Beta
×

Welcome to the Slashdot Beta site -- learn more here. Use the link in the footer or click here to return to the Classic version of Slashdot.

Thank you!

Before you choose to head back to the Classic look of the site, we'd appreciate it if you share your thoughts on the Beta; your feedback is what drives our ongoing development.

Beta is different and we value you taking the time to try it out. Please take a look at the changes we've made in Beta and  learn more about it. Thanks for reading, and for making the site better!

Flash Crash Analysis of May 6 Stock Market Plunge

CmdrTaco posted more than 4 years ago | from the what-goes-down-eventually-stays-there dept.

The Almighty Buck 411

Jamie found an interesting site that has many charts and graphs about the strange May 6 stock market plunge and rebound. There's a lot of information to consume over there, but it does a pretty good job of showing high-frequency trading is getting to be a real problem.

cancel ×

411 comments

Sorry! There are no comments related to the filter you selected.

Flash Crash Gash Lash Rash Dash Cash (-1, Offtopic)

Anonymous Coward | more than 4 years ago | (#32679380)

What do you call a bunch of niggers hanging around a barn? Antique farm equipment.

Re:Flash Crash Gash Lash Rash Dash Cash (1, Offtopic)

singingjim1 (1070652) | more than 4 years ago | (#32679448)

I'm not sure how this applies to the story. Must by why it was posted anonymously as bigots are usually cowards.

Summary... (5, Interesting)

TrisexualPuppy (976893) | more than 4 years ago | (#32679576)

Not to be a conspiracy theorist, but I work with a bunch of math PhDs who specialize in stochastic processes. Two of them used to work in the financial sector before the crash. Everyone around here including me has come to the conclusion that someone planned a really big "oops" to make his friends very rich and get a few kickbacks. Sell it short, baby!

The problem with this is that since it has happened once, it *is* going to happen again in a slightly different way. Software glitches, fat fingering the keyboard, etc. are convenient excuses.

Re:Summary... (2, Insightful)

lavalyn (649886) | more than 4 years ago | (#32680582)

Even professional math/finance PhD folks can make disastrous mistakes. Long Term Capital Management was founded with two Nobel Prize winners in Finance... didn't stop them from blowing up and needing a bailout.

Re:Flash Crash Gash Lash Rash Dash Cash (0)

Anonymous Coward | more than 4 years ago | (#32679834)

first racist...

FP (-1, Offtopic)

Anonymous Coward | more than 4 years ago | (#32679384)

FP

Oops... (-1, Offtopic)

Anonymous Coward | more than 4 years ago | (#32679454)

Oops... I farted.

Re:Oops... (3, Funny)

MobileTatsu-NJG (946591) | more than 4 years ago | (#32680094)

Oops... I farted.

Sell! Sell! Sell!!

Re:Oops... (2, Funny)

elventear (868128) | more than 4 years ago | (#32680428)

I thought you said smell ...

It should Flash Crash to about 5000 (5, Insightful)

AthleteMusicianNerd (1633805) | more than 4 years ago | (#32679480)

and stay there because that's about what it's worth. The only reason it's up above 10,000 is because it's being propped up with funny money. Just a year ago it was at 6800...these are the same companies. Does anyone really believe that all of the companies listed are collectively worth 1.5 times more?

Re:It should Flash Crash to about 5000 (0)

Anonymous Coward | more than 4 years ago | (#32679518)

You're not too good at math are you?

Re:It should Flash Crash to about 5000 (2, Interesting)

somaTh (1154199) | more than 4 years ago | (#32679676)

You're not too good at math are you?

1.5*6800 = 10200

Current market value: 10187

Yeah, I'd say he's decent at math, if you account for rounding errors.

Re:It should Flash Crash to about 5000 (2, Insightful)

Pete Venkman (1659965) | more than 4 years ago | (#32680252)

Yeah but doesn't that mean the companies are worth 1.5 times what they were last year? That's only 50% more.

Re:It should Flash Crash to about 5000 (1)

LoudMusic (199347) | more than 4 years ago | (#32680364)

50% more and 1.5 times are the same thing. Don't confuse 1.5 times with 1.5 times more. If it were equal it would be 1 times. And 50% more is 0.5 times more. Could also be represented as 150% of last year's value.

Re:It should Flash Crash to about 5000 (1)

Pete Venkman (1659965) | more than 4 years ago | (#32680414)

I think you missed my point.

Re:It should Flash Crash to about 5000 (1)

ushering05401 (1086795) | more than 4 years ago | (#32680716)

This tripped me up as well. I think it is a language issue. Mathematically 1*1.5=1.5. For some reason reading 1.5 times more indicated 1+1+.5... 1.5 vs. 2.5.

I was good at word problems; I don't know why my reaction to this one was to think the poster was incorrect. Then again, maybe you are talking about something else altogether :)

Re:It should Flash Crash to about 5000 (1)

The Hatchet (1766306) | more than 4 years ago | (#32680572)

Its all funny money. Just a couple months before the big crash they were worth a lot more. Stock markets that rely on extremely fast trading don't represent the value of the company, they represent what banks want them to be valued at, so that they can make the most money.

HF Trading reduces spread, increases liquidity (5, Insightful)

FriendlyLurker (50431) | more than 4 years ago | (#32679752)

High Frequency Trading is _beneficial_ to the public markets at large, and why powerful interests keep blaming and attacking electronic trading as the root of all financial evils that befall us: http://www.tradersmagazine.com/news/high-frequency-trading-benefits-105365-1.html?zkPrintable=true [tradersmagazine.com]

Unfortunately, the majority seem to be believing Rupert Murdock's Wall Street Journal and similar mouthpieces spouting all the "Electronic Trading must be taxed/stopped/restricted, it is destabilizing markets" rhetoric.

As mentioned in above link and In case you did not hear about the New York Stock Exchange specialists charged with fraud, an event referenced in the above link - it's pretty amazing: Richard Ney wrote a best selling book in 1970 ("The Wall St Jungle", interview NY Magazine 1970) with a few follow up books that all called out the NYSE Specialist families for fraud, explaining exactly how they defraud the public. At the time The Wall Street Journal boycotted anyone selling the best seller and Ney was not permitted as a guest on The Tonight Show - very unusual at the time for someone with such a long run best seller/controversial book - his message had touched a raw nerve. In response, the establishment had Ney widely counter-attacked, labeled a conspiracy theorist nut at every opportunity - comments like "what would an actor know of the stock market" were common and can be heard even today.

To prove Ney's wild eyed grand conspiracy theory right - The Department of Justice finally got around to charging the NYSE specialists for the exact fraud that Ney described - 33 year's after he wrote about the crime! In 2003 the Specialist firms quickly got their get out of jail free cards for a tiny fraction of what they had actually defrauded over the years. The story does not end there however... news came out shortly after that the NYSE was at long last going to move to an all-electronic exchange - and that the Specialists firms charged with defrauding the public were the very same that had been blocking the move due to their 30% NYSE stake. Everyone in the know + those that read Ney's book knew all too well of the massive fraud going on in full public view for at least 33 years (more like 212+ years), but it was not until these Specialist criminals blocked other powerful interests that the illegal behavior was actually pursued by the DOJ.

If ever there was an example of the lack of credibility for the DOJ, this is it. 33+ years of massive fraud in full public view, but the DOJ did not get around to prosecuting until it was ordered to - until it was necessary to coerce the Specialist family firms into letting the NYSE go electronic. Nothing to do with justice, or protecting the innocent being defrauded to the tune of billions of dollars over the decades. As an added insult, the DOJ let the criminals off the hook with a paltry fine. But then there is no surprise there, as Richard Ney said it best: "Regrettably, the arrangements that exist to preserve the traditions and legalize the frauds of the security industry are inseparable from the general organization of a society controlled by the financial establishment, a society whose laws and principal customs have been contrived to serve the special interests of the financial community,"

Voting Red or Blue will not change this arrangement of US society and it's laws - merely reinforce it.

Re:HF Trading reduces spread, increases liquidity (2, Interesting)

FriendlyLurker (50431) | more than 4 years ago | (#32679908)

It is no accident that this story comes just as Wall Street reform bill it being released. This story is just a little lube - brace to be shafted as we see what the reform bill holds. Dug up some references for above:
http://www.amazon.com/Wall-Street-jungle-Richard-Ney/product-reviews/B00005X4AX/ref=dp_top_cm_cr_acr_txt?ie=UTF8&showViewpoints=1
http://books.google.com/books?id=5eICAAAAMBAJ&lpg=PA37&ots=JFKfDQyI8G&dq=%22richard%20ney%22%20conspiracy%20theory&pg=PA37#v=onepage&q&f=false
http://www.sec.gov/news/press/2004-42.htm
http://www.usatoday.com/money/markets/us/2005-12-06-nyse_x.htm
http://www.cfo.com/article.cfm/3903963?f=related

Re:HF Trading reduces spread, increases liquidity (5, Insightful)

Thinine (869482) | more than 4 years ago | (#32680172)

The article you linked to pulls electronic markets and speed trading together. Most of the benefits the article mentions are largely a byproduct of electronic markets, not the high speed traders. In fact, I didn't see a single point in that article that applied only to speed traders. The biggest flaw with speed trading is the fact that it's 100% artificial. It has nothing do with what the actual stocks are, merely with monitoring their price at a fine enough level to be able to buy and sell with just fractions of a cent in change. It doesn't reflect any real property of the market; it's merely another way to game the system. What's the solution to the problem? I don't know. Perhaps we just need to limit the number of trades that can be done per second. But it is an entirely artificial and potentially quite damaging phenomenon.

Re:HF Trading reduces spread, increases liquidity (2, Interesting)

Palpatine_li (1547707) | more than 4 years ago | (#32680358)

apparently more liquidity is the direct result of high speed trading. RTFA.

Re:HF Trading reduces spread, increases liquidity (0)

Anonymous Coward | more than 4 years ago | (#32680426)

High Speed trading narrows spread's. A bit of Scholarly research [google.com] also appears to back that up.

Re:HF Trading reduces spread, increases liquidity (0)

Anonymous Coward | more than 4 years ago | (#32680668)

Narrows spread's what? its appeal to health conscious sandwich aficionados, perhaps?

Re:HF Trading reduces spread, increases liquidity (5, Interesting)

TubeSteak (669689) | more than 4 years ago | (#32680274)

High Frequency Trading is _beneficial_ to the public markets at large, and why powerful interests keep blaming and attacking electronic trading as the root of all financial evils that befall us: http://www.tradersmagazine.com/news/high-frequency-trading-benefits-105365-1.html?zkPrintable=true [tradersmagazine.com]

High frequency trading is not beneficial when it shaves pennies and acts as an intermediary between a buy & a sell that would have executed anyways.

Your article discusses exactly that in the section called "Accelerating Price Discovery Benefits All Investors"
And they have the nerve to try and make it sound like a good thing. From your FA:

Some critics, however, still maintain that, while greater liquidity is valuable in theory, market participants with large orders (and the individual investors they often are representing) are nevertheless harmed by high frequency trading. In simple terms, these critics assert that when, for example, they try to purchase a large quantity of IBM shares, high frequency traders detect the buying interest and cause the price of IBM to rise before they can finish purchasing all the shares they desire.

The problem with their counter-argument is that it ignores the fact that the HFT is buying up all the shares you could have bought and then selling them to you for a higher price.
You, the original buyer get screwed and they, the original sellers, gain no benefit.

Then they try to stretch their asinine argument about trades that take milliseconds to execute,
into the realm of land sales which often take days if not weeks to arrange and execute.
Intellectual dishonesty at its finest.

Re:HF Trading reduces spread, increases liquidity (2, Interesting)

FriendlyLurker (50431) | more than 4 years ago | (#32680522)

As the FA points out, you are arguing in favor of inefficient markets. You want to be able to buy up all the shares without anybody being aware of the increased demand. HFT buys and sells in microseconds, at most minute time-frames - reducing the spread in the process. If you don't like the high price, don't buy. You want us to believe that a few microseconds later your buy/sell opportunity at a few cents difference has vanished.

Re:HF Trading reduces spread, increases liquidity (2, Insightful)

Anonymous Coward | more than 4 years ago | (#32680666)

you are arguing in favor of inefficient markets

More specifically, he's arguing against arbitrage, which is what HFT is. A is selling stock for X, B is buying stock for Y, X is less than Y so the HFTer gets their buy order in before X or Y realize their mistake, making Y-X from each share. They don't "create volatility," buyers and sellers were already there, they just take advantage of the fact that some people have better pricing information than others.

Re:HF Trading reduces spread, increases liquidity (0)

Anonymous Coward | more than 4 years ago | (#32680736)

High frequency trading is not beneficial when it shaves pennies and acts as an intermediary between a buy & a sell that would have executed anyways.

Not true: Before SEC allowed all electronic markets (and so HF trading), only the specialists/MMs ran the floor and were the intermediary. Your spread was significantly wider than today as research confirms [google.es] . So are you arguing for increased spread's and inefficient markets, and we go back to the old system where a select few could "shave off" many pennies?

Re:HF Trading reduces spread, increases liquidity (1)

Anonymous Coward | more than 4 years ago | (#32680392)

What utter bullsh*t. Frontrunning is NEVER beneficial to the public, and only helps the big boys. It's stealing money out of your pocket, and is one reason why I'm not in the Stock Market.

Re:HF Trading reduces spread, increases liquidity (1)

FriendlyLurker (50431) | more than 4 years ago | (#32680606)

Efficient markets/price discovery (and HF trading) is NOT Frontrunning.,You obviously you never traded before all-electronic alternative trading systems were allowed. RTFA.

Re:HF Trading reduces spread, increases liquidity (0)

mcgrew (92797) | more than 4 years ago | (#32680708)

Unfortunately, the majority seem to be believing Rupert Murdock's Wall Street Journal and similar mouthpieces spouting all the "Electronic Trading must be taxed/stopped/restricted, it is destabilizing markets" rhetoric.

I hope he's right and it isn't stopped and the markets DO destabilize. I own no stock, my pension isn't dependant on the stock market, and every time the stock market goes up, so does the price of gasoline. When it goes down, so does gas. The stock market dropping is like me getting a raise at the expemse of people who don't work (stock market gamblers) and who pay a lower percentage of their income in taxes (they pay Capital Gains tax, not income tax).

Own stock? Fuck that. Sell your stock and buy/build a local business, so your investments will actually help people instead of shuffling money from one rich man's hand to another.

Re:It should Flash Crash to about 5000 (1)

rotide (1015173) | more than 4 years ago | (#32679754)

Stock market pretty much is monopoly money. It's all based off perceived value.

Re:It should Flash Crash to about 5000 (1, Interesting)

Anonymous Coward | more than 4 years ago | (#32679854)

All money is based on perceived value.

Re:It should Flash Crash to about 5000 (4, Insightful)

Itninja (937614) | more than 4 years ago | (#32679862)

Is not everything based on perceived value?

Like the man said (thousands of years ago): "Everything is worth what its purchaser will pay for it.".

Re:It should Flash Crash to about 5000 (4, Insightful)

characterZer0 (138196) | more than 4 years ago | (#32680052)

Something is worth what you can convince the dumbest person you can find to pay for it.

The stock market makes it easier to find dumb people.

Re:It should Flash Crash to about 5000 (1)

AthleteMusicianNerd (1633805) | more than 4 years ago | (#32680078)

Except that the money being used to purchase stocks doesn't represent real capital. Real capital is a result of time, labor, skill, and resources. Money used on the stock market is a result of the Banks Counterfeiting money.

Re:It should Flash Crash to about 5000 (0)

Anonymous Coward | more than 4 years ago | (#32680742)

What a load of shite.

Re:It should Flash Crash to about 5000 (1)

OeLeWaPpErKe (412765) | more than 4 years ago | (#32680198)

Is not everything based on perceived value?

Yes, and to further complicate matters, it is perspective dependent (1 cup of water is worth nothing to a drowning man and worth more than 5 tons of gold to a man stuck in a desert).

That's of course the basic problem of economics. It's, specifically, the problem economic systems (or more specifically "capitalism") try to solve. The big issue is simple : get it wrong for too long a time and the economy collapses, preventing production of everything, including food, housing, and other rather critical stuff.

Why ? Because if price is incorrect, you have a loop, which costs value and can be exploited, costing value to everyone (making sure that a normal person loses access to a certain amount of value he/she would otherwise have had). Either price is too low, promoting (potentially massive) hoarding, or price is too high, causing overproduction. In any "we control/regulate/... the price" system there are is no connection between how much you sell and how much your customers need.

Like the man said (thousands of years ago): "Everything is worth what its purchaser will pay for it.".

For the large majority of history, that man would have been wrong. Doing business on this premise between the end of the Roman Empire and the onset of the (very) late middle ages would have been a serious mistake.

Re:It should Flash Crash to about 5000 (1)

badran (973386) | more than 4 years ago | (#32680248)

Like back in the 1st 20 turns of Civ4.

Re:It should Flash Crash to about 5000 (1)

DriedClexler (814907) | more than 4 years ago | (#32680536)

Yes, in a trivial sense. But it's still important to distinguish the *kinds* of perceived values, because they have a much different impact on the world and on the (mis)allocation of resources. Here's a simple attempt at the distinction:

Type I perceived value: Bob pays X gallons of milk for a cow because he believes that, over time, it will yield a certain amount of milk and meat.

Type II perceived value: Bob pays X gallons of milk because he believes other people will soon, in the same place, pay him more than X gallons for the cow (and cows have been trading for higher and higher prices over the past day).

Type II causes severe, costly swings in the marketplace, while type I does not. It may be hard to externally distguish which type of perceived value is going on, but there is a real difference.

Re:It should Flash Crash to about 5000 (1)

severoon (536737) | more than 4 years ago | (#32680290)

Yea, absolutely. You know what else is based on perceived value? Real money.

Then again, you said "based off" instead of "based on," so maybe we're saying the same thing?

Re:It should Flash Crash to about 5000 (2, Insightful)

gad_zuki! (70830) | more than 4 years ago | (#32679838)

June 2009, the dollar was .71 against the Euro. Lately its been floating around .85. So, the dollar is worth a little more. On top of it, stock values fell due to the recession.

As far as some kind of Joe Sixpack "that company aint worth that much" sentiment, well, the stock market has never been a rational system. It trading system. The mob mentality defines the prices. If the mob thinks Pokemon is worth a bazillion dollars and people are willing to spend all this money on Pokemon, the guess what, they are right! Nothing is worth anything, in a real sense. Gold is just some random metal. Currency is just some paper. Worth is a fiction dictated by markets.

Re:It should Flash Crash to about 5000 (1)

Daniel Dvorkin (106857) | more than 4 years ago | (#32680472)

Nothing is worth anything, in a real sense. Gold is just some random metal. Currency is just some paper. Worth is a fiction dictated by markets.

Food and land. Actually, just land, since if you have that (good land, anyway) you can grow food. Agreed that the "worth" of just about everything else, including gold, is an agreed-upon fiction, but there really is an absolute standard of value: the stuff you need to survive. In the modern industrialized world, of course, we tend not to worry too much about that, but it's good to remember that there is something at the base of the pyramid.

Re:It should Flash Crash to about 5000 (1)

superdave80 (1226592) | more than 4 years ago | (#32679888)

Why do you believe that the companies should be worth 25% less than last year? These are the same companies. Do you really believe that all of the companies listed are collectively worth 25% less? I'd like to see your analysis on that one.

Re:It should Flash Crash to about 5000 (1)

AthleteMusicianNerd (1633805) | more than 4 years ago | (#32680126)

They are overinflated by funny money being counterfeited by the Federal Reserve and Banks that use fractional reserve lending.

Re:It should Flash Crash to about 5000 (2, Interesting)

Cyberax (705495) | more than 4 years ago | (#32680346)

"Why do you believe that the companies should be worth 25% less than last year?"

Because they won't be profitable during the recession? Because investors need money for other purposes and have to sell shares?

There are lot of reasons. Stock market is not 100%-rational, but it's also not completely irrational.

Re:It should Flash Crash to about 5000 (1)

bmacs27 (1314285) | more than 4 years ago | (#32679954)

Right, and a year before that it was at 13000. Like you said, same companies. Why not split the difference? Also, all money is funny.

Re:It should Flash Crash to about 5000 (1)

AthleteMusicianNerd (1633805) | more than 4 years ago | (#32680196)

In the world we live in, that's true. But if central banks didn't exist, money would be a true representation of capital.

The 13000 was overinflated. Companies were trading at 40+ times earnings, or even negative earnings. No one who values their labor, or understands economics would actually purchase these companies with the intent to invest. The people who buy these companies are using other peoples money, and their horizon is very short term.

Re:It should Flash Crash to about 5000 (1)

Cyberax (705495) | more than 4 years ago | (#32680398)

"But if central banks didn't exist, money would be a true representation of capital."

Then we'd have large banks to replace them. If we also somehow prevent them, then there won't be economic growth because it requires credit system.

he modern economy is quite amazing and counter-intuitive. For example, if Europe decides to be masochist (tighten monetary policy - it's tough times, so everybody should suffer) then you'd have stagnation and deflation.

Re:It should Flash Crash to about 5000 (2, Insightful)

Sir_Sri (199544) | more than 4 years ago | (#32680096)

If you know what companies are 'worth' why aren't you out making a pile of money either shorting them if they're too high or buying if they're too low? What exactly justifies your price of 5000? Really, what defines the worth of a company? A company's worth isn't some discretely tangible thing, as much as we'd all like that. You buy or sell stocks based on what you think the price and dividends are going to be at some point in the future. Which can suddenly change if you know... there's a major oil spill in the gulf of mexico. The DOW average is just a collection of some companies, which can then wildly distort the picture. Last year (roughly) GM was on the DOW but they went bankrupt, so just a guess, but that might have dragged the market down a bit. On June 8th of 2009, so my 'roughly' one year ago, citi and GM got tossed off the DOW. So maybe the new DOW really is worth a lot more, or at least is projected to be worth a lot more.

As to your assertion that it's being propped up by funny money. Well not exactly. I'll grant that the US dollar is a bit screwy, but since the DOW is in US dollars the the dollar could change down -50%, DOW could change +100%, and the total value if you were to consider it in Euro's would be unchanged. Of course the US dollar factors into things because people are more confident in the US managing its debts than say, botswana or nigeria, or the PIIGS. Of course in that situation, in the the last year, money will have been taken out of those foreign accounts and dumped into US dollar businesses, which in turn inflated both the dollar and the DOW, and reflects a real shift in money from one region to another.

Re:It should Flash Crash to about 5000 (1)

AthleteMusicianNerd (1633805) | more than 4 years ago | (#32680382)

I don't know what the exact value should be, I was just using 5000 to keep it pithy. It should be a lot lower. I'm looking at the P/E ratios and Dividends. It's amazing to me that someone would pay anything for a stock that has no dividend, and most of them don't. The reason you invest in a company is so the company can generate revenue. If you are never paid a portion of that revenue, why even invest? In general, it's so you can find some other sucker to buy the stock at a higher price. If you're the last sucker though, you're out of luck.

Like you said, value and money are two completely different things. You can read my other post in this thread on Capital vs. Money and where the two come from.

Re:It should Flash Crash to about 5000 (1)

severoon (536737) | more than 4 years ago | (#32680576)

Does anyone really believe that all of the companies listed are collectively worth 1.5 times more?

Does anyone believe they were worth that much less after the market cratered in 10/2008? Same companies, same people going to work everyday, doing the same things.

What all this reflects, of course, is that the market is volatile. Volatility is a measure of the market's certainty about what things are worth. So, to directly answer your question, because the market is volatile these days people are less inclined to believe the companies are worth their stated value.

However, the way the market reflects what people think is not a "thing to be fixed." It's working as it should. The solution here is to address the underlying problems that are making people feel so uncertain, not the measurement device.

But if you've read news over the last couple of years about what most smart people think we ought to be doing, you already know that, don't you?

Re:It should Flash Crash to about 5000 (1)

tukang (1209392) | more than 4 years ago | (#32680580)

Yes the market was at 6800 a year ago but it was also at 14000 two years ago, so maybe at 6800 the question was "these are the same companies. Does anyone really believe that all of the companies are collectively worth less than 50%?". And it seems the market answered "No, they're collectively worth about 30% less".

Re:It should Flash Crash to about 5000 (4, Insightful)

uniquename72 (1169497) | more than 4 years ago | (#32680620)

Stocks 101: The stock market is a measure of future expectations, not current conditions. The Dow hit 6800 because there was a great deal of future uncertainty about whether or not we were entering a major recession or a long-term depression.

So yes, the 1.5x valuation is fully warranted today. Whether that will still be true tomorrow is debatable.

Re:It should Flash Crash to about 5000 (1)

pz (113803) | more than 4 years ago | (#32680694)

and stay there because that's about what it's worth. The only reason it's up above 10,000 is because it's being propped up with funny money. Just a year ago it was at 6800...these are the same companies. Does anyone really believe that all of the companies listed are collectively worth 1.5 times more?

So you're saying that the DJIA being over 10,000 prior to the global recession was also due to funny money? Which source, exactly?

Making stock comparisons to valuations of one year ago is highly suspect as the prices one year ago were not real: they were during a highly anomalous global market condition. The tacit assumption that the origin of the comparison was a normal condition is not valid, therefore any irregular results (like 1500% growth in one year) should not be taken at face value.

That said, if you were smart enough to have gone all in a year ago, you'd be sitting pretty right now.

wow (5, Funny)

Anonymous Coward | more than 4 years ago | (#32679488)

I knew the Flash plugin was unreliable, but I had no idea it was so bad that it was affecting the stock market.

Actual Analysis (4, Funny)

improfane (855034) | more than 4 years ago | (#32680178)

This is the actual analysis:

May 6
John (one of the wall street support technicians) was playin flash games on his workstation.
The stock market is stored under "market2010.swf"
He forgot to move it into the right folder N:\smarkets\closed\market2010q2.swf usually when this happens it's not so bad because
Unfortunately, the network admin did a flash game sweep and deleted *.swf as a routine cleanup
What happened was, the market2010.swf was deleted by the routine scan, so now they having to recreate all the data from memory. Stockmen are now trying to guesstimate how many shares they own.

When they say fat fingered, they aren't joking. N:\smarket has TONS of files and it takes AGES to load a 1000 files in icon view on Windows 98!

So Jobs was right? (5, Funny)

gil.i.hauer (1456433) | more than 4 years ago | (#32679512)

.. about Flash crashing, I mean ...

Re:So Jobs was right? (4, Funny)

DriedClexler (814907) | more than 4 years ago | (#32679880)

Yes, we could definitely use more Jobs right now...

The next chaper of this story (1)

Stenboj (1131557) | more than 4 years ago | (#32679552)

Someone will put up a trading program that detects these flash crashes and profits from them.

Re:The next chaper of this story (1)

poopdeville (841677) | more than 4 years ago | (#32679598)

You don't need a "trading program". The people who profited from the Flash Crash did so because they had orders in to buy at their target price, and volatility caused their orders to fill.

Re:The next chaper of this story (1)

Lunix Nutcase (1092239) | more than 4 years ago | (#32679654)

Except that most if not all of those orders got canceled.

Re:The next chaper of this story (3, Interesting)

poopdeville (841677) | more than 4 years ago | (#32679682)

Those which were at a 60% discount or greater, yes. And it's serious bullshit.

Simple Fix (2, Interesting)

Anonymous Coward | more than 4 years ago | (#32679562)

Look at average frequency of trading for the two years leading up to the Flash Crash, and set that has the upper limit.

Flash Crash? Try HTML 5 (0, Redundant)

Aqualung812 (959532) | more than 4 years ago | (#32679582)

Sorry, the first think I thought of was Adobe Flash causing my browser to crash. The second thing I thought of was that this was a Flash animation of the stock market crash. Both are incorrect, I hope I wasn't alone in my mistake.

How is this a problem? (3, Interesting)

bluefoxlucid (723572) | more than 4 years ago | (#32679602)

Old way: 10,000 trades a day, every few months or years the market dips for a few months and rebounds, every several years the market enters a deep recession for years.

New way: 10,000 trades a second, every few weeks or months the market dips for a few minutes and then rebounds, every several years the market enters a deep recession for years.

The artifacts of trading become more temporally frequent and more temporally limited; the artifacts of real economy (growth-recession cycle) don't change.

Re:How is this a problem? (5, Insightful)

Smidge204 (605297) | more than 4 years ago | (#32679756)

Old way: 10,000 trades a day, every few months or years the market dips for a few months and rebounds, every several years the market enters a deep recession for years.

Yet it doesn't have to be that way. the problem is people put money in the stock market because they want to make money, not because they give a sh*t about the companies they're investing in or their products/services. the result is everything becomes about making profit now instead of building long-term stability.

Fluctuations are one thing, but those "deep recessions" are all the result of a small group of people doing incredibly stupid things in the name of short-term profitability.

These high frequency tradings should be banned. They contribute absolutely nothing to the market, the companies or the shareholders at large. All they do is extract money at the expense of the market's overall health.
=Smidge=

Re:How is this a problem? (2, Insightful)

Dishevel (1105119) | more than 4 years ago | (#32679996)

High frequency trading adds a lot to the market. Just not the way you think it should. I for one like the fact that there is ALWAYS someone buying or selling EVERYTHING. That makes it easier for me to buy and sell. Liquidity is not something that should be overlooked as a great thing to have.

Re:How is this a problem? (1, Informative)

FooAtWFU (699187) | more than 4 years ago | (#32680012)

Maybe they should, and maybe they shouldn't, but my understanding was that the "flash crash" problem wasn't really caused by high-frequency trading per se. It was caused because everyone was panicky about Europe and Greece's debt, and the market was falling, and people turned off computerized HFT systems, and no one had enough reasonable offers up on Proctor and Gamble stock, so when someone said "sell a bunch of my P&G now!" the exchange sold it to a bum on the street corner for a nickel (metaphorically) since that was the only offer around. And then people were like "oh no! major stock price drop!" and it went from there.

Re:How is this a problem? (2, Funny)

Anonymous Coward | more than 4 years ago | (#32680388)

If only somewhere there were an article that described the situation, it would really help us become informed about it. Maybe some site that focuses on news for nerds could post a link to it. That would be awesome.

Idiot managers (0)

TiggertheMad (556308) | more than 4 years ago | (#32679774)

The artifacts of trading become more temporally frequent and more temporally limited; the artifacts of real economy (growth-recession cycle) don't change.

Agreed. Moreover, how is this my problem? If a firm chooses to automate trading and gets screwed because they didn't write a good algorithm, it's their problem. They played the market and lost. Their earnings will reflect this, and they will lose customers.

The only thing I object to is firms not disclosing the fact they are doing automated trading. If their clients know that algorithms are managing their money and not people, and still want to swim in the deep end, let them. If they are doing something as chancy as letting the computers have full control of trading, and not disclosing the fact to clients, they should be sued for reckless negligence.

I mean, at that point, why not just bet your client's life savings in a single big spin of a roulette wheel?

Re:How is this a problem? (4, Insightful)

Hatta (162192) | more than 4 years ago | (#32679788)

The real problem is the reliance on the stock market as a measure of the economy in the first place. The stock market is a completely artificial construct that has nothing to do with anything. It would be best if people just ignored it.

Look at this recession for instance. If you look at the stock market you'd think that the recession is over. Fat lot of good that does for all the people who are still out of work. And no, unemployment is not a "lagging indicator", it's the only thing that matters.

wrong (1)

circletimessquare (444983) | more than 4 years ago | (#32679956)

the stock market is the only honest way to determine value. of course it is abused and obsessed over, but even with all of the shenanigans and parasites, the benefits outweigh the detractions

Re:wrong (1)

Hatta (162192) | more than 4 years ago | (#32680070)

Thank you for your bare assertion with no supporting evidence or arguments.

if i told you the sky was blue (0, Flamebait)

circletimessquare (444983) | more than 4 years ago | (#32680228)

you'd insist on supporting evidence

if you are unable to grasp how the stock market determines value, you really shouldn't be saying things about the economy, as you are announcing a woeful lack of understanding of the subject matter

my comment was a form of intellectual charity. take the charity, and go get your own supporting evidence. i'm not your wet nurse

or continue being willfully ignorant of what you comment on, your choice

Re:How is this a problem? (1)

Hognoxious (631665) | more than 4 years ago | (#32680112)

And no, unemployment is not a "lagging indicator", it's the only thing that matters.

So if we take half the unemployed and give them jobs digging holes and set the other half to work filling them in again everything'll be just fine?

Re:How is this a problem? (1)

Rakishi (759894) | more than 4 years ago | (#32680326)

So if all the jobs were replaced with sweat shop ones that paid 5cents an hour run by Chinese companies you'd say the economy has not changed at all? Because that's what you're arguing.

Unemployment doesn't particularly matter, not every job is equal and most of them don't matter that much. Welcome to reality. The stock market, theoretically, measures the value, including future potential, of companies and thus of the market.

Re:How is this a problem? (3, Insightful)

nine-times (778537) | more than 4 years ago | (#32680444)

The bigger problem is using GDP as a measure of the economy.

Re:How is this a problem? (1)

phantomfive (622387) | more than 4 years ago | (#32680696)

And no, unemployment is not a "lagging indicator", it's the only thing that matters.

Yeah, because those places where everyone is employed as a subsistence farmer and everyone is employed because they starve to death and thus they have 100% employment; those places are a real model for us to follow in the economy. You are right, people make the mistake of relying on the stock market as a measurement of the health of the economy, but you've made the same mistake using a different statistic. Economies are complicated, and you can't get a good understanding using any one measurement alone.

barrier of entry is a problem (5, Insightful)

circletimessquare (444983) | more than 4 years ago | (#32679798)

those with the screamiest servers the shortest fibre optic hop away from wall street get to play this game, no one else. it dedemocratizes the market. the ideal of a marketplace is that it is a meeting place of equals. if the guy with the most expensive servers and programmers money can buy is the only one who can profit though, the marketplace is now simply an oligopoly of the rich, not a place where the common investor can make his or her mark

of course, the market has never been a meeting place of equals, it has always been abused by the largest players in the marketplace. however the idea is to minimize this abuse, not excuse or accept it

what the market needs is a "tick", a "heartbeat": all trades, no matter from whom, must be made in the same 1 second or three second batch cycle. no one should be allowed to exceed this frequency. problem solved

Re:barrier of entry is a problem (3, Informative)

timeOday (582209) | more than 4 years ago | (#32680714)

I like your proposal. Here [nytimes.com] is a link adding meat to your assertion that high frequency trading tilts the playing field, and how.

Re:How is this a problem? (5, Insightful)

bmo (77928) | more than 4 years ago | (#32679802)

Because it's no longer investing.

It's gambling.

In gambling, the only winner is the house. In this case it's the brokerages.

I hope this helps.

--
BMO

Re:How is this a problem? (2, Interesting)

Sir_Sri (199544) | more than 4 years ago | (#32679864)

ya if anything this was a strong supporter of high frequency trading. The market corrected before the vast majority of people were even aware there was a stock market dip. What caused the initial dip is well outside my area of expertise (since I don't follow the second to second activities of traders), but after it did happen, that it went back to be in line with it's roughly steady state seems like the system is work.

High frequency trading allows rapid price normalization between exchanges, which is good, and while the rate of the fluctuations is faster, that doesn't necessarily change the average value over time.

Re:How is this a problem? (4, Insightful)

FooAtWFU (699187) | more than 4 years ago | (#32679890)

Old way: You give your cow to a servant to take it down to the market to sell it, and there's a bunch of people there who are willing to give him a fair price. Flash crash way: You tell the servant to take your cow down to to the market and sell it, but everyone's really busy and a little skittish, and since you told him to sell it now he sells it to a bum on the street corner for a nickel, then everyone panics: "the price of cows has fallen to a nickel! woe and ruin!" until some people wise up and realize they can buy cows on the cheap, and do so.

Market orders. Go figure.

Re:How is this a problem? (0)

Anonymous Coward | more than 4 years ago | (#32679940)

As automated trading becomes more ingrained, 'dip events' become more frequent drying up equity. You could argue this isn't a big deal, but w/ pensions, 401's, and retirement funds directly tied in, having that money vanish directly results in lives and families being touched.

Of course, to the pure capitalist, this shouldn't be a concern.

Re:How is this a problem? (3, Interesting)

Bill, Shooter of Bul (629286) | more than 4 years ago | (#32680082)

Well, I would suggest reading the article. Basically, there are two problems identified:

1) NYSE has a bug in their system which caused a crash.

2) High volume traders are effectively launching denial of service attacks through their otherwise unnecessarily high number of quotes per second ( as high as 5000 per second). The only reasoning besides stupidity is that they are trying to force their cometitors to burn though their cpu analysing the quotes, allowing the quoter to have a temporary advantage in analysis and trading.

Re:How is this a problem? (2, Interesting)

Anonymous Coward | more than 4 years ago | (#32680156)

Another note, the billions of dollars "lost" during this flash were only felt by those that invest for the moment. The long term investor did not even notice this blip. IMHO if you play the investment game and are trading on the news of the microsecond you are very well aware that some news is FALSE. Your choice to act on information is your CHOICE. You either make some money or lose some money.

Re:How is this a problem? (1)

Kjella (173770) | more than 4 years ago | (#32680660)

I'd really like to see some statistical data showing that it's quieter month-to-month just because it's livelier minute-to-minute. At the first level, you have the real economy with profits and dividends. Some invest based on the real economy relative to the stock price, let's call these first order investors. Above these there's a layer of macro traders, trying to figure out what the real economy investors will do, those are of the second order. For each level you get shorter timespans trying to outguess the order below, until you reach the last levels which used to be a day trader. Today it's the computers with their microsecond trades.

It's a little bit of a bull whip, the real economy makes a little jolt and the whip goes up and down, faster and faster in increasingly bigger motions until it ends with a snap. Now, if you want to try outsmarting other investors I guess that's fine, but if you're interested in the real economy the stock price the whip is getting longer and longer and where the tip is - the current price - has less and less to do with where the handle is. If you think there's a steady 4% profit but the stock price keep fluttering up and down 20%+ like a hummingbird you too get caught up in that, it overshadows all the real economy in it.

Don't get me wrong, market liquidity is good. Liquidiy is what makes it possible to invest and divest without committing to binding up your money for years. Even for projects that aren't traded daily like real estate it's important with a functioning second hand market. However, there's liquidity and liquidity, nobody needs to be out of their investment in 0.0001 second instead of 1 second. I saw an interesting suggestion in another post, the option to have a "heartbeat" on the market. Basically that trades aren't instant, they're queued for a pulse and then all settled at once before a new pulse begins. It'd cut down on a lot of the absurdity and I don't think it'd hurt the economy at all.

ZeroHedge had a discussion on the Nanex report... (4, Interesting)

tcopeland (32225) | more than 4 years ago | (#32679762)

...right here [zerohedge.com] . One commenter had some interesting things to say about "quote stuffing":

Just because the folks at Nanex can't figure out why a system was entering orders and cancelling them frequently does not mean that they were being "stuffed" to thwart competitor's systems.

The logic on the machines placing those orders (HFT or otherwise) may have been severely screwed up by the craziness of 5/6 and the latency on data feeds - but there is no way to profit by spewing lots of quotes.

First, everyone in the HFT space has plenty of headroom to process the full raw feeds (rather than the SIAC consolidated feeds Nanex is looking at). A few thousand extra quotes per second is not meaningful to systems that can process millions of quotes per second.

More to the point though, each exchange gives each participant a port on which to send their order flow. Those ports are rate limited. That means that if you send thousands of spurious quotes that are not going to hit, the only harm you cause is to your own trading strategies, since when you finally did want to execute a trade at a price where the execution was remotely likely, you are going to have that order queue behind all of your other orders on the same port.

So it might not be the big advantage that Nanex sees it as.

Re:ZeroHedge had a discussion on the Nanex report. (1, Insightful)

Anonymous Coward | more than 4 years ago | (#32680506)

The single port theory from zerohedge assumes a firm uses only one port; they can have more than one. If one provider fails, they have an alternate venue for trades. Quote stuffing could happen through one venue while major plays happen on another. It *could* happen that way.

Real problem (5, Interesting)

DogDude (805747) | more than 4 years ago | (#32679764)

The real problem isn't trading frequency. It's the basis for the market. Since most stocks have stopped paying significant dividends, there's very little basis for any one stock's value. The stock market today is solely based on betting whether an individual can accurately predict what the rest of the market will do in the future. Stock prices don't have anything to do, whatsoever, with the inherent financial value of the underlying company.

If I'm going to gamble, I'm going to Vegas. At least there, you get free drinks as you piss your money away.

Re:Real problem (1)

Straterra (1045994) | more than 4 years ago | (#32679860)

The Palms has very nice looking waitresses too!

more sensible trading (3, Interesting)

lazn (202878) | more than 4 years ago | (#32679770)

I have always thought that if you buy stocks that pay dividends you should have to keep them for a minimum of a year, and if you buy stocks that don't pay you should have to keep them for a minimum of 24 hours before being able to sell them. If you short stocks the sale should take 24 hours to take affect.

I mean really, what could happen in 24 hours that would honestly affect the value of a publicly traded company? Even the oil spill has taken weeks and months to lower BP's value, and really in the long run it is probably time to buy BP stock.

Re:more sensible trading (2, Insightful)

Dishevel (1105119) | more than 4 years ago | (#32680116)

I mean really, what could happen in 24 hours that would honestly affect the value of a publicly traded company?

Exploding factories. 9/11. FDA investigations. FBI raids on corporate HQ. CEO arrested for fraud. CIO arrested for selling customer CC info to Russian hackers. CFO arrested for securities fraud. Announcing a new product. Announcement of a massive merger.

Lots of things can affect the value of a company over a short period of time.

If you want to change the system I am cool with that. I do not though think there is any need to outright deceive people with a stupid question like that to "prove" your point. All you do is prove that you need to not be trusted.

Re:more sensible trading (0)

Anonymous Coward | more than 4 years ago | (#32680686)

I figure this is a good place for a tax-control:

All stocks are marked with the time/date they were purchased.
At the time of sale, a tax is imposed that is inversely proportional to the amount of time you have held the stock.
Something like 10% if held for one day, .0001% for one year.

This would kill millisecond trading in a big hurry.

The reason why the stock prices went to zero (4, Informative)

christoofar (451967) | more than 4 years ago | (#32679928)

The problem wasn't the NYSE. The problem was that when the NYSE decided to execute trading delays, the other markets replied "the computer sez no" and kept on trading at high speed. Because there weren't enough buyers at the time to satisfy all the selling, all the market sellers saw their prices plummet because the computers were programmed to find a buyer no matter what the price, as long as the transaction would clear.

So... what's the problem? If you picked up Accenture at a penny a share you should be fuckin' lucky. I wouldn't shiv that stock off to a homeless man for a nickel.

Storm? (1)

EvilBudMan (588716) | more than 4 years ago | (#32680266)

It looks like on of those weather graphs showing a storm is brewing.

Quote Stuffing = DDOS Attack (3, Insightful)

no1home (1271260) | more than 4 years ago | (#32680344)

From a few pages into the write-up (http://www.nanex.net/20100506/FlashCrashAnalysis_Part4-1.html):

What benefit could there be to whomever is generating these extremely high quote rates? After thoughtful analysis, we can only think of one. Competition between HFT systems today has reached the point where microseconds matter. Any edge one has to process information faster than a competitor makes all the difference in this game. If you could generate a large number of quotes that your competitors have to process, but you can ignore since you generated them, you gain valuable processing time. This is an extremely disturbing development, because as more HFT systems start doing this, it is only a matter of time before quote-stuffing shuts down the entire market from congestion.

Definition of a DDOS (from http://searchsecurity.techtarget.com/sDefinition/0,,sid14_gci557336,00.html [techtarget.com] ):

a distributed denial-of-service (DDoS) attack is one in which a multitude of compromised systems attack a single target, thereby causing denial of service for users of the targeted system. The flood of incoming messages to the target system essentially forces it to shut down, thereby denying service to the system to legitimate users.

Quote stuffing looks like a DDOS to me, and should automatically be illegal. Of course, there are several technical differences that any lawyer could point out,thus making quote stuffing legal, so I'd recommend outlawing it just to be sure. Not often I get to say, in all seriousness, "There ought to be a law." {Most situations do not require new laws, only the proper application of existing laws.}

Thank you cmdr taco, for this 'analysis' (0)

Anonymous Coward | more than 4 years ago | (#32680354)

Hi,

Again, anonymous coward to the rescue. I know this is Slashdot but I wish CmdrTaco would stop commenting about high frequency trading, a subject he clearly knows just about nothing about. His comment essentially is, "There are a lot of graphs, boy this high frequency stuff is bad business"

Just because something is complicated doesn't mean that it is bad. It also helps that the Nanex people have no idea what they are talking about, and basically admit it. They graphed a bunch of quotes, and came to completely unsupported conclusions. Just because they can't figure out the order flow doesn't mean squat. This timestamping issue they start talking about is retarded. HFT shops do their own time stamping and are constantly dealing with lagged market data, slow matching engines, and various other issues caused by huge differences in the quality and speed of the various exchanges. A quote doesn't arrive super late and the HFT engine just assumes its a good quote and the time stamp that the exchange gave it was correct, that would be retarded for lack of a better word.

Lets start with the conclusion, mostly because the rest is rubbish.

"What benefit could there be to whomever is generating these extremely high quote rates? After thoughtful analysis, we can only think of one. Competition between HFT systems today has reached the point where microseconds matter." Drrrrrrr. Yes, microseconds matter, so I guess the end is right. but lets start with the first part. Whomever is generating these high quotes? HFT shops don't generate quotes, exchanges do. HFT shops generate order flow which the exchange generates quotes from if they are VALID. So I guess you could generate tons of extraneous orders.. which would slow down your own HFT engine. Also, lets say for a second that tens of thousands of quotes are being generated by heavy order flow from lots of HFT shops, these systems aren't going to break a sweat, unless they suck. Everyone has to process them, even the firms generating the order flow.

"This is an extremely disturbing development, because as more HFT systems start doing this, it is only a matter of time before quote-stuffing shuts down the entire market from congestion." So lots of market activity is bad, because there is lots of market activity. Quotes aren't for fun, they represent actual prices you could potentially lift or hit, so lots of price movement, volatility or fluctuation, as well as matching buyers and sellers quickly is bad (liquidity). So in short, if you are going to buy a quoting system (i.e Nanex's offering) try not to get it from people who don't know a damn thing about HFT, and post articles that are a case study in ignorance.

Put the brakes on a level up (5, Insightful)

Todd Knarr (15451) | more than 4 years ago | (#32680458)

Instead of putting in fixes at the exchange level, put something in at the SEC regulation level so it applies to all US exchanges. And yes that'll stabilize foreign exchanges too. Think about supply and demand and what sellers do when prices drop in market A and don't drop (or don't drop as far) in market B.

First option: bunch trades by time. Define a market tick, say 2 seconds. All trades that come in in a given tick get bundled together and executed as if they'd arrived in a random order at the end of the tick. The exchange is allowed to use any method to randomize and order the trades, the only rules are that the method can't be based directly or indirectly on the original arrival sequence or the original arrival time and the method can't give preference to any particular trader or type of trader. The bunching should have no effect on people who trade on timescales more than about 2x the tick, but makes trading on timescales less than the tick infeasible because the market simply won't execute your trade any faster than the tick.

Second option: random delays. Define a market tick, say 2 seconds. All trades, as they arrive, have a random delay between 0 and the tick length calculated (same rules as option 1) and have their execution delayed by that much. You're guaranteed to have your trade executed within 1 tick of it's arrival, but you can't know when within that 1 tick it'll actually be executed. Again the delay should have no effect on people trading on timescales larger than about 2x the tick, but trading on timescales less than the tick becomes infeasible.

That should smooth out the noise caused by high-frequency trading without seriously impacting things for anybody who's not trading on sub-second intervals. And it avoids the whole quagmire of trying to ban every different way of doing high-frequency trading and seeing the HFTs try to find loopholes and methods you haven't banned yet by simply setting a time resolution for the exchanges below which everything's just random noise.

And thats why ... (1)

elventear (868128) | more than 4 years ago | (#32680460)

Apple doesn't want Flash on the iPhone.
Load More Comments
Slashdot Login

Need an Account?

Forgot your password?