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Anyone heard of High Frequency Trading?

 
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frederick23



Joined: 24 Dec 2013
Posts: 219

PostPosted: Tue Apr 01, 2014 9:16 pm    Post subject: Anyone heard of High Frequency Trading? Reply with quote

The most fascinating news story today on NPR’s fresh air. High frequency trading. A tale of exploitation, predatory pay to play tactics on the worlds trading exchanges. All driven by fiber optics and who can get the information 1 millisecond before the next. And believe me, 1 millisecond counts. In 2010 a Chicago futures trader spent 300 million to lay a cable that would beat Verizons to New York by 5 milliseconds. Then charging 10 million to get on his line.

Here is the link to the 37 minute Michael Lewis (Moneyball) interview. I know for some of you O’Reilly or Hannity watchers a 37 minute interview is incomprehensible, but rest assured, you will be drawn in.

Click "listen to full show" link.


http://www.npr.org/programs/fresh-air/

And further news

http://www.bloomberg.com/news/2014-03-31/fbi-said-to-probe-high-speed-traders-over-abuse-of-information.html

http://www.cnbc.com/id/101539820
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stevenbard



Joined: 11 Nov 1993
Posts: 3600

PostPosted: Tue Apr 01, 2014 10:24 pm    Post subject: Reply with quote

Lewis's new book boils down to one thing. The vultures will always find the quickest way to the meat.

HFT has been going on for years and has been known by regulators for as long. Government hasn't regulated it, because it is not politically high yielding. It is a small tax on every transaction.

There are some who say there should be no law against insider trading. I feel that HFT is insider trading on a microscopic level. There are so many things that we can regulate. How about a law that says, "do unto others, as you would have them do unto you"?
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swchandler



Joined: 08 Nov 1993
Posts: 5435

PostPosted: Wed Apr 02, 2014 3:07 am    Post subject: Reply with quote

Michael Lewis was a guest on Charlie Rose's PBS show this evening. Overall, it will be interesting to see how everyone responds to Lewis' new book.
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pueno



Joined: 03 Mar 2007
Posts: 2344

PostPosted: Wed Apr 02, 2014 4:44 am    Post subject: Reply with quote

stevenbard wrote:
How about a law that says, "do unto others, as you would have them do unto you"?

Never happen. Cheney would say it was illegal unless he was doing it unto others.
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DanWeiss



Joined: 24 Jun 2008
Posts: 1888
Location: Connecticut, USA

PostPosted: Wed Apr 02, 2014 11:14 am    Post subject: Reply with quote

I do recall when the concept of these trading rooms was introduced and labelled as a way to eliminate timing advantages. The rooms are wired just as IEX, with the same hardware, software and -critically- precisely the same respecitve distance of optical line between the servers and connected machinery.

The red flag for most people remainss the initial investment and annual license fee, each of which put it out of reach of all but the very wealthy. To illustrate, one guy saw that Verizon supplied the fastest line from Chicago to the NYSE. He then decided to trench a direct line from Chicago to NY. The trench cost him several hundred million dollars to complete but shaves about 5-7 milliseconds off the Verizon line by being arrow-straight. When he shopped the service he priced it at about $10mm/yr. The investment bank he pitched counter offered with a price twice as high just to prevent others from affording the product.

The trading information seems to be public knowledge, at least analogous as to a forward-looking statement published in the Journal but read by the delivery man before the trader or a trader in the pit hearing the puts and calls before anyone else. All it takes is money to participate and subscriptions are open to everyone with enough money. Thus the time advantage likely fails to meet the definition of inside information and therefore would not form the basis of an inside trading allegation.

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isobars



Joined: 12 Dec 1999
Posts: 13267

PostPosted: Wed Apr 02, 2014 11:34 am    Post subject: Reply with quote

HFT has been around for many years, and the technology that recently pushed it over the top has been around for decades; it's just one of countless successful Star Wars technology spinoffs. This one in particular employs the deformable mirrors I and my team developed in the '80s for long range laser weapons systems, subsequently applied to secure laser communications between military aircraft and now implemented between brokerage servers and the stock market. The result is that HFT constitutes a MAJORITY of U.S. market volume, while ordinary investors like us and Warren Buffet must subsist on what's left.
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DanWeiss



Joined: 24 Jun 2008
Posts: 1888
Location: Connecticut, USA

PostPosted: Wed Apr 02, 2014 5:31 pm    Post subject: Reply with quote

isobars wrote:
HFT has been around for many years, and the technology that recently pushed it over the top has been around for decades; it's just one of countless successful Star Wars technology spinoffs. This one in particular employs the deformable mirrors I and my team developed in the '80s for long range laser weapons systems, subsequently applied to secure laser communications between military aircraft and now implemented between brokerage servers and the stock market. The result is that HFT constitutes a MAJORITY of U.S. market volume, while ordinary investors like us and Warren Buffet must subsist on what's left.


Congratulations on that work.

Returning to the normative issue, if high volume trading can be demonstrated to be an abuse of markets or a case of market manipulation, then the more broad HVT's application the greater the wrong and harm.

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pueno



Joined: 03 Mar 2007
Posts: 2344

PostPosted: Wed Apr 02, 2014 5:51 pm    Post subject: Reply with quote

isobars wrote:
HFT has been around for many years, and the technology that recently pushed it over the top has been around for decades; it's just one of countless successful Star Wars technology spinoffs.

And that's the key, Mike. The program itself was a flop -- Ronnie "Raygun" merely used it to scare the Russians into submission.

But all the high tech development that the government funded created mountains of useful spinoffs for society.

Keep that in mind when you decide to rail against the "wasted" resources of this administration, such as Solyndra. The solar panels might not be economical, but the development of manufacturing technologies was and is valuable.
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