5 ms·

Overheard just earlier: "Financial markets used to be about getting money into productive enterprises, not out of them" Right on. Let all the leveraged bots a

by dualogy 12y ago

Overheard just earlier: "Financial markets used to be about getting money into productive enterprises, not out of them" Right on. Let all the leveraged bots and algos devour each other. Sooner or later "real economy" will decouple anyway. And with the savings of millions of individuals, pension funds and insurance corporations ping-ponging between botnets, the real "hedge" will be to remain liquid and competetive outside this hodgepodge when it all inevitably ends up belly-up.

kbody 12y ago
I can imagine in the future there may be a time where like the vinyls, "hipster" entrepreneurs et al. will try to create a bot-free stock exchange, because stock exchanges do have great value for businesses if not messed with meaningless profiteering.
- CmonDev 12y ago
  That would have to be a pit with shouting and hand waving then. No computers.
  - bsdpython 12y ago
    You could enforce it in other ways. Require a longer holding period or even plain increasing the transaction fees would knock out high frequency trading.
    - NickPollard 12y ago
      To address this complete non-sequitur: Why the hell do you want to stop HFT? I have never heard a single good argument against HFT. HFT does not make ridiculous amounts of money these days - and the money it does make is at the expense of large institutional investors - e.g. Goldman Sachs, JP Morgan, et al. Are you so worried that a bunch of clever young mathematicians are taking money away from those poor old put-upon Morganites? Oh how dreadful. HFT means tighter spreads, which means cheaper and more efficient trading for everyone - i.e. your individual workers investing their 401ks, and so forth. People's arguments against HFT seem to normally come up to '...because computers!' Do yourself a favour and read this: https://scottlocklin.wordpress.com/2014/04/04/michael-lewis-shilling-for-the-buyside/ https://scottlocklin.wordpress.com/2014/04/04/michael-lewis-...
      - bsdpython 12y ago
        I proposed two simple ways that HFT could be limited if one were so inclined. I made no argument for or against the merits of HFT itself.
      - anigbrowl 12y ago
        I am not against HFT, but I understand the emotional argument against it and think it has some value. There are two problems with HFT being carried on by computers. One is obvious: HFT trades done by computer happen super-fast and arbitrage away any slack in the system between bid/ask prices and so on. There's no way a human trader can compete, which means that after a human has made the mental investment to understand how such trades work, s/he is unable to exploit this knowledge and get a foot onto the financial industry ladder. This is aggravating to people who started out trading small-cap stocksor suchlike. Now, day traders are notoriously bad investors to start with and it might be that the market is better off without them, but there's a big qualitative difference between being a bad day-trader who's competing against other humans in the same market, and competing with a machine whose owners have paid extra for it to be located close to the exchange to shave a few milliseconds off execution time. It's like if you put a super-fast mechanical runner in one lane of the Olympic 100 meter dash; while objectively it should have no bearing on the performance of the human participants, which is what we aim to measure, our psychology is not so logical, so seeing a robot complete the 100 meters in, say, 8.5 seconds (handily beating any human for the foreseeable future) would have a massive demoralizing effect on both contestants and spectators. It's one thing to know in the abstract that a machine is much faster than you; it's another to see your best effort radically devalued. A second reason is a bit more abstract and rarely articulated, but IMHO equally important: human trades are ultimately motivated by human desire. Speculators want more money, but long-term investors want yield to provide a sustainable income, commodity buyers want commodities as industrial inputs or for resale to the public, and people buy commodities at retail because they need to eat, build shelter, and so on. The market ultimately exists to serve human need, notwithstanding the fact that it often serves human greed (which is just hypertrophied need and often correlated with some psychic deficit). HFT and algorithms in general work blindly; as very basic software machines, they operate purely deterministically, with no sense of the context within which their operations take place. Of course, human traders can also lose sight of context (I've heard cocaine is great for this :-p) but even the worst excesses of leverage or psychological dynamics are constrained by the social structures within which they take place; human inefficiency (in decision-making, and in implementation of that decision by others along the chain of execution) serves as a buffer to limit excess, although this is very much a function of scale - see the historical excesses in totalitarian states, for example. Getting back to HFT and algorithmic trading, what people worry about at the fundamental level is that as it improves over time and more and more money is under the management of computers, none of which have any moral or social context for their trading decisions, our social buffering against excess becomes less and less effective. This is also a reflection of anxiety about late-stage capitalism; logically, we sense that in a purely deterministic market we would eventually see more and more capital concentration similar to the inevitability of a single winner in a Monopoly game, and that's a stressful prospect because we know that such circumstances are not socially sustainable.
Zigurd 12y ago
While there is a lot to be said against "financialization" in an economy, this particular outcome isn't a signal that things are getting worse. I'd be more worried if several humans were significantly outperforming algorithms over a significant amount of time because that is an unlikely outcome in an honest market. Automation will also drive down costs.
NickPollard 12y ago
There are definitely things wrong with financial markets, but automated trading is not one of them. Just like anything else, using computers to be more efficient is a good thing. Are you going to complain about Amazon and wait for 'real retail' to decouple? The problem with modern financial markets is that they have become quite abstract. Finance is maths, which means it's code, which means you start abstracting away from the implementation to get to a high level. Just because it's not immediately clear to a layperson what's going on, doesn't mean it's not useful or real. Imagine what would happen for most programmers if you tried to explain to a layperson what you do. "I'm a developer" "Oh, you make websites?" "Well, uh, no, you see, I make tools for making it easier to make websites" "Oh, like what?" "Um, well I make a compiler for turning one language into another" "Why?" "Well, when you make a website, you have to do all this stuff, but, well, you could do less stuff, just more clever, and then it's easier and you don't have to worry about for loops and such" "What's a for loop?" "Oh that doesn't matter. But now we can use a monadic map instead, which is much easier, developers don't want to write loops, map is better. But Javascript is a bit fiddly, so now I've written another language, so you can write in that, and then you run my tool, and then you get Javascript, so the browsers can understand it." "Oh, so the browser only runs Javascript?" "Yes. Well no. Actually most of them run some kind of JIT compiler, which turns javascript into another language, and then they run that" "So your language becomes another language which becomes another language? Why not just write the other one?" "Well, because that's not really what we want to do, it's awkward, and inefficient, and bug-prone..." "But your language isn't a real thing? No-one's actually using it? My computer never gets it, never runs it, never understands it? Shouldn't you be doing real development?"
- CmonDev 12y ago
  It's easier: just like CEOs delegate certain tasks to underlings, developers delegate certain tasks to compilers and tools. So writing vanilla JS is like CEO cleaning own office and doing accounting. Possible, might be enjoined, but generally inefficient and annoying.
  - deleted 12y ago
    [deleted]

by dualogy 12y ago

kbody 12y ago

I can imagine in the future there may be a time where like the vinyls, "hipster" entrepreneurs et al. will try to create a bot-free stock exchange, because stock exchanges do have great value for businesses if not messed with meaningless profiteering.

CmonDev 12y ago
That would have to be a pit with shouting and hand waving then. No computers.
- bsdpython 12y ago
  You could enforce it in other ways. Require a longer holding period or even plain increasing the transaction fees would knock out high frequency trading.
  - NickPollard 12y ago
    To address this complete non-sequitur: Why the hell do you want to stop HFT? I have never heard a single good argument against HFT. HFT does not make ridiculous amounts of money these days - and the money it does make is at the expense of large institutional investors - e.g. Goldman Sachs, JP Morgan, et al. Are you so worried that a bunch of clever young mathematicians are taking money away from those poor old put-upon Morganites? Oh how dreadful. HFT means tighter spreads, which means cheaper and more efficient trading for everyone - i.e. your individual workers investing their 401ks, and so forth. People's arguments against HFT seem to normally come up to '...because computers!' Do yourself a favour and read this: https://scottlocklin.wordpress.com/2014/04/04/michael-lewis-shilling-for-the-buyside/ https://scottlocklin.wordpress.com/2014/04/04/michael-lewis-...
    - bsdpython 12y ago
      I proposed two simple ways that HFT could be limited if one were so inclined. I made no argument for or against the merits of HFT itself.
    - anigbrowl 12y ago
      I am not against HFT, but I understand the emotional argument against it and think it has some value. There are two problems with HFT being carried on by computers. One is obvious: HFT trades done by computer happen super-fast and arbitrage away any slack in the system between bid/ask prices and so on. There's no way a human trader can compete, which means that after a human has made the mental investment to understand how such trades work, s/he is unable to exploit this knowledge and get a foot onto the financial industry ladder. This is aggravating to people who started out trading small-cap stocksor suchlike. Now, day traders are notoriously bad investors to start with and it might be that the market is better off without them, but there's a big qualitative difference between being a bad day-trader who's competing against other humans in the same market, and competing with a machine whose owners have paid extra for it to be located close to the exchange to shave a few milliseconds off execution time. It's like if you put a super-fast mechanical runner in one lane of the Olympic 100 meter dash; while objectively it should have no bearing on the performance of the human participants, which is what we aim to measure, our psychology is not so logical, so seeing a robot complete the 100 meters in, say, 8.5 seconds (handily beating any human for the foreseeable future) would have a massive demoralizing effect on both contestants and spectators. It's one thing to know in the abstract that a machine is much faster than you; it's another to see your best effort radically devalued. A second reason is a bit more abstract and rarely articulated, but IMHO equally important: human trades are ultimately motivated by human desire. Speculators want more money, but long-term investors want yield to provide a sustainable income, commodity buyers want commodities as industrial inputs or for resale to the public, and people buy commodities at retail because they need to eat, build shelter, and so on. The market ultimately exists to serve human need, notwithstanding the fact that it often serves human greed (which is just hypertrophied need and often correlated with some psychic deficit). HFT and algorithms in general work blindly; as very basic software machines, they operate purely deterministically, with no sense of the context within which their operations take place. Of course, human traders can also lose sight of context (I've heard cocaine is great for this :-p) but even the worst excesses of leverage or psychological dynamics are constrained by the social structures within which they take place; human inefficiency (in decision-making, and in implementation of that decision by others along the chain of execution) serves as a buffer to limit excess, although this is very much a function of scale - see the historical excesses in totalitarian states, for example. Getting back to HFT and algorithmic trading, what people worry about at the fundamental level is that as it improves over time and more and more money is under the management of computers, none of which have any moral or social context for their trading decisions, our social buffering against excess becomes less and less effective. This is also a reflection of anxiety about late-stage capitalism; logically, we sense that in a purely deterministic market we would eventually see more and more capital concentration similar to the inevitability of a single winner in a Monopoly game, and that's a stressful prospect because we know that such circumstances are not socially sustainable.

Zigurd 12y ago

While there is a lot to be said against "financialization" in an economy, this particular outcome isn't a signal that things are getting worse. I'd be more worried if several humans were significantly outperforming algorithms over a significant amount of time because that is an unlikely outcome in an honest market. Automation will also drive down costs.

NickPollard 12y ago

There are definitely things wrong with financial markets, but automated trading is not one of them. Just like anything else, using computers to be more efficient is a good thing. Are you going to complain about Amazon and wait for 'real retail' to decouple? The problem with modern financial markets is that they have become quite abstract. Finance is maths, which means it's code, which means you start abstracting away from the implementation to get to a high level. Just because it's not immediately clear to a layperson what's going on, doesn't mean it's not useful or real. Imagine what would happen for most programmers if you tried to explain to a layperson what you do. "I'm a developer" "Oh, you make websites?" "Well, uh, no, you see, I make tools for making it easier to make websites" "Oh, like what?" "Um, well I make a compiler for turning one language into another" "Why?" "Well, when you make a website, you have to do all this stuff, but, well, you could do less stuff, just more clever, and then it's easier and you don't have to worry about for loops and such" "What's a for loop?" "Oh that doesn't matter. But now we can use a monadic map instead, which is much easier, developers don't want to write loops, map is better. But Javascript is a bit fiddly, so now I've written another language, so you can write in that, and then you run my tool, and then you get Javascript, so the browsers can understand it." "Oh, so the browser only runs Javascript?" "Yes. Well no. Actually most of them run some kind of JIT compiler, which turns javascript into another language, and then they run that" "So your language becomes another language which becomes another language? Why not just write the other one?" "Well, because that's not really what we want to do, it's awkward, and inefficient, and bug-prone..." "But your language isn't a real thing? No-one's actually using it? My computer never gets it, never runs it, never understands it? Shouldn't you be doing real development?"

CmonDev 12y ago
It's easier: just like CEOs delegate certain tasks to underlings, developers delegate certain tasks to compilers and tools. So writing vanilla JS is like CEO cleaning own office and doing accounting. Possible, might be enjoined, but generally inefficient and annoying.
- deleted 12y ago
  [deleted]