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New "Circuit Breaker" Imposed To Stop Market Crash

samzenpus posted more than 4 years ago | from the financial-feather-fall dept.

Government 460

Lucas123 writes "The SEC and national securities exchanges announced a new rule that would help curb market volatility and help to prevent 'flash crashes' like the one that took place on May 6, when the Dow dropped almost 1,000 points in a half hour. That crash was blamed in part on automated trading systems, which process buy and sell orders in milliseconds. The new rule would pause trading on individual stocks that fluctuate up or down 10% in a five-minute period. 'I believe that circuit breakers for individual securities across the exchanges would help to limit significant volatility,' the SEC's chairman said. 'They would also increase market transparency, bolster investor protection, and bring uniformity to decisions regarding trading halts in individual securities.'"

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Good Fix... (5, Informative)

LostCluster (625375) | more than 4 years ago | (#32271432)

What happened on May 6th was that sell orders were present without matching buy orders for an instant, and that allowed some really wacky trades to complete... nearly every Dow and S&P 500 component was affected, and some ETFs even traded for a penny a share for that brief instant. Then when news got out that there was bargains to be had, the buy orders started showing up and things returned to a run-of-the-mill down day.

Now, the NYSE and NASDAQ have always had this circuit breaker rule that allowed them to call a "time out" where they wouldn't process orders in order to draw attention to the wacky situation and give all involved time to react. The problem is that these new "market centers" allow trades to be completed rapidly, but also without the same oversight rules. While the big exchanges had the time out in effect, orders simply routed around them and the wacky drop continued. So, now the SEC is taking the NYSE/NASDAQ rules and making them their rules, so all the new players have to observe the timeouts. That should fix this problem.

Re:Good Fix... (3, Insightful)

Peach Rings (1782482) | more than 4 years ago | (#32271532)

This sounds like a band-aid solution to a bigger problem. Millisecond trading is exploiting the system; it just sucks profit out of tiny variations in the market. Why is it allowed?

Re:Good Fix... (3, Interesting)

LostCluster (625375) | more than 4 years ago | (#32271622)

It's allowed because the current theory is that anybody who wants to do it, can. I think the best argument against that is it takes real estate close to the market computers in order to have a fast enough ping time to trade by the millisecond.

My fix for that situation would be to dumb down the market clocks to only timestamp to the second, and anything received in the same second gets the same priority, with randomness as the tiebreaker when needed. That should suck the life out of these vultures.

Re:Good Fix... (2, Interesting)

Anonymous Coward | more than 4 years ago | (#32272008)

"I think the best argument against that is it takes real estate close to the market computers in order to have a fast enough ping time to trade by the millisecond."

The flash traders have full supercomputers right under the trading floor and analyze all data coming in and out before it reaches the other shareholders.

Goldman Sachs is making a ton of money off them.

Re:Good Fix... (4, Interesting)

bertok (226922) | more than 4 years ago | (#32272140)

It's allowed because the current theory is that anybody who wants to do it, can. I think the best argument against that is it takes real estate close to the market computers in order to have a fast enough ping time to trade by the millisecond.

My fix for that situation would be to dumb down the market clocks to only timestamp to the second, and anything received in the same second gets the same priority, with randomness as the tiebreaker when needed. That should suck the life out of these vultures.

A second? How about once a day!

Explain to me just what a multi-billion company could do in under a second that would fundamentally change the value of their stock?

Think about it this way: there is no way for traders to gain information on the underlying asset of a stock second-to-second. There is no public source of information that fast! No corporation gets updates internally that quickly. Most of them only roll up their accounts for reporting daily, and some only get an internal update of their financial status monthly or even slower. Even if some huge announcement was made that suddenly changes the value of a corporation, what difference does it make if people get to sell their stock a second or a day later?

The whole concept of the stock market is to create a central point for people to invest in a corporation. How is buying and selling a stock in under a second anything at all like "investing"? It's pure gambling, milking the real investors of cents on every dollar, putting it into the pockets of traders that provide zero value to society. They produce nothing except market crashes.

Trades faster than a day should be simply outlawed, and it should not be possible to own a stock for a period of less than one day either. Real investors should investigate a company's fundamental value and invest for years, not sit there all day and shuffle money around like it's a game in a casino.

Consider this: if millisecond trades are possible, and make sense, then why not microsecond trades? Nanoseconds? Why should we stop there? Lets puts the exchange and the trader's computers on the same piece of silicon, and have them buy and sell stocks at gigahertz!

Re:Good Fix... (0)

Anonymous Coward | more than 4 years ago | (#32272254)

That sounds too much like common sense to me. It'll never happen.

Re:Good Fix... (1)

Steauengeglase (512315) | more than 4 years ago | (#32272336)

You'd probably disappear in gigahertz if you tried to implement something like this.

Re:Good Fix... (4, Insightful)

thrawn_aj (1073100) | more than 4 years ago | (#32272360)

THIS! A million times THIS! Why do you have to write something so sensible when you know it'll never be done? Are you trying to depress us to death =p

Of course it's gambling, plain and simple. Even worse, because these SOBs don't even have the decency of common gamblers to use their own money for the purpose. The whole profession is based upon extracting stuff out of that little space under your fingernails and calling it gold.

The worst part of it is that these hucksters can (and do) cause real harm to productive brick and mortar businesses for no earthly reason (but the whim of the big trader).

No, HFT is a front-running scam (2, Interesting)

Estanislao Martnez (203477) | more than 4 years ago | (#32272446)

It's allowed because the current theory is that anybody who wants to do it, can. I think the best argument against that is it takes real estate close to the market computers in order to have a fast enough ping time to trade by the millisecond.

No, the best argument against it is that it allows automated front-running [seekingalpha.com] by allowing the high-frequency traders to issue and cancel small orders in quick succession to discover an ordinary buyers or seller's limit price, and then profiting by offering a sale that would have otherwise happened at a price more favorable to the initiator. To quote the link (which is highly recommended):

Let's say that there is a buyer willing to buy 100,000 shares of BRCM with a limit price of $26.40. That is, the buyer will accept any price up to $26.40. But the market at this particular moment in time is at $26.10, or thirty cents lower.

So the computers, having detected via their "flash orders" (which ought to be illegal) that there is a desire for Broadcom shares, start to issue tiny (typically 100 share lots) "immediate or cancel" orders - IOCs - to sell at $26.20. If that order is "eaten" the computer then issues an order at $26.25, then $26.30, then $26.35, then $26.40. When it tries $26.45 it gets no bite and the order is immediately canceled.

Now the flush of supply comes at, big coincidence, $26.39, and the claim is made that the market has become "more efficient." Nonsense; there was no "real seller" at any of these prices! This pattern of offering was intended to do one and only one thing - manipulate the market by discovering what is supposed to be a hidden piece of information - the other side's limit price!

Re:Good Fix... (2, Insightful)

martin-boundary (547041) | more than 4 years ago | (#32271646)

Why is it allowed?

Exactly because "Millisecond trading is exploiting the system; it just sucks profit out of tiny variations in the market."

Oh, you mean why do the American People allow the stock market to exist without taxing the hell out of speculators? I blame a national battered wife syndrome.

Re:Good Fix... (4, Insightful)

brian0918 (638904) | more than 4 years ago | (#32271712)

Millisecond trading is exploiting the system

I don't think that word means what you think it means.

It just sucks profit out of tiny variations in the market.

How does one go about "sucking profits"? What does that even mean? If you're going to advocate telling people how, with whom, and when they are allowed to buy or sell items with other willing individuals, you should at least have the common courtesy to clearly explain why such voluntary trades should not be permitted to occur.

Re:Good Fix... (3, Insightful)

feepness (543479) | more than 4 years ago | (#32271952)

How does one go about "sucking profits"? What does that even mean? If you're going to advocate telling people how, with whom, and when they are allowed to buy or sell items with other willing individuals, you should at least have the common courtesy to clearly explain why such voluntary trades should not be permitted to occur.

I'm pretty libertarian, but I agree these should be stopped. As the other poster said, it gives real estate closer to the market servers an advantage, I'm not quite clear how it works, but it is evident that it does because people are doing it. I assume they can recognize short term patterns and jump in ahead of anyone else who might try to take advantage of them.

Trading is something where we want to have as level a playing field as possible. It's also something specifically designed to serve humans. The speed of your computer and connection shouldn't give you an advantage. It keeps our market freer.

Re:Good Fix... (2, Insightful)

PotatoFarmer (1250696) | more than 4 years ago | (#32272096)

I assume they can recognize short term patterns and jump in ahead of anyone else who might try to take advantage of them.

More than just recognize - the biggest players can manufacture short term patterns because they control large segments of the market. Oddly enough most of them seem to be located in that prime real estate mentioned earlier...

Re:Good Fix... (0)

Anonymous Coward | more than 4 years ago | (#32272154)

And this has the effect of... raising the real-estate prices of properties closer to the trading centers? I guess we should ban scenic views too.

Re:Good Fix... (1)

Requiem18th (742389) | more than 4 years ago | (#32272238)

The speed of your computer and connection shouldn't give you an advantage.

Why not? I mean, Capitalism grew out of feudalism where people retained their lands and means of productions.

It is called "capital", money that makes money, he who has the most money will make take most money out of everyone else.

It is not only allowed by capitalism, its it's very end.

errata (1)

Requiem18th (742389) | more than 4 years ago | (#32272354)

wow I managed to incorrectly use both it's and its simultaneously.

Also replace that "make take most" with "make/take the most"

Re:Good Fix... (4, Insightful)

Jake73 (306340) | more than 4 years ago | (#32272028)

Actually, the term is "arbitrage" (http://en.wikipedia.org/wiki/Arbitrage) and it really is "sucking profits". It is exploiting (yes, I mean that) small variations and inefficiencies in market representations. These points are being closed, but they still exist.

Re:Good Fix... (0)

Anonymous Coward | more than 4 years ago | (#32272436)

You could look at it in a different light though. By buying and selling on this micro-scale, the arbers close the gap, remove the discrepancies in the markets. And the money they earn is their reward for doing so.

Re:Good Fix... (1)

martin-boundary (547041) | more than 4 years ago | (#32272076)

Millisecond trading operates in a timeframe that prevents everyone in the market from reacting in a timely fashion. That means a large part of the market players are practically excluded from helping to steer the market prices until much later, when big changes have already happened.

In particular, you can get price fluctuations which would be nigh impossible in a functioning market with many players, because there's only a very small number of players in the millisecond timeframe. Those unlikely fluctuations are bad. They mean that the market isn't behaving as it's supposed to, and in particular it isn't optimizing everybody's preferences, which is the main theoretical justification for letting markets exist.

Re:Good Fix... (1)

nedlohs (1335013) | more than 4 years ago | (#32272290)

Because it's fundamentally unfair.

Some people have access to data before everyone else and get to inject orders in reaction to that data before everyone else even sees it.

In doing so they take profits from others who don't have access to the data early.

But it'll fix itself, at some point people get fed up enough with it and don't bother dealing with such a biased market. For now it's a money printing machine for those on the inside.

benefit of all of this? (0)

Anonymous Coward | more than 4 years ago | (#32272324)

If you're going to advocate telling people how, with whom, and when they are allowed to buy or sell items with other willing individuals, you should at least have the common courtesy to clearly explain why such voluntary trades should not be permitted to occur.

Except that they're not happening between individuals, but between computer systems.

                No one prospers unless he renders benefit to others.
                                -- Tadao Yoshida, founder YKK zippers

What benefit are these paper-based profits? You're not investing in an idea or invention, or building something that people can use, or manufacturing anything.

How about another idea: a tax that's paid on any profit you make from stocks with the percentage being based on the time between buy and sell: less than 5 minutes, 90%; 5-119m, 80%, 2-8h, 70%; ...; greater than 5 months (which doesn't divide evenly into 12, so you can't mess around with financial quarters as easliy), 20%; etc. Speculators are dinged heavily, investors are marginally taxed.

Re:Good Fix... (0)

Anonymous Coward | more than 4 years ago | (#32272342)

How does one go about "sucking profits"? What does that even mean? If you're going to advocate telling people how, with whom, and when they are allowed to buy or sell items with other willing individuals, you should at least have the common courtesy to clearly explain why such voluntary trades should not be permitted to occur.

the key term here being 'individuals'. The reason the market can swing 1000 points in a few minutes is because all these high volatility trades are being executed by computers. This is the reason Goldman Sachs can make money no matter what is going on in the market, because they pay for the privilege of seeing institutional orders a couple milliseconds before they are executed, and they then use this form of gazing into the future (albeit the very near future), and coupled with their zero percent interest gambling money from the Fed (and ultimately, you), they only have to make a greater than zero profit for this to be worth their while. This is called flash trading, and is a form of front running, which in theory is illegal, but since the government is stuffed with Goldman alumni, well, that's why we're in this situation.

Re:Good Fix... (1)

xerxesdarius (787994) | more than 4 years ago | (#32271786)

This sounds like a band-aid solution to a bigger problem. Millisecond trading is exploiting the system; it just sucks profit out of tiny variations in the market. Why is it allowed?

Because without them, the market would be even more volatile? (the trades being a bet that the market will revert to some short-term mean) or Because free individuals should be able to act in any way that does not involve fraud or force?

Re:Good Fix... (2, Interesting)

Billly Gates (198444) | more than 4 years ago | (#32271936)

"Why is it allowed?"

I think the answer is obvious [msn.com] . We are going to get into a full on depression soon with another economic crises within 2 to 3 years with derivatives, gold, and bonds if someone doesn't stop these guys soon. Crashes were quite common before regulation and our system is turning very 19th century with the new barrons and billionaires. These crashes happened in 1908 and 1873. In 1908 all the bankers forgave each others loans and the problem went away. The 1873 depression was almost as bad as the one in 1929 and we have a veyr large inflated value of derivatives of hundreds of trillions in non existence value that is more than the World's GDP.

I do not mean to make the fellow slashdotters mad or anything but guess where our tax money went for our bailout? It went to Rand Paul and others to make sure they can screw you over with no reforms and a free pass to play with your money you deposit in your bank.

Time to join a coffee or tea party. I do not have faith with so much money going to both parties that a solution will be developed before another diasaster appears. Obama looks pretty powerless at this point too to do anything about it.

Re:Good Fix... (1)

emptycorp (908368) | more than 4 years ago | (#32272250)

It only takes FRACTIONS of cents out, but in time it adds up to a lot.

Why do traders have such worst-case rules? (4, Insightful)

lennier (44736) | more than 4 years ago | (#32271674)

More and more the markets seem decoupled from reality. Why is it so hyper-urgent for a trade to complete in milliseconds, even if it means selling at rock-bottom price? Isn't that just really dumb programming?

Imposing a global circuit breaker seems like one way of fixing it... but why is the trading so frenetic in the first place? Why this absolute pressure to trade nownowNOW?

These are real companies people are betting on. Companies have lives in the years to decades, and at best their profits are measured in quarters - and even that's far too short-term thinking compared to human society, the biosphere and the ecological damage our industrial activities are doing.

There just isn't any meaningful data that can be generated about the activities of corporations on the millisecond scale. Not really any on less than a yearly scale, if you think about it. The biggest news right now is the Deepwater Horizon oil spill, and what's the timeline for fixing that? Weeks to months.

What does society actually gain from ultra-fast gambling on the markets? Other than a cheap thrill and massively increased risk?

Re:Why do traders have such worst-case rules? (5, Insightful)

lalena (1221394) | more than 4 years ago | (#32271800)

Exactly. Some of those automated trades were selling stocks at pennies on the dollar when there was no fundamental reason for that stock to be down at all that day. I would think the fact that these auto trades caused banks to lose millions would be the incentive for the banks to fix the system themselves.

Re:Why do traders have such worst-case rules? (1)

LostCluster (625375) | more than 4 years ago | (#32271958)

And that's why that club of banks/brokers called the SEC was called in, and they are fixing this problem with this new rule.

Re:Why do traders have such worst-case rules? (1)

jd (1658) | more than 4 years ago | (#32272276)

Instead of having unrestricted trades followed by a drop-dead-you-bstard rule, why not have a sliding rule such that the delay is a function of the number of trades pushed through in the previous N ms, where N can be tuned in the future. This would be analogous to packet-dropping schemes in computer networks, in that service is degraded in a controlled manner so as to prevent it ever reaching the point of needing to cut out or die. It also means that inherent instabilities created by the extremely low latencies would be smoothed out, as you'd have a negative feedback loop. Instabilities have a nasty tendency to create all kinds of catastrophic scenarios and you'll never be able to catch them all. By adding a smoothing function, you wouldn't have to.

In other words, the SEC seems to be 50-100 years behind everyone else (although, apparently, only about a decade behind oceanographers, who hadn't realized that interference patterns and feedback loops are as much a part of ocean waves as they are a part of any other dynamic system, and 20 years behind packet network engineers). This is a Solved Problem. We know how to solve these sorts of problems, we know how to solve them without flimsy cut-outs, we know how to solve them dynamically, and we know how to solve them efficiently.

There will be another crash, after these new rules are in place, and it will be traced to this cut-out not cutting in fast enough or the instabilities breaking out of the restricted sandbox. In 60-70 years time, they may well have a smooth function for trade throttling to prevent explosive instabilities from ever forming in the first place rather than trying to catch the explosion as it happens. In that amount of time, a lot of people will be considerably richer from exploiting the flaw and a lot of people will be considerably poorer from the flaw being exploited. Oh well. It's not like this is rocket science.

Re:Why do traders have such worst-case rules? (1)

AK Marc (707885) | more than 4 years ago | (#32272422)

But they aren't addressing the problem. The problem is that buy and sell orders from regular people go through brokers, and regular buy and sell orders have no number attached. When they get to them, they execute them at the going rate. The price goes up $5 in one day? Issue a sell trying to cash in on that with your broker. That sell issue is mostly binding, and they may not get around to it until the price drops to down $5 for the day, so you sold for a $10 per share loss compared with what you expected.

They are doing what they can to mask the real problem, microsecond variability with no set prices, with caps on the macrovariability so no one will notice the underlying system is still broken. Fixing the problem? That's like cleaning the floor by sweeping it under the rug. The room looks cleaner. It is a little cleaner on a practical scale. But all the dirt is still in the room. That's not a "fix." That's a cobbled together patch addressing the visibility of the problem and not the substance.

Re:Why do traders have such worst-case rules? (1)

lennier (44736) | more than 4 years ago | (#32271998)

You'd think that the logical response from the HFT guys would be 'okay, let's put in a rule such that if the stock price drops by X amount, hold off from trading for Y seconds in case it's a market glitch'. But from some reports, that's exactly what happened and the fact that some of the HFTs were missing from the market caused the others to panic (well, as much as computers can; calmly fire their worst-case rules I guess). 'Nobody's bought this stock at all in the last second - it must be a real turkey! Sellsellsell!'

What I don't get is why the urgency to trade. Surely the stock market should be considered a system with very noisy, lossy data, and the sensible approach to volatility, if one was architecting a global system, would be to wait, step back, smooth out the noise and look for the true signal underneath. Which as I said before, really works on a yearly cycle - outside of genuine crisis response, most company information is only generated annually. Some of the really important planetary data - global fish stocks, species extinctions - only gets generated every decade, if we're lucky.

In between, all the market has to feed on is gossip, hype and its own internal psychological weather. If you were trying to build a system to make honest, practical, long-term investment decisions, you wouldn't look at the news of the day at all, for anything short of a nuclear war.

But trading seems to be about the opposite: look FOR volatility and exploit it - amplify it, even - before the other guy does. Get yours, and let the devil take the rest.

Which would be fine if this were a videogame, but it's the economies of nations which these guys are speculating with. At some point it becomes like drunk deadbeat dad playing poker with mom's housekeeping money. It's not fun anymore, it's not productive, and it's certainly immoral, when it's not outright criminal.

Re:Why do traders have such worst-case rules? (1)

lennier (44736) | more than 4 years ago | (#32272100)

In short, this is what I'm proposing:

The amount and frequency of trading of stocks should be on roughly the same order of magnitude as the practical ability of the corporate entity to reallocate its real capital.

Does it cost half a trillion dollars and take ten years to build a new refinery? Then you really shouldn't be juggling investments in that refinery more than, say, once a year at best. Because it doesn't matter how fast you trade, that refinery's not going to get built any faster. Physics doesn't work like that.

Want to speculate on the wheat harvest? Update your position once a month, maybe, which would give you some sensible weather/climate data to work with. Do it any faster, and you're not reacting to real information, but noise, and you're making the system worse.

Markets are about collective beliefs (1)

sjbe (173966) | more than 4 years ago | (#32272430)

The amount and frequency of trading of stocks should be on roughly the same order of magnitude as the practical ability of the corporate entity to reallocate its real capital.

And who decides what an appropriate frequency would be? On what basis? How do you efficiently decide and how often do you reconsider? Do you have any idea how fast massive amounts of capital can be brought to bear if the need arises? (hint - it is REALLY fast if there is a good reason) Bear in mind that under your proposal you have to do this for EVERY asset which, to grossly understate matters, is an unbelievably huge and difficult task. Planned economies haven't historically worked especially well. Well designed and managed markets are generally MUCH better at efficiently allocating capital where it is needed. Perhaps you have some new insight that will change things?

Do it any faster, and you're not reacting to real information, but noise, and you're making the system worse.

The fallacy in your argument is that you think the real information is "facts" about the asset. Markets are about collective opinions above all else. Sure, tangible facts get into the mix but when you are evaluating any investment the real question you are asking is "will enough other people want this asset to make the price increase?" Stocks go up and down because of what people believe about those stocks - whether it is true or not is almost irrelevant.

Re:Why do traders have such worst-case rules? (1)

Dunbal (464142) | more than 4 years ago | (#32272346)

You'd think that the logical response from the HFT guys would be 'okay, let's put in a rule such that if the stock price drops by X amount, hold off from trading for Y seconds in case it's a market glitch'

      Spoken like a non-trader.

      OK, put a value on 'X'. Large price drops happen often. In fact there's a saying - prices drop faster than they rise. Look at any stock chart and you will see oscillating waves trying to build the price up, and cliffs where it drops again. This patterns repeats over and over, and what's more it's fractal - it happens on all levels from yearly charts, to minute-by-minute charts.

      So, if you build in an algorithm into your program and pause it if the price drops "x", and my program DOESN'T pause, then I will have sold my stock, and you will still be holding on to your loss. The price might continue to drop, at which, after the pause, you can either sell (for an even greater loss) or ride it out. Eventually I will buy it again, and make more money than you.

      That is why programming a number is a very very bad idea. I can beat you just by plugging a slightly bigger number into my program. Thus the idea of a circuit breaker - which stops EVERYONE, preventing me having an advantage over you. I doubt it would have much effect though. Circuit breakers have never been "combat tested". There's no guarantee the plunge just simply won't resume.

Re:Why do traders have such worst-case rules? (1)

Dunbal (464142) | more than 4 years ago | (#32272260)

Some of those automated trades were selling stocks at pennies on the dollar when there was no fundamental reason for that stock to be down at all that day.

      Supply and demand are fundamental reasons. Someone sold a huge position of Procter and Gamble based on the declining S&P 500 reaching a certain level, and this started a cascade of selling in that stock. That it happened in under 5 minutes does not change the fact that there was an over-supply of stock. The laws of supply and demand assume that price changes occur over time - however "time" is actually not assigned any quantitative value in the theory. It could be years or in this case, seconds.

      Stock prices rarely have any bearing on the "fundamentals" of a company. I've often seen companies report record profits, only to have their shares plummet. Or companies announce losses, and seen the shares spike. Company fundamentals are a very LONG term play (over a matter of months and years) but have absolutely no bearing on the instantaneous price. That is governed by market sentiment, positioning by large institutions, attempts at manipulation by certain wealthy traders (or their programs), volume and all the things that make up this minute's supply and demand.

Re:Why do traders have such worst-case rules? (2, Interesting)

hibiki_r (649814) | more than 4 years ago | (#32271912)

The lowest sells weren't really about high speed traders, but about stop orders. A stop order triggers when a price goes under a specific price, and sells as a market order: It takes the best offer available at the time. That's where the high speed traders really come in: They see a huge drop, with sales still there, and reap a crazy amount of profit by buying the shares for pennies.As the price lowers, more stop orders are hit, and everyone that had one gets taken to the cleaners.

Now the question is: In a market as volatile as the one we have, why would anyone really want to place a stop order? Something like that, but with a lower bound, would have stopped the dip a whole lot faster than it did.

Re:Why do traders have such worst-case rules? (1)

Dunbal (464142) | more than 4 years ago | (#32272164)

more stop orders are hit, and everyone that had one gets taken to the cleaners.

      No, if you have a stop loss you have agreed to lose (at most) a certain amount on your trade. So, you agreed with your broker to lose 40%? Well, congrats. One morning you wake up and 40% is gone.

      Stop loss is silly. It's used by amateurs in highly leveraged positions to prevent them from imploding their accounts. However you are actually telling someone else "how low" you are willing to go. Well guess how brokers make money - by taking out all the stops. Oh and then usually the market bounces right back. Coincidence?

      Keep your trades small, and get out fast or ride it out if you screw up. What goes down usually comes back up, and vice versa. It's only a matter of time. If you can't afford to wait, if you're desperate because your capital is locked away in a paper loss and you needed it, well, you shouldn't be trading anyway.

Re:Why do traders have such worst-case rules? (4, Insightful)

mysidia (191772) | more than 4 years ago | (#32271976)

There just isn't any meaningful data that can be generated about the activities of corporations on the millisecond scale.

No, but there is meaningful data to be generated about the supply, demand, and liquidity of their stock on the millisecond scale.

I think you forget the stock is an asset itself governed by market forces, apart of and independent from the company itself. And valuation of the company and its profits barely effect its valuation at all, over sufficiently short periods of time.

What does society actually gain from ultra-fast gambling on the markets? Other than a cheap thrill and massively increased risk?

It's not actually gambling, necessarily. But for every investor, there has to also be a speculator, otherwise, the transaction won't ever get made.

Increased liquidity has a great advantage for society -- like the ability for businesses to obtain capital, for investors to get their money, for enterprise to thrive and generate more capital.

The average American's retirement also relies on all this "gambling".

Re:Why do traders have such worst-case rules? (0)

Anonymous Coward | more than 4 years ago | (#32272452)

I don't believe a single you wrote. To me, it's just mythology, created to justify a dysfunctional system that allows a very few to make obscene amounts of money with no correspondence in the real world economy.

Re:Why do traders have such worst-case rules? (1)

ThomasFlip (669988) | more than 4 years ago | (#32272120)

High frequency traders argue that they provide liquidity to the markets. They'll also throw out terms like "Price Discovery". This basically means that they make it easier for everyone else to buy/sell positions at the right price. Whether or not they're full of crap I don't know.

Re:Why do traders have such worst-case rules? (2, Informative)

Billly Gates (198444) | more than 4 years ago | (#32272328)

.. but why is the trading so frenetic in the first place? Why this absolute pressure to trade nownowNOW?

The stock market is a theoretical long term investment. It was before glass-seagul was appealed.

Here is how flash trading works. Basically a super computer sits below the trading floor watching incoming and outgoing transactions. Lets say you have $300,000 in savings and want to put $100,000 in company A as its stock price looks reasonable. It lists for $16 a share and you put down your $100,000 in shares. The super computer sees this HUGE grab and your transaction. It quickly buys all your shares before your transaction is complete and raises the price to $18 a share before your transaction is complete. Goldman Sachs or the other firm takes $2 from you in the process as you end up with less shares due to it becoming $18 a share within a few hundred milliseconds. Here is an illustration [imgur.com] . The same firms do the same when selling so if you decide to dump a stock at $18 you end getting only $16 a share and Megabank makes another $2 a share.

Its used like this and here are some more details on how it works [dailyfinance.com] . SHorting is quite popular and caused Greece some turmoil. The same is true with investors shorting bank stocks and mortgage backed securities in 2007. Flash trading was likely the culprit as it could do this in ways you and I could not imagine.

The original crooks of the 1929 stock market crash complained after Glass-Seagull that they could not run the stock market with games like they used too and it was no fun anymore. It looks like its returned to just that today.

Re:Why do traders have such worst-case rules? (1)

Nikkos (544004) | more than 4 years ago | (#32272394)

"Why is it so hyper-urgent for a trade to complete in milliseconds, even if it means selling at rock-bottom price? Isn't that just really dumb programming?"

There's 200+ MILLION shares traded each day within hundreds of thousands of individual buy/sell orders. The NYSE is open for 23400 seconds (9:30-4:00) - You do the math. Not to mention the millions of people with different situations and motivations that buy and sell or at least have some money invested in stocks/mutual funds.

The scale and amount of information is huge and dependent on accurate time-keeping to maintain accurate records.

Re:Good Fix... (1)

hackus (159037) | more than 4 years ago | (#32272126)

Yeah and if you believe that explanation I got swamp land in Florida real cheap right now that is a real GOOD DEAL.

The markets are rigged and if you are stupid enough to plan your retirement around the activities of thieves, crooks and criminals then you deserve to be broke in your old age on a street corner with nothing but public food stamps and health care like 1 in 4 kids in the US right now.

-Hack

Re:Good Fix... (1)

khallow (566160) | more than 4 years ago | (#32272382)

While the big exchanges had the time out in effect, orders simply routed around them and the wacky drop continued.

As I understand it, the circuit breaker didn't trip because the aberrant trading happened after 2pm, a condition which someone must have thought was sufficient. There was no routing around the circuit breaker, because it didn't go off. And I have no problem with traders "routing around" a circuit breaker.

So, now the SEC is taking the NYSE/NASDAQ rules and making them their rules, so all the new players have to observe the timeouts. That should fix this problem.

It just means more trading will occur outside of the US and the SEC's jurisdiction. This will help keep the circuit breakers from becoming onerous burdens on the stock markets.

My view is that there is some extremely sloppy programming apparent in this market fluctuation. Rather than trying to make the market friendlier to ugly code, we should allow nature to take its course and weed out the companies and traders with bad trading programs.

Re:Good Fix... (0)

Anonymous Coward | more than 4 years ago | (#32272414)

Add US equities markets shared whole-market circuit breakers:

      1 hour market halt based on 10% DJIA drop

      2 hour market halt based on 20% DJIA drop

      Done for day based on 30% DJIA drop

      Plus some additional details based on time of day (see banner at top of nyxdata.com )

They did NOT kick in because the DJIA did not drop 10% (but came damn close)

NYSE (NOT Nasdaq) has Liquidity Replenishment Points that act kind of like the proposed single stock circuit breakers. These worked, but because they only apply to NYSE, they did not slow down NASDAQ or other markets

NYSE trades only NYSE listed stocks, while NASDAQ (and other markets) trades their own listed stocks as well as NYSE (and regionals). When the NYSE LRP kicked in, the continued activity at other exchanges drove the NYSE listed stocks down hard (because the NYSE liquidity was suddenly gone). At the same time, the NASDAQ listed stocks were not driven down as sharply (because the NYSE LRP didn't remove liquidity).

It is debatable whether the single stock breaker (or LRPs) are fundamentally good or not, it is certainly good to have ALL exchanges following the same halt rules. Having the primary exchange for a stock suddenly disappear at a critical moment while the others keep rolling was BAD.
 

Re:Good Fix... (1)

The Hatchet (1766306) | more than 4 years ago | (#32272418)

What happened on May 6th happened in Idiocracy, except worse.

Having something in place to say STOP TRADING when shit goes to hell, like the day the great depression started, the bubble burst, or the housing market crashed. It gives us a chance to stop something terrible in its tracks. The markets will find ways to try to trade down and up things very rapidly unless there is a block. This is a decent sounding block for now. I do agree with the afterposter, that millisecond trading should be banned. It is another way that we can draw profit from real markets, and remove money from the system by dealing it to the epically rich, destroying real markets, and real lives. The more the market is about marketing the market, the less the market is about reality, and the more of a chance it has to devastate us.

Perhaps if enormous companies that possess a great deal of the stock market can trade up and down the price of a stock by themselves alone, and can draw money away from the company and other investors into their own pockets? Sure it is free markets at work, but it is also evil, if not downright dangerous.

Great idea (5, Funny)

MrEricSir (398214) | more than 4 years ago | (#32271470)

I'm so saddened by these stories about stock traders getting electrocuted. It was about time they added circuit breakers.

Re:Great idea (1)

Em Emalb (452530) | more than 4 years ago | (#32271588)

Actually, I'd rather they installed little buzzers...and let the IT guys control the shocks.

(I work for a financial firm...the traders are...interesting to work with.)

Hey Frank, how you doing?
Good Joe, you?
BZZZZT!
I'm goBBDBBBBBBBBBBZZZZZZZYTTTTTTTooooooood! Except somehow I keep getting BRRRZZZZZZZZZZTTTTTTTTT shsssssshockked.

Re:Great idea (1)

eclectro (227083) | more than 4 years ago | (#32272034)

I too was sickened by the smell of stock traders flesh being burned. I'm also glad that they added a circuit breaker to turn on a fan to vent the smoke. I hope that they can continue with reform and add an impaling spear whenever a synthetic credit default obligation is traded. That will be less smelly.

this makes more sense (1)

ILuvRamen (1026668) | more than 4 years ago | (#32271492)

If you follow this sort of thing, you'll remember that this isn't the first huge event caused by automatic trading triggers. Pretty much everyone uses them and if too many of them think alike, it's bad news. The real mystery is why nobody blamed this first when it's a lot more obvious than some idiot with a fat finger typing a B instead of an M or something. I think we would have heard from that guy or had a way to trace a billion dollar deal somewhere in the system in about 1 second and have their face on the news.

Plumbers telling electricians what to do. (3, Insightful)

CaptainNerdCave (982411) | more than 4 years ago | (#32271496)

This is what happens when people who aren't competent in a field start dictating the activities in it.

How many legislators are Series 7 licensed? Series 66? 63? 6? Do any of these buffoons know how the market works? No floor also means no ceiling, there is no cap to how much an investor can make/lose.

Re:Plumbers telling electricians what to do. (1)

geekoid (135745) | more than 4 years ago | (#32271542)

No, they talk to people who are experts, if not gurus, in the field.

Your post is what happens when people don't actually think. Stop it.

And tossing out a tidbit of knowledge to imply you know something is not only poor form, but makes you look the fool.

Re:Plumbers telling electricians what to do. (1)

Kid_Korrupt (464945) | more than 4 years ago | (#32271610)

If you arent an expert how do you know who to talk to? How am I gonna know im getting top class electrical work done or getting ripped off by some shady contractor.

Just because you talked to "experts" does not excuse you from the mistakes that are eventually going to be made, especially when it comes to a field as controversial and dynamic as economics and finance. I think someone in this thread is not thinking, I'll leave it as an exercise to the reader to decide who it is.

Re:Plumbers telling electricians what to do. (1)

geekoid (135745) | more than 4 years ago | (#32271848)

"If you arent an expert how do you know who to talk to? How am I gonna know im getting top class electrical work done or getting ripped off by some shady contractor.
I bet if you think about it you can answer that question. if you can't, then I am a top rated contractor who is worth 500 an hour. Hire me.
Dude, come on.

In this case you read there papers,. look at the industry as a whole. Look at their education, talk to several of them.

There is a real problem with the market right now with a high risk.

It's you, who isn't thinking.

Read the article. (1)

geekoid (135745) | more than 4 years ago | (#32271954)

"During the congressional hearing last week, NYSE Euronext's chief operating officer, Lawrence Leibowitz, said FINRA had already adopted market-wide circuit breakers after the 1987 market crash, but added that there are "no pre- established mechanisms to address precipitous declines on a stock-by-stock basis, or trading problems that result in market-wide drops of less than 10%.
"

I think that qualifies as an expert.

Also, this is a pilot program.

Re:Plumbers telling electricians what to do. (1)

eihab (823648) | more than 4 years ago | (#32271714)

This is what happens when people who aren't competent in a field start dictating the activities in it.

No, they talk to people who are experts, if not gurus, in the field.

Yes. And I'm sure they are all well educated on the subject to form opinions and make crucial decisions just by talking to experts, while making sure whatever happens is in the best interest of the American people.

Much like how Ted Stevens [publicknowledge.org] was on net neutrality and how the internet works in general. No?

They are definitely not twiddling their thumbs and surfing porn [slashdot.org] all day.

</sarcasm>

Re:Plumbers telling electricians what to do. (1)

geekoid (135745) | more than 4 years ago | (#32271886)

No one said they where perfect. No one said it wasn't fallible
The original poser was saying that this decision was made without consulting people who know the business. That is provably false.

Every bureaucracy has fuck ups. Regardless if it's public or private service.

Re:Plumbers telling electricians what to do. (0)

Anonymous Coward | more than 4 years ago | (#32271768)

The SEC is p0wned by the traders. If the "gurus" recommended this, you can bet there's a buck in it for them.

Re:Plumbers telling electricians what to do. (1)

LostCluster (625375) | more than 4 years ago | (#32271580)

How many legislators are

Wrong joke for the situation. The SEC is a self-regulation body funded by the brokerages, and not part of the government. It's job is basically to make sure everybody plays fair, such as in this situation where there were trades that really shouldn't have happened. The can call an "undo" on those trades, but it's cleaner to have a rule that says keeps the markets from going crazy in the first place.

Experts? (1)

MrEricSir (398214) | more than 4 years ago | (#32271584)

We tried listening to the stock market "experts." And look how well that worked out!

Re:Plumbers telling electricians what to do. (2, Insightful)

Monkey_Genius (669908) | more than 4 years ago | (#32271944)

Any buffoon can take a course, cram, and pass the series 7 exam. All you need is a licensed brokerage to sponsor you. Now, if that was done for Microsoft licensing, there would be a hell-of-a-lot less MCSEs out there.

VAXen, my children, just don't belong some places. (1)

Anonymous Coward | more than 4 years ago | (#32271510)

The story behind the flash crash was foretold more than 20 years ago: VAXen, my children, just don't belong some places. [crash.com]

Cue Libertarian response (-1, Flamebait)

RyuuzakiTetsuya (195424) | more than 4 years ago | (#32271576)

Free markets! Bootstraps! Ron Paul! Ron Paul! Free markets! FREDERICK VAN HAYEK! MORE BOOTSTRAPS!

Rabble Rabble Rabble!

Re:Cue Libertarian response (0)

Anonymous Coward | more than 4 years ago | (#32271618)

Nah. We don't even have to resort to generic arguments for this one. The regulation is brain dead because it doesn't affect ETFs. So when the S&P500 drops 10% and gets frozen, the S&P500 ETFs will still be traded. The end result? The same result you get every time you have naive regulation... the insiders make out like bandits... the public gets screwed.

Re:Cue Libertarian response (0, Flamebait)

BitHive (578094) | more than 4 years ago | (#32271774)

Well can you blame them? If you have a simplistic, fundamentalist view of the world then of course your simple truisms seem obvious and everyone else sounds like some kind of elitist, telling you to read books and go to school and shit. Everything you need to know you read on Lew Rockwell's blog, so these elitists are obviously persecuting you for your beliefs.

Ron Paul free marketeers favor their interpretations of the constitution in exactly the same way that fundamentalist christian sects think they have the true interpretation of the bible. Except instead of "faith" they rely on "smug" to insulate their egos from information that does not fit with their world view.

A sad day for free market capitalism (2, Funny)

BitHive (578094) | more than 4 years ago | (#32271614)

This regulation will only strangle growth and innovation, slowing our economic recovery. But I guess it's easier to carry out a regulatory vendetta than it is to appreciate that the simple, universal truths of Austrian economics.

Re:A sad day for free market capitalism (1)

RyuuzakiTetsuya (195424) | more than 4 years ago | (#32271680)

Given that the current economic crisis is a result of regulatory failure after the demise of Glass-Steagal and the chain of events in the late 90's and early 00's?

Regulation is a good thing, in general.

Let programmers do what they want and you wind up with useless software. Let investment bankers do what they want and you wind up with CDOs and derivatives trading.

Re:A sad day for free market capitalism (1, Insightful)

Anonymous Coward | more than 4 years ago | (#32272014)

That's highly debatable. The causal link is tenuous at best. Indeed, JP Morgan Chase was the strongest banks throughout the crisis, and JP Morgan Chase would not have existed in its present form without Gramm-Leach-Bliley. From that perspective, it's quite possible that the financial crisis would have been *worse* without Gramm-Leach-Bliley,

There is a much stronger case that regulation caused the financial crisis. Fannie Mae and Freddie Mac played a huge role in the financial crisis. There were even calls to rein them in at the height of the bubble. There are videos on youtube of Barney Frank dressing down the regulator screaming that there is nothing wrong with Fannie Mae and Freddie Mac.

Of course, we found out the truth a few years later.

There is plenty of blame to go around. Trying to cast the sole blame on the lack of regulation is naive at best. At worst it is downright wrong and quite possibly dangerous.

The problem with regulation is that it is always trying to prevent the previous crisis and not the next one. There will be another financial crisis. It will look nothing like this one. Any regulation we pass now will almost assuredly do nothing to prevent it. So do we really need to regulate to prevent the exact same crisis from happening again? Even without regulation, there is a strong argument that it won't happen again simply because market actors know better this time.

Don't believe me? Not too long ago there was another financial crisis that resulted in greater regulation. The MCI-Worldcom and Enron Scandals. As a result, Congress passed Sarbanes-Oxley, which contained strong regulation in order to prevent MCI-Worldcom and Enron from happening again. Did Sarbanes-Oxley do anything to prevent the housing bubble and its subsequent collapse? Of course not. But it did result in billions of dollars being spent on compliance with new and complex requirements.

On a side note, I often laugh when liberals talk about all the deregulation we've had. It's true, we've had a lot of deregulation. But to talk about that and ignore the many new regulations we've had, such as Sarbanes Oxley, is disingenuous, at best.

Re:A sad day for free market capitalism (1)

RyuuzakiTetsuya (195424) | more than 4 years ago | (#32272158)

Glass-Steagal was designed as a part of a package to stop banks from both creating financial products and also loaning money in which to buy said financial products.

We didn't have a crash like the 1929 crash since 1929 until now for a pretty good reason.

Just because we stop one failure doesn't mean that other failures do not occur, or that failure may not happen again.

Re:A sad day for free market capitalism (1)

LostCluster (625375) | more than 4 years ago | (#32271696)

Are you a bot that posts that whenever there's new rules?

This doesn't allow things to instantly go to unthinkable lows, but set a timeline by which something can go to down with everybody getting their turn to ring in should they think it's worth more than that new low. See Jim Cramer's reaction on air live on CNBC as this happened. He was going to say PG was overpriced, but then the sudden drop had him calling out a pretend "buy order"... it then moved 10 points suddenly and we were back to where we were. If he had made a real trade, it would have been in the range to be broken later in the day.

This kind of sudden change of wealth for no reason shouldn't happen, so we have rules to prevent them. When something gets around the rules, we need new rules.

Re:A sad day for free market capitalism (1)

timmarhy (659436) | more than 4 years ago | (#32271782)

you know what else strangles our economic recovery?? when idiots hit the B for billion instead of M for million.

this is purely aimed at stopping accidents, not preventing you from making large profits on selling shares. seriously do you think a 10% price rise in 5 minutes isn't a good profit?!?!

Re:A sad day for free market capitalism (2, Insightful)

Billly Gates (198444) | more than 4 years ago | (#32271816)

I do not know if sarcasm is intended or not.

If you are serious I would say its not capitalism as you and I do not have access to these systems with impossible barriers of entry. Fixed oligopolies and monopolists like Goldman Sachs have access to placing the super computers right under the trading floor at Wallstreet. Therefore its no different than communism where only 1 player exists to set supply and demand.

Re:A sad day for free market capitalism (1)

BitHive (578094) | more than 4 years ago | (#32271994)

Of course it's sarcasm. My other post to this article was modded flamebait (http://slashdot.org/comments.pl?sid=1658158&cid=32271774). I like to cover all the bases.

Re:A sad day for free market capitalism (1)

Billly Gates (198444) | more than 4 years ago | (#32272042)

Well your original post was modded up so unfortunately someone agreed with your sarcastic post.

Re:A sad day for free market capitalism (1)

BitHive (578094) | more than 4 years ago | (#32272092)

Yes, well, /. threads are often libertarian echo chambers.

Why? (2, Interesting)

tsotha (720379) | more than 4 years ago | (#32271626)

Exactly what harm are they trying to mitigate here? Volatility isn't a bad thing in and of itself. If the underlying value of the stock is there, the price will recover. If not, well, it needs to go down.

Re:Why? (4, Insightful)

LostCluster (625375) | more than 4 years ago | (#32271822)

The guy who needs protection is the poor sap who wanted to cash out his account at that point in time, who submitted a market order expecting to get $60,000 and having it execute and come back with $2700 for him. Should have used a limit order... but still, this just isn't "fair" and not likely to encourage people to invest in the market. So, that trade gets busted, he gets his stock back and gets to try again. Still, the market doesn't like busted trades either, so we need new rules designed to decrease the likelihood this will happen again.

Re:Why? (1)

AuMatar (183847) | more than 4 years ago | (#32271968)

And the poor guy who has money in a mutual stock whose administrators paniced. And the poor guy who panics himself, seeing a substantial amount of his retirement fund disappear for no reason.

Lets end the myth that the stock market is a rational market and that it has rational actors. If it did, prices would only change surrounding major events- earnings announcements, dividends, and big deals. For that matter lets end the myth that the stock market is an indicator, or anythign other than it is- the world's largest casino, loosely based on corporate performance. Its closer to Vegas sport betting than it is to actual investment. And I say that as someone up over 12% this year.

Re:Why? (0)

Anonymous Coward | more than 4 years ago | (#32272068)

And I say that as someone up over 12% this year.

      Perhaps if you stop trading as if it was a casino you would make real money. I say this as someone who is up over 12% THIS WEEK.

Re:Why? (1)

tsotha (720379) | more than 4 years ago | (#32272150)

Lets end the myth that the stock market is a rational market and that it has rational actors. If it did, prices would only change surrounding major events- earnings announcements, dividends, and big deals.

I believe the market is a lot more rational than you imagine. Stock prices are based in large part on what investor expectation is regarding profits. It's quite rational to have large swings in price as a result of changing expectations regarding growth, currency fluctuations, or government action. If you're projecting earnings far out into the future, a little change in the shape of your curve has a big impact on the underlying value of the stock. Of course people make mistakes (in the sense that they make money-losing decisions), but from what I can see most of the mistakes are a result of changing conditions or a lack of information.

Re:Why? (3, Insightful)

Anonymous Coward | more than 4 years ago | (#32272178)

He shouldn't be investing in the market then. Limit orders are not that complicated. If you don't specify a limit, then you are essentially declaring a 'fire sale,' and you shouldn't be surprised if you don't get the price you expect.

Furthermore, one of the most important rules of investing is "Buy in over time." This means that you shouldn't buy or sell your entire position in one stock in a single trade. If you violate this rule, sooner or later you are going to get screwed. This rule is second only to Rule #1: Diversify.

The only way anyone got screwed by this is if they violated Rule #1 of investing, violated Rule #2 of investing (BUY IN OVER TIME), and then failed to use a limit order. That's three mistakes. If you make three mistakes, you shouldn't be surprised when you lose money. This is a trading market, not a 'free money for everyone!' market.

I'll also add that all trades that were over 60% away from the trading price were nullified... meaning your example could not have even happened.

Re:Why? (3, Insightful)

dasunt (249686) | more than 4 years ago | (#32271866)

Awhile back I read a book on big boom/busts in history, such at the Dutch tulip fiasco.

The author's opinion was that some market bubbles had positive effects. One of the examples he cites was the rise of railroads in (IIRC) 19th century England. For awhile, it seems like everyone wanted to put money into making railroad lines. So a ton of lines were created, the market went bust, the individual lines went broke, and the few remaining players were able to snatch up the lines they needed from the bankrupt investors.

In the short term, the bust was harmful, in the long term, the author stated that it helped create the modern railroad industry in England.

Don't know if I agree with it, but it was an interesting idea.

Boom/busts may be the equivalent of the precambrian explosion. Lots of interesting ideas are tried out, and only the fittest survive.

Re:Why? (1)

tsotha (720379) | more than 4 years ago | (#32272198)

I wondered about that in relation to all the fiber that got laid down during the dotcom bubble. As demand for bandwidth increases the fibers are already in place, whereas without the dotcom bubble there would have been a lag.

Re:Why? (1)

geekoid (135745) | more than 4 years ago | (#32271996)

And it will go down. They just pause it to be sure it's not a fluke that will cascade. It in no way stops a downward trend. Only sudden large movements.

A cascade from an odd event could cascade to a market crash that isn't really justifiable by actual market trends.

Two point:
1) Something like this on a much broader scale is already in place, and has been there since the 80s

2) This is a pilot program.

Re:Why? (1)

icebike (68054) | more than 4 years ago | (#32272318)

All sorts of margin calls can be triggered by these rapid plunges, which could force the liquidation of someone's entire portfolio as brokers enforce their margin call procedures.

Further there are the common tactic of the large players to engineer a price drop in a given issue simply to free up a bunch of stock held under Stop Loss orders.

Its easily abused.

One Circuit Braker to Rule Them All (1)

rothstei (1357055) | more than 4 years ago | (#32271716)

They should just install it to only allow trading on sales that increase the value of the stock. Prices only go up. Everybody wins. Right? RIGHT?

Ban flash trading (2, Insightful)

Billly Gates (198444) | more than 4 years ago | (#32271766)

Problem solved!

I do not have that kind of access to get rich off of other investors. The big boys should not be any different.

I am sick and tired of these guys playing with my own money as well as, pensioners, my grandmas, and my employers money. A single mistake effects me and everyone reading this while the traders get bonuses. Where do you think your money goes when you deposit it? It does not sit in the bank or go to loans to help small businesses anymore. It goes to risky trading where you lose and the CEO of your bank gets rich if they gamble it right.

If they make something idiot-proof... (1)

Neanderthal Ninny (1153369) | more than 4 years ago | (#32271872)

they will make a better idiot. In this case the financial people will find a way to prevent the circuit breaker from tripping. I would like to find a way to get these financial people to "old Sparky" and bypass the circuit breaker and....

I Have THE Solution! (1)

phantomcircuit (938963) | more than 4 years ago | (#32271984)

It is so obviously simple. Simply forbid selling anything on the NYSE at a price lower than you purchased it at! We would all be RICH I TELL YOU!!!

Tomorrow (1)

gmuslera (3436) | more than 4 years ago | (#32271992)

Markets seems to don't to like to be regulated, as with latest Germany measures [yahoo.com] . Next days we will see how they will take this regulation, if well won't happen in a 5-min period probably at the end of the day will get the kind of hit they want to prevent.

Re:Tomorrow (1)

daem0n1x (748565) | more than 4 years ago | (#32272236)

It appears that they don't like to be unregulated a little more. They have the annoying habit of speculating themselves to death when given too much rein.

Perhaps I am "Old School" . . . (2, Interesting)

NicknamesAreStupid (1040118) | more than 4 years ago | (#32272002)

. . . but "circuit breakers" are not what is called for here. The market needs fuses. Not to be funny, but circuit breakers are too easily reset. Most trading is not done on the floor of the NYSE. If you want to stop trading AND get everybody's attention, then somebody needs to get burned. Otherwise, this breaker is going to go off, get reset, go off, get reset until it sounds just like chicken little. Think I am wrong? Well, the NYSE already has circuit breakers, since 1987. Notice that they do not get mentioned.

Sound the alarm but do not stop trading. Have traders be responsible for all price deviations from the time of the alarm until the 'crisis' is over. If they suddenly have to "cover the spread" then they will stop trading until they figure out what is wrong.

Re:Perhaps I am "Old School" . . . (1)

Rogerborg (306625) | more than 4 years ago | (#32272128)

Bingo. Price drops, ZOMFG SELL!!!! - the "breaker" trips, everyone waits 5 minutes, and since nothing has changed, ZOMFG SELL AGAIN!!!!!11!!!

Maybe it'll give time for actual humans to over-rule the algorithms, but you know, I'm thinking not.

The best thing to do... (0)

Anonymous Coward | more than 4 years ago | (#32272168)

...is to let those that use the "auto trading systems" ACTUALLY FILL THE TRADES THEIR SYSTEMS PROMISED TO. You'd see a rush of investors switch to brokers that trade on fundamentals and things would settle down. Quit @$%! mollycoddling bankers and stock brokers - they are causing more problems than they solve.

millisecond trading is just more theft (0)

Anonymous Coward | more than 4 years ago | (#32272192)

Millisecond trading provides absolutely no benefit to the market. It is simply a creative way for those closest to the market (New York) to steal from everyone else.

They could make the market fair, but they won't. It's just organized theft from the rest of the world.

Real human business and investment does not have to travel at lightspeed. Near real-time (milliseconds) trading of $billions is just plain dumb. That system will always be seriously abused and provides tremendous advantage to those closest to the trading center for no valid reason. A trader deserves no special advantage because he happens to be located in New York.

These traders provide no added value. They contribute nothing to the system. They are destructive parasites. They'll try to rationalize and justify their behavior a thousand different ways, but at the end of the day, it's all just a pack of lies.

The fundamental economic problem in the US and most of the world:
These people now make loans, that they know they cannot ever collect, using investors (other people's) money. They do this just to skim their profits from the transactions. Then when the debtor defaults, they assign the "loss" to the investors and reloan/resell to someone else they know cannot pay. They do not give a DAMN because they make their profits on the transactions. They are professional skimmers. They want you to BELIEVE in the economy, regardless of condition, so that they can continue their obscene skimming.

Now, when most buyers have greater than 80% DTI and the system is in danger of collapsing, they get the government to step in and PRINT MONEY for them so that they can continue business as usual. Eventually, the system becomes so overleveraged that it crashes. People's retirements, life savings, businesses, and dreams are ground into dust. The parasites have killed the host. If the body somehow survives, they start again.

I have a better idea (3, Insightful)

daem0n1x (748565) | more than 4 years ago | (#32272214)

Just tax the fuck out of those speculative scumbags, that should reduce "volatility" a lot.

Intentional? (1)

Prune (557140) | more than 4 years ago | (#32272292)

As the US legislature is preparing to impose new regulations that certain financial industry giants would not be too happy with, it sure was convenient to give the politicos in Washington a good scare... just saying

Pausing stock trades unintended consequences? (0)

Anonymous Coward | more than 4 years ago | (#32272322)

I wonder if there are any corner conditions that can be exploited with such an automated rule? Large firms executing trades to intentionally freeze individual stocks while they hedge against specific related verticals. Just a thought.

The 'stock market' is just another form of gamblin (3, Insightful)

BitZtream (692029) | more than 4 years ago | (#32272364)

If you want to gamble, thats your business.

If you invest too much money in stocks, you don't diversify, and you loose your life savings on the stock market ... thats YOUR problem.

I have a really REALLY simple solution ... don't invest in the stock market if you can't deal with the consequences.

The stock market has no basis in reality. They like to pretend it does, but it doesn't. There are all sorts of excuses and 'reasons' why it does, but it has no more basis in reality than paper currency.

And yes, I think paper currency is retarded as well. When you're trading something that can be easily manufactured you are going to loose unless you're the guy who makes it.

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