to reduce their capital outlay. You simply don't want to commit too much capital to "ping" passive dark pool orders. So, in the new odd-lot reporting method, oddlot pings will now be reported to the tape. I would argue, however, that this makes no difference to the HFT. The consolidated tape is so slow, that by the time other HFT participants can digest an odd-lot fill from a darkpool, that remainder of the passive dark order would have already been gone/hit/lifted by the pinger. I view this behaviour purely as proper functioning of the markets...

86 points by pedalpete 13y ago

Aloha 13y ago

Huh, Interesting. Another sign in my mind that high frequency trading is a bad idea, and in my opinion encourages bad behavior among everyone who touches it.

elemeno 13y ago
The conclusion wasn't that this was caused by HFT but because NASDAQ and the NYSE only showed trades that had a size of 100 or greater in their public feeds. Since a 100 shares of APPL is worth $50,000+, there's a lot of trades being made for less than 100 shares and, until the reporting changes made a few weeks ago, they didn't show up on the public feed. This means that trade volume wasn't being reported accurately, and that the public feed wasn't representative of the active price of a stock like APPL - which is a fairly big deal when, according to the article, 45% of APPL trades are in lot sizes of under 100 shares. For professional traders (and here's the only place where HFT is relevant) it's not a big deal since they don't use the public feeds but instead pay for feeds from the exchanges which include all trades.
- crag 13y ago
  It's a big deal to everyone who is not a "professional" trader. Oh and by the way, HFT mostly trade low volume at high speed. In other words, trading 5 shares of Apple 5 million times an hour. That makes money. It's not about the big pay-off. It's about the pennies all adding up. And also explain why the stock was wildly moving all over the place. Personally I think this type of trading should be illegal. Right now, unless you have a data center right next to the exchange you are trading at a disadvantage. And it just adds to the many reason why I think the game is rigged. To favor the big houses. You're almost better off at Vegas.
  - cmdkeen 13y ago
    If you're investing over anything approaching the short term then it is exactly like playing at Vegas, except the card counters aren't banned. If you invest, i.e. over 10+ years then HFT doesn't matter other than giving you better liquidity and lower spreads. There is much, much less competition in that space, no computer trading and you are capable of actually doing research. Investing and watching daily stock moves is a sure fire way of losing your hair and becoming miserable.
    - crag 13y ago
      "Investing and watching daily stock moves is a sure fire way of losing your hair and becoming miserable." Agreed.
    - pbhjpbhj 13y ago
      >If you invest, i.e. over 10+ years then HFT doesn't matter // Is there any proof of this. How long have we had this sort of HFT? Strikes me that HFT is extracting value from the market. The prices are usually relatively stable they're increasing the draw of money away from smaller traders but also removing value overall (in the form of money) from the system and not adding much value. Yes, liquidity, yadda-yadda but surely market liquidity is no greater now but HFT is far more effectively removing money (a proxy for the value extracted). In other words other people are creating value and HFT is a sink for it. The bar to entry to the HFT camp means there should be an overall movement of capital towards the most wealthy in this sort of system.
      - IanDrake 13y ago
        >Strikes me that HFT is extracting value from the market. The prices are usually relatively stable they're increasing the draw of money away from smaller traders but also removing value overall (in the form of money) from the system and not adding much value. Can you explain how that works?
      - hfttrader 13y ago
        Why are the other people creating value, while HFT traders do not? Both types of players extract value from the market, while improving market efficiency. HFT definitely has high entry costs (10's of millions of dollars), and firms that aren't serious about HFT can't participate. Note that HFT only makes 2 billion a year, so they aren't actually missing out on that much. HFT just isn't a very big space, compared to long term investing, and doesn't represent very much movement of capital. (The wealthy don't really invest in HFT, since HFT firms generally don't accept outside capital, or need any substantial amount of capital to operate)
- TheAnimus 13y ago
  Indeed, this is a bit of a non-story. Lower volume customers have lower fixed costs, they generally get much worse quotes (higher spreads) too. The fact is whilst $56k might sound like a lot to some person day trader, it is nothing compared to the actual market cap of the stock. It also has absolutely nothing to do with the use of HFT. HFT only competes against other HFT. There is nothing here to suggest it has been effecting the price for the small customers (normally this is what HFT is credited at doing well, providing liquidity and removing pricing inefficencies) People hate HFT because it can go 'screwy'.
  - crag 13y ago
    Actually HFT does manipulate the overall price of the share. In the public markets. And that's the problem.
    - yummyfajitas 13y ago
      How? Can you explain the specific mechanism (i.e., what orders are placed by which party and when) and the role that "high frequency" plays in the mechanism?
      - mschuster91 13y ago
        Just remember that Knight Capital episode. Algorithm ran amok, they lost a decent chunk of money (460M US$!) and were bought out a couple of weeks later (http://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock_trading_disruption http://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock...).
        hfttrader 13y ago
        That isn't really an example of market manipulation. Market manipulation is an intentional manipulation of the market. (http://en.wikipedia.org/wiki/Market_manipulation http://en.wikipedia.org/wiki/Market_manipulation) The Knight Capital incident was an example of a firm performing bad trades due to an error in their systems. Their behavior certainly wasn't intentional or profitable. HFT isn't based on market manipulation. Some HFT firms perform market manipulation, as do some non HFT firms, but this practice is illegal. (For example, newedge was recently fined for market manipulation)
mwilcox 13y ago
Just look at the BTC market..
- einrealist 13y ago
  You mean that? http://www.reddit.com/r/Bitcoin/comments/1t9buu/sky_broadband_has_now_decided_bitcoin_related/ http://www.reddit.com/r/Bitcoin/comments/1t9buu/sky_broadban...
programminggeek 13y ago
Replace HFT with money and you're on the right track. The bad behavior in terms of investing will always exist because of greed. Greed will always exist as long as humans exist.
chollida1 13y ago
I find this sad. The article doesn't blame HFT in anyway and yet the top comment is an "add nothing to the discussion, just give me karma" throw away comment. Hacker news seems to be doing alot of knee jerk reaction voting here. What exactly about the article gave you "another sign" that HFT is a bad idea? There are certainly things that HFT firms do that aren't great, but this article doesn't point out any.
- Aloha 13y ago
  I would have backed the comment up further with more comments, but I went to bed. Beyond that, I dont like HFT because I believe it increases volatility, and even if I'm wrong on that point it's also not something the average Joe can participate in, money or not.
  - the_watcher 13y ago
    Not being something the average Joe can participate in isn't by definition bad. There are lots of things the average Joe cannot participate in (for example, charging others money in exchange for legal advice, or performing surgery) that I assume you are in favor of. In some cases it's not optimal (requiring bar passage and a law degree to be a lawyer is arguably just a method to restrict competition in an area where all of the necessary material is publicly available, plus law school notoriously does not prepare you to be a lawyer), in others it is (the consequences of an improperly trained surgeon, or pilot are disastrous).

pjin 13y ago

Here's the original Nanex source in question: http://www.nanex.net/aqck2/4500.html http://www.nanex.net/aqck2/4500.html

miralabs 13y ago

some institutional trades aren't available for the public to see.. http://en.wikipedia.org/wiki/Dark_liquidity#Dark_pools http://en.wikipedia.org/wiki/Dark_liquidity#Dark_pools

ahfttrader 13y ago
False. Some institutional ORDERS aren't available to see. The trades must be reported.
- miralabs 13y ago
  agreed they need to be reported but its only after, you won't be able to see them via the normal bid/ask volume from your broker for example.
  - ahfttrader 13y ago
    The normal bid/ask is not trades. It is orders. This is the same as OTC, which is not a new technological development.

minimax 13y ago

This article (and the comments here on HN) are cringe inducing. The author of the post has no idea how financial markets work. None. So what if 45% of all trades were odd lots? What was the value of those trades relative to the trades that were on the tape? It's a simple and obvious (and important) question that they don't address in the article because the article is all about pushing some BS agenda that AAPL was somehow being manipulated. Are we really supposed to expect that a bunch of one lot trades were pushing AAPL "to extraordinary highs and confidence-shattering lows"? Are we really supposed to believe that the mom and pop investing public makes trading decisions based on the tiniest orders on the tape? This article is complete joke and if this is the kind of financial markets reporting you're reading you are grossly misinformed about how the markets actually work.

anonu 13y ago
Totally agree: cringe inducing article. The paragraph that really got me was the following: "Why does this matter? For one thing it means that for years, trading volume in Apple was being misreported -- a situation that can lead to a stock being mis-priced. The system also advantaged one kind of trader over another." This is wrong on so many levels. Trading volume was not "misreported" it was simply under reported. There is absolutely nothing wrong with that. And it certainly would not lead to any mis-pricings. There is absolutely no way this could advantage one trader over another... none.
- bryanlarsen 13y ago
  If there was no advantage to be had, why do computer algorithms include "price discovery" odd lot trades? Honest question, you probably know better than the original reporter does...
  - anonu 13y ago
    Under-reported volume in AAPL cannot advantage one trader over another. I don't disagree, however, that odd-lots can be used by HFTs/algos for price-discovery. I don't think that this necessarily disadvantages any market participants. Odd lot pings are just ways for HFTs to reduce their capital outlay. You simply don't want to commit too much capital to "ping" passive dark pool orders. So, in the new odd-lot reporting method, oddlot pings will now be reported to the tape. I would argue, however, that this makes no difference to the HFT. The consolidated tape is so slow, that by the time other HFT participants can digest an odd-lot fill from a darkpool, that remainder of the passive dark order would have already been gone/hit/lifted by the pinger. I view this behaviour purely as proper functioning of the markets...