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SpringHeeledJack
24th Apr 2013, 04:45
'Bogus' AP tweet about explosion at the White House wipes billions off US markets - Telegraph (http://www.telegraph.co.uk/finance/markets/10013768/Bogus-AP-tweet-about-explosion-at-the-White-House-wipes-billions-off-US-markets.html)

The false information was analysed by the algorithms of trading computers and many thousands of transactions were made within seconds across all possible genres to reflect this news and it's likely affects. I was speaking to someone a while ago and they seemed to be of the opinion that these computers were almost becoming self-aware due to their ability to receive complex information and then execute a strategy on a continuous basis. Scary stuff :uhoh:



SHJ

Loose rivets
24th Apr 2013, 04:55
The problem with becoming sapient before being sentient, or perhaps, 'how electronics can reverse evolution.'

ExRAFRadar
24th Apr 2013, 05:17
Spring, sorry mate but your source needs to read a bit more and not take these things at fave value.

Automatuc Trading Software is very, very complicated.

But nowhere near as clever as you may think. It takes inputs, makes a decision and then does things based on those inputs.

The code is complicated because Humans have to decide what inputs it gets and what to do with them. Humans miss something then so does the program.

A more sane thing to say is that one day these programs are going to cause a real crash. Read here for example

Too Fast to Fail: Is High-Speed Trading the Next Wall Street Disaster? | Mother Jones (http://www.motherjones.com/politics/2013/02/high-frequency-trading-danger-risk-wall-street)

500N
24th Apr 2013, 05:18
I thought that the computers of the trading systems had a built
in slow down if trading volume during a crash got too high ?
It was discussed after 9/11 or one of those events to stop
major meltdowns in very short periods like this.


"these computers were almost becoming self-aware due to their ability to receive complex information and then execute a strategy on a continuous basis. Scary stuff"

HAL all over again ?????

arcniz
24th Apr 2013, 05:40
Hyper-reactivity at the trading nexes is sure a PR problem and likely also a disruptive source of excessive volaitility.

What might be worse, though, is the relative efficiencies of the process. With a hundred fast computers doing Fourier and similar more exotic analysis for arbitrage gaps during every trading nanosecond, not a lot of value residue likely will be left unharvested in the moment-to-moment results of trading. I think this means that all other parties who are at least a few nanoseconds slower than the Gorillas in executing orders are structurally destined to achieve third-class and poorer results.

Overall effect of that calculus is the small investor, who resides far outside this loop and works only through chains of resource-sapping middlepersons, soon realizes the frustration of thermodynamics -- can't win and can't break even -- and those investors begin to stay away from the markets in droves... leading to a spiral of declining liquidity and diminishing usefulness for the kind of capital formation that makes for virtuous and prosperous cycles in the markets and associated national economies.

Polikarpov
24th Apr 2013, 05:43
The thing that struck me today about the "Hash Crash" (Tw!tter joke, as it was a single tw3et from the hacked AP account wot triggered it) was that the crash and recover patterns of practically every sector of the market and indeed a lot of different asset classes was pretty much identical.

Everything is massively interlinked now. A large majority of daily trade volume is now executed by the algorithms. A market for machines, by machines.

What happens when code goes rogue was well illustrated by the collapse of Knight Capital (http://www.channel4.com/news/us-brokers-knight-capital-lose-440m-on-zombie-trading) last year. One errant routine that bought at the ask and sold at the bid, repeatedly, floored what was a then big player (subsequently taken over by a rival) in under an hour.

SpringHeeledJack
24th Apr 2013, 05:49
The code is complicated because Humans have to decide what inputs it gets and what to do with them. Humans miss something then so does the program

I appreciate that 'junk in equals junk out' concerning computing, but as you say the algorithms are very sophisticated and maybe the computers could be described as sociopathically autistic, as they have no emotion, no empathy, remorse, indecision etc and within seconds execute thousands/millions of trades to reflect a set of circumstances. Real traders (one's with a heartbeat) use instinct, feeling, wisdom in their job that can sift through things to either make the trade or hold off. My 'source' is someone within a hedge-fund :suspect: who use these computers for such trading. Maybe they should have said 'near-sentient', but whatever, up close these machines seem to be pretty impressive in their capabilities.


SHJ

arcniz
24th Apr 2013, 06:00
The whole problem of really efficient high-speed program-trading squeezing everybody to suffocation can be solved by putting in some amount of random delay that is to be imposed on all trades for a given exchange or trading floor. Same mechanism could actually be used as a tax -- where the higher tax one pays - in advance - for a trade, the closer that trade comes to real-time execution -- zero delay -- which likely will always be the most profitable mode for trading.

500N
24th Apr 2013, 06:07
arcniz

IMHO, you only need the delay when something happens like yesterday
to stop instant crashes.

SpringHeeledJack
24th Apr 2013, 06:14
A good friend of mine is a day trader from home and has done so successfully for many years. However in the last 3 years, despite having a near 100mbps internet connection, he has noticed that he is (as ARCNIZ said) evermore isolated from trading due to the others getting there first. Download is fine, but to get a superfast upload is near impossible without serious costs and by the time he reacts, the 'value' has gone. If things carry on like that the whole short term trading industry will be just for the machines and then the large broking firms.



SHJ

PTT
24th Apr 2013, 06:18
The Fear Index - Wikipedia, the free encyclopedia (http://en.wikipedia.org/wiki/The_Fear_Index)

500N
24th Apr 2013, 06:32
SHJ

100mbps ? Slow and the internals of the machine are probably
what make him miss as well.

I reckon some of these machines that run themselves will be fibre optic
strait through, no bus slow down or any of the other computer bottlenecks.
It's the only way they can win.

mixture
24th Apr 2013, 06:59
I reckon some of these machines that run themselves will be fibre opticstrait through, no bus slow down or any of the other computer bottlenecks.
It's the only way they can win.

The algo houses spend a lot of money on what they do on every aspect.....
.... expensive data feeds
.... expensive servers
.... expensive low-latency high-speed connectivity
.... expensive employees with maths degrees from top universities
etc.

These days, automated trading accounts for well over 50% of volume on most of the major exchanges. However, since the exchanges can't tell the difference (or at least they don't publicly release the detail) between John Doe using STP on his personal trading account and some hedge funds on algos, you'll never really know.

The point is, you shouldn't worry about it. There's very little you can do about it. As a private investor you should be a medium to long term investor .... short term trading is a sure way to get burnt unless you really know what you are doing. As a private investor, fundamental analysis should be your primary tool.

mixture
24th Apr 2013, 07:07
which likely will always be the most profitable mode for trading

If you are a "trader" then yes, fast-execution is everything.

If you are an "investor" then you should have a medium to long-term outlook and so execution speed and price matters little, because you should have been making your decisions based on more solid mid-long term data.

"trader" and "investor"... two very different beasts. In the long term, the latter tends to be more profitable (and more mentally sane !).

500N
24th Apr 2013, 07:20
Mixture

Thanks, you put it far better than I.
And I must get a new keyboard !!!

ExRAFRadar
24th Apr 2013, 07:45
SHJ,

Apologies if I came over as a bit rude.

Didn't mean too but when I hear about 'Sentient Computers' I get a bit 'red misty'

:ok: