6 ms·

Mystery Man Moving Japan Made More Than 1M Trades (2014)

88 points by 3eto 11y ago

ScottBurson 11y ago
CIS’s first big score came on Dec. 8, 2005, when someone at Mizuho Securities Co. made a costly typing mistake. Rather than selling a single share of a small recruiting company called J-Com Co. for 610,000 yen, Mizuho offered 610,000 shares for 1 yen each. Wow. Such an error could easily have been detected by software before the order went out. Does a professional trading company really not do any order sanity checking at all? I bet they do now, ha :-)
- Terr_ 11y ago
  ... Then it probably got disabled two months later, when some internal bigwig complained that it was getting in the way of their old workflow...
- wheaties 11y ago
  On the NYSE erroneous trades like that can be called back. This just shows you that there aren't "fat finger" trade protections built-in to all exchanges.
- fixxer 11y ago
  I got some of that trade, too. :) Fat finger trades like that happen all the time in all markets. People fuck up with probability 1. Now, automation of trades to look for these errors is a great idea... until you get one that isn't an error (say, an earthquake in Kobe).
- patio11 11y ago
  It was noted at both Mizuho and the exchange by actual humans, all of whom made the decision that they lacked personal authority to overrule the trader. The report by the regulator later was frosting when noting this, AFAIK.
  - ScottBurson 11y ago
    Wow, again! I don't know what their system looks like, but it doesn't seem to me that it should require a lot of authority to bounce the trade back to the trader for a second confirmation -- or maybe send it to a second trader in case the first one has a hangover or something. I had to stop and think about what actually happens when someone posts an order like that, well outside the current bid/ask. What price(s) does it get filled at? Apparently -- if it works the same in Japan as here -- each bid already in the book would execute at its existing price, despite the fact that the asking price on the new order is far below that. You might think that they would execute at the average of the two prices, but that doesn't seem to be the case, from what I've managed to dig up. An example like this suggests to me that an even better choice would be the geometric mean. But the difference would matter only when someone had screwed up very badly.
    - log_n 11y ago
      Yup, orders that are placed well outside the bid/ask just fill every order in the order book until they are filled. It's commonly called sweeping the market and happens on 1-2 ticks (price levels) around the best bid/ask pretty commonly throughout the day depending on the product. Limit order books are actually really fun things to model and the rules around different exchanges books are quite neat. The problem with disallowing your trader from ripping through a lot of the levels of an order book is that it can be a risk reducing move and what you intend to do sometimes. This trade is a clear fat finger but there are times when you will want to sweep the book to get hedged. For instance, let's say your desk just got slammed with a ton of risk on an OTC (over the counter) option trade. You can immediately alleviate a lot of that risk (while paying through the nose) by selling 2000 contracts or 5 price levels of the ES (SP500 future). You can immediately place that order and get it filled and be hedged. If there were multiple points of human intervention required then you might lose a substantial amount of money. 2k contracts on the ES is $25,000 a tick. If word leaks that people are going to need to start hedging big then it could easily move 10 or 20 ticks away from you while waiting for your risk management team to approve your trade as not a fat finger. Generally it's cheaper to just fire error prone traders. Heh, and anyone that is about to execute a 2k contract option trade generally has their hedge order queued up and ready to send to the market as soon as they hear the other side agree to their price.
- crimsonalucard 11y ago
  Where do you go to see such offers? I always look at the price displayed by yahoo or google. How do you see these offers and buy from them directly?
  - bladecatcher 11y ago
    This can be done in a variety of ways, but it's unfortunately not usually free. 1) A trading terminal such as Bloomberg 2) get API access to subscribe to the exchange feeds or other data vendor feeds. Usually, this is out of reach for casual traders. I've seen one exchange publish order book snapshots every 5 minutes on their website, but this data is hardly useful for frequently traded instruments if your strategy is based on the order book dynamic.
- nandemo 11y ago
  These days Japanese exchanges have stricter order validation, e.g. orders with price outside a certain range are rejected outright, and if actual trading takes the stock price to (say) 75% of its opening price, the trading for that symbol is halted for the day. So the Mizuho blunder couldn't happen again today.
deleted 11y ago
[deleted]
deleted 11y ago
[deleted]
ChuckMcM 11y ago
A friend of mine was a pretty active day trader during the dot com days, he used to call it "the only gambling legal in all 50 states" and talked about earnings in units of "Boxters" [1]. Unlike the person in the article he had not invested in real estate or other holdings and so his net worth changed dramatically during the 2000 recession. I always felt it was like a teen who drives recklessly until they almost die in an accident and then can't bring themselves to drive above the speed limit after that. I always felt that being single and without dependents gave him an edge. I was never comfortable not having a really really safe hedge as a stop loss. Of course it could be I was just too chicken to "go big" :-) [1] The Boxter from Porche was going for about $50,000 each at the time.
- paulpauper 11y ago
  what happened to him? Did he continue to trade?
  - ChuckMcM 11y ago
    The last I had heard he bought a house outside of Medford OR and was living, in his terms, "simply". My assumption was that he had walked away with enough money to buy a house outright where the taxes weren't outrageous and is just living on the residuals at a much more down to earth level.
- TACIXAT 11y ago
  Why did he lose money in a recession? It is my understanding that day traders can profit off of any volatility, up or down.
  - NhanH 11y ago
    In short term, day trading is effectively a zero sum game. During a recession the stocks crashed in a really short period hence for any to gain, some has to lose money.
    - ChuckMcM 11y ago
TazeTSchnitzel 11y ago
For those unfamiliar with the Yen: it's worth about 2 orders of magnitude less than the major Western currencies. As a rule of thumb, insert a decimal point 2 digits from the right to make figures make more sense.
- gcr 11y ago
  For those in the US, a Yen is about a penny.
hkmurakami 11y ago
A couple of important thing to note about the Japanese taxation system for stock capital gains: (1) Japan has no concept of short term vs long term capital gains for stocks. The tax rate is a flat 20% no matter how long you have held the security, and (2) from about 2003-2014, said rate was only 10%. These two factors make personal trading in Japan a potentially much more lucrative affair than in the United States [1]. >Another day trader, Takashi Kotegawa, who’s known as BNF, made more than 2 billion yen, according to a Bloomberg News report at the time. Efforts to reach Kotegawa were unsuccessful, and it isn’t clear whether he still trades. IIRC "BNF" now owns a prominent building in Akihabara (he likely still trades). I forgot the details of the reasoning, but I remember reading something about the purchase about 5 years ago on 2chan. [1] https://en.wikipedia.org/wiki/Capital_gains_tax#Japan https://en.wikipedia.org/wiki/Capital_gains_tax#Japan
hellbanner 11y ago
Forgive my ignorance of stock trading. For stocks that do not give dividends, then stock has no inherent value EXCEPT what a buyer thinks they can sell it for later (bigger fool theory)?
- tranquil 11y ago
  Not quite. The stock IS the company. If the company makes profit, or is perceived to have other value (assets, knowhow, etc.), then the stock is priced according to those parameters. Simple example; company issues 100 shares and makes $1000 profit per year. If you could buy those 100 shares for $1 each, you'd basically own 100% of a company that makes $1000 per year cash profits for $100. Good deal. Usually too good in fact, and that's why this stock would not be priced at $1 per share for long.
  - hellbanner 11y ago
    Ok, so stock ownership directly means ownership of company then? So if you had enough stock, you could become de-facto CEO?
toothbrush 11y ago
Hm, call me a Luddite or a communist or whatever, but i fail to see how this type of pursuit, broadly speaking, is of any benefit at all to society at large. In fact, i would argue (while simultaneously admitting that i am not an expert / economist, so i am open to comments) that trading this way is dubious to say the least. All i mean is, where is this guy's massive profit coming from? Surely to a certain degree there must be a law of conservation of cash? Is it really only coming from other traders like him, but who in that instance happened to make a bad decision? In other words, i would say it would perhaps not be that bad if the pool of cash from which such traders were fishing were entirely made up of inlay by other such traders, such as would be the case at a casino at a poker table... What i'm trying to enunciate is a vague uneasiness that somehow, making so much cash without contributing anything to society seems... Unfortunate, to say the least? Isn't there something useful somebody like that could do, instead of amassing a fortune by "gaming the market"? I have nowhere near enough knowledge on the subject to suggest a workable method of regulation or anything like that, but i really wonder how something that boils down to somebody gaming the market (as somebody else said, the only gambling which is legal in all states) to the tune of millions is anything but detrimental.
- chrisbennet 11y ago
  Warren Buffet said: It has always been a fantasy of mine that a boatload of 25 brokers would be shipwrecked and struggle to an island from which there could be no rescue. Faced with developing an economy that would maximize their consumption and pleasure, would they, I wonder assign 20 of their number to produce food, clothing, shelter, etc., while setting 5 to trading options endlessly on the future output of the 20?

88 points by 3eto 11y ago

CIS’s first big score came on Dec. 8, 2005, when someone at Mizuho Securities Co. made a costly typing mistake. Rather than selling a single share of a small recruiting company called J-Com Co. for 610,000 yen, Mizuho offered 610,000 shares for 1 yen each. Wow. Such an error could easily have been detected by software before the order went out. Does a professional trading company really not do any order sanity checking at all? I bet they do now, ha :-)

Terr_ 11y ago
... Then it probably got disabled two months later, when some internal bigwig complained that it was getting in the way of their old workflow...
wheaties 11y ago
On the NYSE erroneous trades like that can be called back. This just shows you that there aren't "fat finger" trade protections built-in to all exchanges.
fixxer 11y ago
I got some of that trade, too. :) Fat finger trades like that happen all the time in all markets. People fuck up with probability 1. Now, automation of trades to look for these errors is a great idea... until you get one that isn't an error (say, an earthquake in Kobe).
patio11 11y ago
It was noted at both Mizuho and the exchange by actual humans, all of whom made the decision that they lacked personal authority to overrule the trader. The report by the regulator later was frosting when noting this, AFAIK.
- ScottBurson 11y ago
  Wow, again! I don't know what their system looks like, but it doesn't seem to me that it should require a lot of authority to bounce the trade back to the trader for a second confirmation -- or maybe send it to a second trader in case the first one has a hangover or something. I had to stop and think about what actually happens when someone posts an order like that, well outside the current bid/ask. What price(s) does it get filled at? Apparently -- if it works the same in Japan as here -- each bid already in the book would execute at its existing price, despite the fact that the asking price on the new order is far below that. You might think that they would execute at the average of the two prices, but that doesn't seem to be the case, from what I've managed to dig up. An example like this suggests to me that an even better choice would be the geometric mean. But the difference would matter only when someone had screwed up very badly.
  - log_n 11y ago
    Yup, orders that are placed well outside the bid/ask just fill every order in the order book until they are filled. It's commonly called sweeping the market and happens on 1-2 ticks (price levels) around the best bid/ask pretty commonly throughout the day depending on the product. Limit order books are actually really fun things to model and the rules around different exchanges books are quite neat. The problem with disallowing your trader from ripping through a lot of the levels of an order book is that it can be a risk reducing move and what you intend to do sometimes. This trade is a clear fat finger but there are times when you will want to sweep the book to get hedged. For instance, let's say your desk just got slammed with a ton of risk on an OTC (over the counter) option trade. You can immediately alleviate a lot of that risk (while paying through the nose) by selling 2000 contracts or 5 price levels of the ES (SP500 future). You can immediately place that order and get it filled and be hedged. If there were multiple points of human intervention required then you might lose a substantial amount of money. 2k contracts on the ES is $25,000 a tick. If word leaks that people are going to need to start hedging big then it could easily move 10 or 20 ticks away from you while waiting for your risk management team to approve your trade as not a fat finger. Generally it's cheaper to just fire error prone traders. Heh, and anyone that is about to execute a 2k contract option trade generally has their hedge order queued up and ready to send to the market as soon as they hear the other side agree to their price.
crimsonalucard 11y ago
Where do you go to see such offers? I always look at the price displayed by yahoo or google. How do you see these offers and buy from them directly?
- bladecatcher 11y ago
  This can be done in a variety of ways, but it's unfortunately not usually free. 1) A trading terminal such as Bloomberg 2) get API access to subscribe to the exchange feeds or other data vendor feeds. Usually, this is out of reach for casual traders. I've seen one exchange publish order book snapshots every 5 minutes on their website, but this data is hardly useful for frequently traded instruments if your strategy is based on the order book dynamic.
nandemo 11y ago
These days Japanese exchanges have stricter order validation, e.g. orders with price outside a certain range are rejected outright, and if actual trading takes the stock price to (say) 75% of its opening price, the trading for that symbol is halted for the day. So the Mizuho blunder couldn't happen again today.

deleted 11y ago

[deleted]

deleted 11y ago

[deleted]

ChuckMcM 11y ago

A friend of mine was a pretty active day trader during the dot com days, he used to call it "the only gambling legal in all 50 states" and talked about earnings in units of "Boxters" [1]. Unlike the person in the article he had not invested in real estate or other holdings and so his net worth changed dramatically during the 2000 recession. I always felt it was like a teen who drives recklessly until they almost die in an accident and then can't bring themselves to drive above the speed limit after that. I always felt that being single and without dependents gave him an edge. I was never comfortable not having a really really safe hedge as a stop loss. Of course it could be I was just too chicken to "go big" :-) [1] The Boxter from Porche was going for about $50,000 each at the time.

paulpauper 11y ago
what happened to him? Did he continue to trade?
- ChuckMcM 11y ago
  The last I had heard he bought a house outside of Medford OR and was living, in his terms, "simply". My assumption was that he had walked away with enough money to buy a house outright where the taxes weren't outrageous and is just living on the residuals at a much more down to earth level.
TACIXAT 11y ago
Why did he lose money in a recession? It is my understanding that day traders can profit off of any volatility, up or down.
- NhanH 11y ago
  In short term, day trading is effectively a zero sum game. During a recession the stocks crashed in a really short period hence for any to gain, some has to lose money.
  - ChuckMcM 11y ago

TazeTSchnitzel 11y ago

For those unfamiliar with the Yen: it's worth about 2 orders of magnitude less than the major Western currencies. As a rule of thumb, insert a decimal point 2 digits from the right to make figures make more sense.

gcr 11y ago
For those in the US, a Yen is about a penny.

hkmurakami 11y ago

A couple of important thing to note about the Japanese taxation system for stock capital gains: (1) Japan has no concept of short term vs long term capital gains for stocks. The tax rate is a flat 20% no matter how long you have held the security, and (2) from about 2003-2014, said rate was only 10%. These two factors make personal trading in Japan a potentially much more lucrative affair than in the United States [1]. >Another day trader, Takashi Kotegawa, who’s known as BNF, made more than 2 billion yen, according to a Bloomberg News report at the time. Efforts to reach Kotegawa were unsuccessful, and it isn’t clear whether he still trades. IIRC "BNF" now owns a prominent building in Akihabara (he likely still trades). I forgot the details of the reasoning, but I remember reading something about the purchase about 5 years ago on 2chan. [1] https://en.wikipedia.org/wiki/Capital_gains_tax#Japan https://en.wikipedia.org/wiki/Capital_gains_tax#Japan

hellbanner 11y ago

Forgive my ignorance of stock trading. For stocks that do not give dividends, then stock has no inherent value EXCEPT what a buyer thinks they can sell it for later (bigger fool theory)?

tranquil 11y ago
Not quite. The stock IS the company. If the company makes profit, or is perceived to have other value (assets, knowhow, etc.), then the stock is priced according to those parameters. Simple example; company issues 100 shares and makes $1000 profit per year. If you could buy those 100 shares for $1 each, you'd basically own 100% of a company that makes $1000 per year cash profits for $100. Good deal. Usually too good in fact, and that's why this stock would not be priced at $1 per share for long.
- hellbanner 11y ago
  Ok, so stock ownership directly means ownership of company then? So if you had enough stock, you could become de-facto CEO?

toothbrush 11y ago

Hm, call me a Luddite or a communist or whatever, but i fail to see how this type of pursuit, broadly speaking, is of any benefit at all to society at large. In fact, i would argue (while simultaneously admitting that i am not an expert / economist, so i am open to comments) that trading this way is dubious to say the least. All i mean is, where is this guy's massive profit coming from? Surely to a certain degree there must be a law of conservation of cash? Is it really only coming from other traders like him, but who in that instance happened to make a bad decision? In other words, i would say it would perhaps not be that bad if the pool of cash from which such traders were fishing were entirely made up of inlay by other such traders, such as would be the case at a casino at a poker table... What i'm trying to enunciate is a vague uneasiness that somehow, making so much cash without contributing anything to society seems... Unfortunate, to say the least? Isn't there something useful somebody like that could do, instead of amassing a fortune by "gaming the market"? I have nowhere near enough knowledge on the subject to suggest a workable method of regulation or anything like that, but i really wonder how something that boils down to somebody gaming the market (as somebody else said, the only gambling which is legal in all states) to the tune of millions is anything but detrimental.

chrisbennet 11y ago
Warren Buffet said: It has always been a fantasy of mine that a boatload of 25 brokers would be shipwrecked and struggle to an island from which there could be no rescue. Faced with developing an economy that would maximize their consumption and pleasure, would they, I wonder assign 20 of their number to produce food, clothing, shelter, etc., while setting 5 to trading options endlessly on the future output of the 20?