kagiso Posted July 29, 2009 Share Posted July 29, 2009 The part I have highlighted in bold. Just curious how this is one of the most bizarre contrarian rallys ever seen...and what is the circumstantial evidence from HFT that made this bizarre rally? And also how are you quantifying "strongly suggest" that they are gaming system to extraordinary levels...?I just don't understand this statement. Or at least I don't know how you have arrived at making these statements. Circumstantial is of course circumstantial, some of the following as examples, it is worth reading the comments: http://www.housepricecrash.co.uk/forum/ind...howtopic=118636 http://zerohedge.blogspot.com/2009/06/cnbc...nues-to-be.html http://www.zerohedge.com/article/guest-post-manipulation http://www.zerohedge.com/article/other-plu...ber-spy-95-puts http://www.zerohedge.com/article/vwap-regr...-back-right-cue http://www.zerohedge.com/article/goldman-s...-humming-nicely http://www.zerohedge.com/article/day-was-hfts-superdominance http://www.zerohedge.com/article/goldmans-...rading-wildcard From my own casual observation, the number of days the S&P has floated down during the day then flipped up to squeeze in an overall gain in the closing hours has been quite bizarre in recent months. A pattern rarely seen on the FTSE/DAX/Nikkei etc. I am not one usually for conspiracy theories, but the pattern of trading in recent months on the S&P looks statistically anomolous. Even if I am barking up the wrong tree, the dominance of the HF players discussed above is clear, and does not give any confidence at all of a free market. Quote Link to comment Share on other sites More sharing options...
meedge Posted July 29, 2009 Share Posted July 29, 2009 Well, when you come to sell your holdings in 50 years time, you'll be pleased that someone has been providing liquidity because, without it, you don't actually know what your shares are worth, pretty much like houses. Now, the difference between being able to get your order filled in 10 ms vs 10 minutes is kind of irrelevant but 10 minutes vs 10 days - which is the kind of difference seen in smalll and mid-cap stocks over the last 10 years as the program trading desks have gradually started looking at smaller stuff - is seriously relevant. It's one of those cake and eat it situations really. Yeah, but the liquidity provided isn't obligated. that is seriously relevant and that is where the fee should be earnt, otherwise it is simply arbitrage. Or as I like to call it, legalized stealing. do you think maybe increased volatility is correlated to an increased proportion of trades from these sources in volume? I think the answer is a definite yes... Quote Link to comment Share on other sites More sharing options...
Joey Buttafueco Jr Posted July 29, 2009 Author Share Posted July 29, 2009 (edited) No Noel, the whole finance industry is, or should be, a zero sum game. This is your problem, you seem to believe finance and financial innovation exist as of their own right.Get any basic book on finance and start at the beginning, and it makes a clear difference between real assets and financial assets. So lots of people, mostly the wealthy middle aged, have surplus money they wish to invest, while industrialists et al have profitable ventures they wish to run, but need money to buy buildings, equipment, etc, before they can realise a return. So the finance industry steps in to connect one with the other via pension funds, bonds, shares, etc. Similarly, young people have little savings, need houses, but have a good long term prospect of income. So the finance industry borrows money from older people and lends it to youngsters via mortgages. The finance industry is simply an agency function. All it does is move money from one place to another. It does not create wealth directly. It only creates wealth indirectly, it does this in three ways: 1. It should act as a market and allocate capital effectively, where it will get the best return. 2. It should pool risk, so reducing individual and overall risk. 3. It should act competitively to reduce margins. Over the last twenty years, while the real economy has grown slowly the financial industry has roughly doubled in size, while using precious resources in the form of large numbers of numerate graduates, contriving wonderful new financial gizmos such as CDS's, MBS's and high frequency trading. So what has this done to the three items above? 1. Capital allocated haphazardly and badly (eg. housing, commodity bubbles), and no longer being allocated at all as it is being stashed away by banks to try and staunch their extraordinary losses. Meanwhile businesses in the real economy going bankrupt. And we the taxpayer has had to stump up to prevent systemic meltdown. 2. Individual and system risk through the roof. ditto above re taxpayers. 3. Finance industry doubled, real economy not. QED finance industry margins have doubled their drag on the real economy. It is the real assets that are the ones that generate wealth. Financial innovation needs to be looked on in that light. So the concept of a CDS for a bond holder is one that I find eminently sensible, providing that the ultimate insurer fully understands the systemic risk, and doesn't expect a taxpayer bailout a la AIG. On the other hand naked CDS's serve no function other than incentivise the holders to bankrupt perfectly good businesses. I am most certainly no expert on HFT, but I struggle to see the utility of offering bid prices for 3 microseconds in allowing the useful transfer of capital from Jo Blogg's pension fund to John Smiths Metal Bashers Ltd. Liquidity, yes, is a very useful thing, but when two thirds of trades are HFT automated one has to wonder. And if it was just automatic matching of prices, there wouldn't be much to worry about. But casual observation suggests that HFT just isn't like that. Historically, liquidity providers were under strict instructions to 'maintain an orderly market', ie, in return for the bid-ask profit margin, they were required not take advantage of the customers, the real players from the real economy who want to reallocate their capital. People who's pensions are in shares, companies that need money to invest in machinery. The circumstantial evidence from HFT, most noticeably the multi-billion dollar daily mid-aftenoon prods to the S&P to gull in the momentum investors and create one of the most bizarre long term contra fundamental rallys ever seen, strongly suggest that the HFT players are gaming the system to an extraordinary degree. Most of the sensible members of this forum, having been burnt on a few shorts have got out and are watching from the sidelines with horror. But when the next down leg comes, and ordinary investor realise how GS et al have suckered the shareholding public as a bunch of patsys, things are going to get very interesting. Other things about HFT are also worrying, it is effectively an arms race, he who wants to win is the one who can spend the most money on the best quants, clearly making a vicious circle toward monopolistic practices. To enable full speed HFT you need to be co-located in the Exchange (it is that fast), again giving monopolistic rights. Finally, as a risk manager, and somebody who has spent a bit of time studying reactions of autonomous agent systems, HFT seems like an accident waiting to happen. With an increasingly over priced market, very low volumes as serious traders are pushed out of the system they can no longer compete with, the whole thing seems set up perfectly for a worse case combination of a 1928-1987 type event. Lets just pray that the circuit breakers do their stuff. "No Noel, the whole finance industry is, or should be, a zero sum game. This is your problem, you seem to believe finance and financial innovation exist as of their own right." We were talking about the stock market having a drift element and hence is not a zero sum game. Wake up at the back "Get any basic book on finance and start at the beginning, and it makes a clear difference between real assets and financial assets." Do I have to cancel my heat subscription first? "On the other hand naked CDS's serve no function other than incentivise the holders to bankrupt perfectly good businesses." Can you give examples please "he who wants to win is the one who can spend the most money on the best quants, clearly making a vicious circle toward monopolistic practices. " What is new about this? Edited July 29, 2009 by Noel Quote Link to comment Share on other sites More sharing options...
kagiso Posted May 6, 2010 Share Posted May 6, 2010 Calling Noel! Hello Noel? Noel............... No Noel................ ...........I am most certainly no expert on HFT, but I struggle to see the utility of offering bid prices for 3 microseconds in allowing the useful transfer of capital from Jo Blogg's pension fund to John Smiths Metal Bashers Ltd. Liquidity, yes, is a very useful thing, but when two thirds of trades are HFT automated one has to wonder. And if it was just automatic matching of prices, there wouldn't be much to worry about. But casual observation suggests that HFT just isn't like that. Historically, liquidity providers were under strict instructions to 'maintain an orderly market', ie, in return for the bid-ask profit margin, they were required not take advantage of the customers, the real players from the real economy who want to reallocate their capital. People who's pensions are in shares, companies that need money to invest in machinery. The circumstantial evidence from HFT, most noticeably the multi-billion dollar daily mid-aftenoon prods to the S&P to gull in the momentum investors and create one of the most bizarre long term contra fundamental rallys ever seen, strongly suggest that the HFT players are gaming the system to an extraordinary degree. Most of the sensible members of this forum, having been burnt on a few shorts have got out and are watching from the sidelines with horror. But when the next down leg comes, and ordinary investor realise how GS et al have suckered the shareholding public as a bunch of patsys, things are going to get very interesting. Other things about HFT are also worrying, it is effectively an arms race, he who wants to win is the one who can spend the most money on the best quants, clearly making a vicious circle toward monopolistic practices. To enable full speed HFT you need to be co-located in the Exchange (it is that fast), again giving monopolistic rights. Finally, as a risk manager, and somebody who has spent a bit of time studying reactions of autonomous agent systems, HFT seems like an accident waiting to happen. With an increasingly over priced market, very low volumes as serious traders are pushed out of the system they can no longer compete with, the whole thing seems set up perfectly for a worse case combination of a 1928-1987 type event. Lets just pray that the circuit breakers do their stuff. Quote Link to comment Share on other sites More sharing options...
jonpo Posted May 6, 2010 Share Posted May 6, 2010 As some one familiar with so called High freequency trading. I can tell you that there are trading outfits out there who are putting in orders for merly 1 millisecond and then pulling the order... they do this in order to try and move the market in their favor by making sub millisecond fluctuations in the theoretical prices of securities they may be able to influence the pricing offered by other algorithms if they manage to move the maket they pull their origional order and hit the liquidity on offer using an immediate or cancel which is a special type of order which is so fast it never even exists on the order book we are talking sub millsecond craziness in a bait and switch world... they are american bandits of course.... and the regulators are wimps... oh yeah and you know who is the largest trader in the world ? its not even anyone youve heard of... its not goldman.... its not citi or getco.... its not kyte or GHF.... its some czech mathmatician who trades several quadrillion dollars a quater and controls the entire world money markets... but yeah you think that all that colo stuff is makein it all efficent... noooooo its not... just a silly race to zero for $$$... Quote Link to comment Share on other sites More sharing options...
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