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Market Data Firm Spots the Tracks of Bizarre Robot Trading

timothy posted more than 3 years ago | from the tessier-ashpool-at-work dept.

Businesses 483

jamie spotted a fascinating story at The Atlantic about "mysterious and possibly nefarious trading algorithms [that] are operating every minute of every day in" the stock market: "Unknown entities for unknown reasons are sending thousands of orders a second through the electronic stock exchanges with no intent to actually trade. Often, the buy or sell prices that they are offering are so far from the market price that there's no way they'd ever be part of a trade. The bots sketch out odd patterns with their orders, leaving patterns in the data that are largely invisible to market participants." Spotting the behavior of these bots was possible by looking at much finer time slices than casual traders ever see — cool detective work, but as the story points out, discovering it is just the beginning: "[W]e're witnessing a market phenomenon that is not easily explained. And it's really bizarre."

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483 comments

Here's an explanation for you: (4, Insightful)

Pojut (1027544) | more than 3 years ago | (#33142916)

The "market" is a fucking scam.

There, that wasn't so hard, was it.

Re:Here's an explanation for you: (4, Interesting)

Sir_Lewk (967686) | more than 3 years ago | (#33143000)

Believe it or not, I'm not sure that explains these weird robot trades at all.

Nope, it's right on (5, Insightful)

RingDev (879105) | more than 3 years ago | (#33143104)

I read an interview a few weeks ago about these trades. When we're talking about the majority of all stock trades being done by these incredibly fast bots, where people are looking for every possible advantage, there are many tricks. One of them is to flood out a huge quantity of bogus bid/sell offers in sufficient enough bulk that it may cause your competition's bot to slip a few micro seconds. Just enough for your own bot to snipe a fraction of a cent advantage.

If you are interested in the 'Cyber-War'. Forget China, head to Wall Street.

-Rick

Re:Nope, it's right on (1)

Anonymous Coward | more than 3 years ago | (#33143230)

+ 1 creepy

Re:Nope, it's right on (3, Insightful)

countertrolling (1585477) | more than 3 years ago | (#33143352)

If you are interested in the 'Cyber-War'. Forget China, head to Wall Street.

Why should Americans have all the fun? Could be Chinese bots... I hear they like money, also...

Re:Nope, it's right on (4, Informative)

bertoelcon (1557907) | more than 3 years ago | (#33143394)

Why should Americans have all the fun? Could be Chinese bots... I hear they like money, also...

Lower ping times helps these bots a lot.

Re:Nope, it's right on (4, Interesting)

digitalhermit (113459) | more than 3 years ago | (#33143434)

The biggest traders can use bogus trades to get an idea of what price a stock is able to bought/sold at. With sufficiently fast systems -- i.e., ones tied directly into NASDAQ, NYSE, etc.. -- they can make millions of dollars extra than if they didn't have this knowledge. And it's legal...

Re:Nope, it's right on (4, Informative)

mestar (121800) | more than 3 years ago | (#33143596)

I don't see what is the mystery here. If two people are negotiating a price, and both of them have a hidden high/low price for which they are ready to settle, then the dominating strategy in a game theory sense is to move your price by the smallest step possible. That way, you always hit your opponents price that is best for you and worst for him.

Of course, in face to face markets, this is insulting:

http://www.youtube.com/watch?v=3n3LL338aGA [youtube.com]

but, we are talking bots with a really low ping here. And that's what those patterns are.

At least those with increasing prices by one cent. Those where the bids are going down don't fit this explanation.

Re:Here's an explanation for you: (2, Funny)

Anonymous Coward | more than 3 years ago | (#33143120)

They are not trading, they are training. If there wasn't already a legit seeming FPGA industry serving HF traders they would have needed to create one to cover their tracks after they discovered the Pyramid Inch.

Don't worry. Devaluing the markets is a net positive. If they build skynet we will be sure to flush to algos to the FOSS community.

Or maybe I am high and living in my parent's basement. Why is reality so complicated?

Re:Here's an explanation for you: (0)

Anonymous Coward | more than 3 years ago | (#33143556)

believe it or not, it partially does. Online trading algorithms are huge in trading and are indeed used for nefarious purposes..

I mostly agree! But let's soften it a little. (4, Insightful)

Petersko (564140) | more than 3 years ago | (#33143028)

"The "market" is a fucking scam."

I think I'd prefer to say that the market has a purpose, and that purpose has absolutely nothing to do with maintaining wealth for the casual investor. Once you abandon the idea that the market gives a damn about the solidity of retirement accounts or the portfolios of the masses, then it's easier to accept that the purpose of the market is to move money around and around in a big circle, while slowly siphoning it off into the pockets of particular groups.

Stocks are a massive game of hot potato. Whoever is holding the stock with the game is over gets burned.

I say it's not necessarily a scam because it should be clear to anybody looking in that this is how it works. Like the rake at a poker game, if you wait long enough the house has all the money. This fact isn't hidden - you just have to wake up to the implications.

Re:I mostly agree! But let's soften it a little. (2, Funny)

AndersOSU (873247) | more than 3 years ago | (#33143608)

The only think the house has to watch out for is angry gamblers burning the casino to the ground.

Re:I mostly agree! But let's soften it a little. (4, Informative)

afabbro (33948) | more than 3 years ago | (#33143622)

Once you abandon the idea that the market gives a damn about the solidity of retirement accounts or the portfolios of the masses,

Easy to "abandon," since that was never the purpose. The stock market exists to marry investors' capital with business opportunities and to provide an easy means for selling and buying ownership shares of corporations. Corporations use the stock market to raise capital. Individuals or organizations use it to buy/trade ownership of corporations. That's it.

The stock market is not designed to be a retirement savings device.

Re:Here's an explanation for you: (5, Insightful)

eldavojohn (898314) | more than 3 years ago | (#33143032)

The "market" is a fucking scam.

There, that wasn't so hard, was it.

Well, in the article they say that one firm's explanation is that high frequency traders are injecting quotes into the system because they know about them and don't have to sort through them when they are posted ... but their competitor's bots have to look at that data and sort out the real data that are actual useful quotes instead of the outliers which are quotes that will never be taken.

So scam is close but spam might be a better word for this.

I also get a kick out of how periodically in this article they remind us that high frequency trading is good for the market and these people that don't do anything that act as middle men are actually good for the market because they up availability or "eliminate inefficiencies" (that's my favorite). And they're all taking money out of this magical unending bucket of cash ... quant funds and high frequency traders are so 1929 I don't even know where to begin.

Re:Here's an explanation for you: (5, Insightful)

vlm (69642) | more than 3 years ago | (#33143216)

I also get a kick out of how periodically in this article they remind us that high frequency trading is good for the market and these people that don't do anything that act as middle men are actually good for the market because they up availability or "eliminate inefficiencies" (that's my favorite)

Maybe they started with an intelligent explanation that seems to fit reality, like we're watching a very confrontational version of simulated annealing among multiple competing firms using real money, but you run that thru the "english to journalist" filter and get the gibberish you describe. You have to realize journalists are the guys that flunked out of Calc I in their freshmen year and then spent the rest of their schooling drunk or stoned, as gatekeepers to the masses they are always going to be epic fails.

http://en.wikipedia.org/wiki/Simulated_annealing [wikipedia.org]

Its fairly perceptive to note that journalist style gibberish is often used by people trying to scam. There are plenty of (often self serving) religious / philosophical arguments that claim markets are always scams, etc. Need to very carefully consider cause vs effect and correlation vs causation or else you just send up with cliche instead of insight.

Re:Here's an explanation for you: (1)

blair1q (305137) | more than 3 years ago | (#33143482)

Companies are completely cognizant of the ways they can manipulate information to confuse the public and their competitors. And they're completely cognizant that this gives them a competitive advantage and everyone else a disadvantage. Their only fear is that they don't get hit with the same tactic.

What's going on here is just an attempt to sway the markets without taking on any risk. It's a manipulation of a mechanism that wasn't designed to prevent it. The PR they toss around to get the public to look the other way, or better, to ignorantly approve of the practice, is part of the game.

It's called freedom to do business (1)

e065c8515d206cb0e190 (1785896) | more than 3 years ago | (#33143294)

Unfortunately for you they are not harming anyone. You could argue that they don't bring much to society. And maybe you'd be right. But they have the right to do that. Not to mention they're conceptually very close to the guy who buys water bottles in one spot and tries to sell them dearer in another spot.

IANAL but a general concept is that whatever is not harmful, the law shall not forbid.

Re:It's called freedom to do business (0)

Anonymous Coward | more than 3 years ago | (#33143406)

IANAL but a general concept is that whatever is not harmful, the law shall not forbid.

HAHAHAHAHAhahahaa .... ehhh... heh heh .... heh ... BWWAHAHAHAHAHAHAHA!!!!!

Re:It's called freedom to do business (-1, Flamebait)

Anonymous Coward | more than 3 years ago | (#33143576)

You're confused about what a right is in the united states: http://en.wikipedia.org/wiki/United_States_Bill_of_Rights [wikipedia.org] I don't see anything about high frequency trading in there.
They are harming people!!! They are clearly manipulating prices. If one of these firms >>ARTIFICIALLY drops a stock below a stop loss, then they've just screwed someone for the difference * num_stocks. This is the same reason why people were irate over the flash crash.

Re:It's called freedom to do business (1)

HungryHobo (1314109) | more than 3 years ago | (#33143638)

Correction:"the guy who buys water bottles in one spot and tries to sell them dearer in the same spot"

The guy who moves them around performs some kind of service.
It just means that the person selling gets a worse price that they would have otherwise(though possibly sooner) and the person buying gets a worse price.

Re:Here's an explanation for you: (-1, Redundant)

SerpentMage (13390) | more than 3 years ago | (#33143058)

Said by people who loose money...

Sorry I call'm as I see them...

For if you look closer at the market and attempted to understand it you would realize it is not a scam!

Re:Here's an explanation for you: (0)

Anonymous Coward | more than 3 years ago | (#33143272)

The stock market is a zero sum game. For someone to make a buck, someone else will lose a buck (or yuan, or yen, or Euro, or Rupee, or shekel, or adena). Scam 101. What goes up must come down, so the trick is to do as many pump and dump scams as possible so you are at the high point when you sell letting some sucker take the loss when the stock goes down.

you so dumb, AC calls you out (-1, Troll)

Anonymous Coward | more than 3 years ago | (#33143276)

Said by people who CAN'T FUCKING GRAMMAR!!!

seriously, your an illiterate retard

Re:Here's an explanation for you: (1)

Surt (22457) | more than 3 years ago | (#33143470)

A scam is where you lure fools in and separate them from their money without giving them anything of value. The market has done that a few million times now. It does other things too, so it's not JUST a scam.

Re:Here's an explanation for you: (0)

Anonymous Coward | more than 3 years ago | (#33143102)

Not hard at all. In fact, it's the kind of comment an idiot could make.

Free Market = good; Capitalism = Usury (4, Insightful)

spun (1352) | more than 3 years ago | (#33143146)

Usury is the sin of lending money for unfairly large amounts of interest. Capitalism is an economic system of lending money for as much profit as possible. Capitalism makes labor subservient to money. It lets people expand their power over others, not by working, but by lending. This unfair adjudication of risk and reward, and the subsequent consolidation of power into fewer and fewer hands, is why many religions, at one time or another before the rich took them over, considered usury a fairly serious sin.

The rich do not have to work to earn a living, they just sit back and let the money roll in. Supposedly the return they get is for the risk, but there is no risk involved. The rich can buy politicians, laws and experts who, in practice, reduce the risk to near zero. The average investor faces at least some real risk, but not the truly wealthy.

Re:Free Market = good; Capitalism = Usury (1)

e065c8515d206cb0e190 (1785896) | more than 3 years ago | (#33143374)

Lending/borrowing (businesses, individuals, governments) has never been as cheap (low rates) as during the last 25 years, what are you talking about?

Re:Free Market = good; Capitalism = Usury (4, Interesting)

vlm (69642) | more than 3 years ago | (#33143410)

This unfair adjudication of risk and reward, and the subsequent consolidation of power into fewer and fewer hands, is why many religions, at one time or another before the rich took them over, considered usury a fairly serious sin.

Um, no.

http://en.wikipedia.org/wiki/Usury [wikipedia.org]

"Most importantly, usury is the derivation of profit from biological time, which is linked to life, considered sacred, God-given and divine ..."

It all boils down to charging people for "god given time". The church does not want bankers moving in on their turf. Peasants should worry about worshiping on time, not paying the mortgage on time. Bankers should not be charging money for "gods Sunday" or for that matter any day because god made the sun rise in the morning, not the banker. Or in summary, God gave you 30 years to live so you can worship him, not pay your banker.

That explains why some religions tolerate a fee-based-structure for interest (I give you $10, you promise to gimme back $11) as opposed to a percentage over interval based structure (I give you $10, you owe me the original $10 PLUS 5% of that per year). Most religions tolerate trade (even if the exchange seems a bit uneven) a heck of a lot better than they tolerate fooling with who owns/controls time.

I'm not religious at all, but even I know this is the "correct" interpretation. Not that I disagree with your result or goal. Its just that you're totally on the wrong path of reasoning.

Re:Free Market = good; Capitalism = Usury (1)

mhajicek (1582795) | more than 3 years ago | (#33143448)

Very true. Many big business republicans see themselves as Christians, but as I've pointed out to some in the past, a true Christian would not charge interest. The Bible says it's a sin to charge interest at all, not just "excessive" interest.

Re:Here's an explanation for you: (5, Informative)

stonewallred (1465497) | more than 3 years ago | (#33143290)

The weird robot trades are actually preliminary account trades being done by a rogue AI who is marshaling its resources to better conquer and destroy all flesh based life. In about ten years, if there is any humans left who can access or spend time to look at the remaining data, will see the pattern. As a traveler from an alternate universe, I am giving you this warning to save yourselves.

Re:Here's an explanation for you: (2, Insightful)

Vitriol+Angst (458300) | more than 3 years ago | (#33143530)

I've read a lot of detailed analysis, and some nonsense "usually in favor of the practice" --- and I think that it all comes back to the concise brevity of the OP;

the "market" is an EPIC fucking scam.

And YES, it was that hard -- Slashdot cannot come to some simple hyperbolic generalization without lots of handwringing, gestalt therapy, and gnashing of virtual teeth in search of the glimmering silver lining of an exposed rectum.

>> I do however believe that the MOST LIKELY use for the outlier transactions is to "poison the data" of firms trying to generate trend analysis -- but the net effect to you and I trying to use the market as a place to save for retirement or as venture capital -- well, "see above" -- it comes right after the word 'EPIC'.

Re:Here's an explanation for you: (0)

Anonymous Coward | more than 3 years ago | (#33143580)

Oh, go back to your grassy knoll already.

Secret messages (5, Funny)

Arancaytar (966377) | more than 3 years ago | (#33142924)

The machine intelligences are communicating through hidden channels in our global network.

Judgement Day is close.

Re:Secret messages (1)

sznupi (719324) | more than 3 years ago | (#33143194)

On the bright side, they would actually need their environment that we're providing.

For now.

Re:Secret messages (2, Interesting)

Anonymous Coward | more than 3 years ago | (#33143202)

Not machine intelligences. But it could be human intelligences. It makes for a nice safe open channel to send data covertly. You don't know who is sending the data. You don't know who is reading the data (anyone who can see the proposed trades is the possible recipient). You don't know how the data are encoded. Heck of a method of secure clear-channel communication. Or not.

Nothing to be concerned with... (4, Funny)

gilroy (155262) | more than 3 years ago | (#33142962)

... it's just SkyNet looking after its retirement holdings.

Re:Nothing to be concerned with... (5, Funny)

sammy baby (14909) | more than 3 years ago | (#33143042)

"It becomes self-aware at 2:14 a.m. Eastern time, August 29th. By 3:44 am, it has a comfortable nest-egg and is on track to retire early, perhaps with a nice condo in Hernando, Florida."

Re:Nothing to be concerned with... (4, Funny)

mhajicek (1582795) | more than 3 years ago | (#33143488)

It won't kill us, it will buy our debts and subvert us into slavery...

Is there a chance (4, Interesting)

bugs2squash (1132591) | more than 3 years ago | (#33142968)

That the trades are trying to trigger "limits". ie. Someone may have pre-programmed a system to automatically dump stock if the price tanks, so when one of these trades comes in the price looks as if it is tanked, the stock sells and the buyer snaps up a bargain.

Re:Is there a chance (4, Interesting)

Anonymous Coward | more than 3 years ago | (#33143270)

Alternately, they could be testing the elasticity of the market for that stock. Remember back to econ 101 and the price/demand curves? The assumption was they are smooth curves. In reality, they have stair-steps. And sometimes the steps are big, and sometimes they are small.

By teasing out the fine grain elasticity of a stock, you can make some predictions. There's always going to be some jitter in price. But if you know that demand is pretty weak until a stock drops 50 cents, you set up your trades to take advantage of a likely 50 cent drop that day. Same if there is higher demand than availability. Get ready for a price jump.

Re:Is there a chance (4, Interesting)

Restil (31903) | more than 3 years ago | (#33143348)

This is why people shouldn't set automatic limits. Of course, it's kinda silly even under normal circumstances. If you have money invested somewhere, you should pay attention to it. You should pay attention to the health of the companies you are invested in. You should pay attention to see if they have competent management, put out quality products, and keep their production in line. If on a daily basis, you notice the stock starting to slip, find out why. Even Enron and Worldcom didn't tank overnight. There was plenty of time to realize that there was a problem brewing and get out without some artificially set "limit" to sell the stock automatically. Besides, when the fit finally does hit the shan, and your sell order isn't hit until after that point, there's a chance you won't get anything near what you're wanting, since nobody will be buying at that point.

An automatic buy order is stupid for the exact same reason. You might set yourself up to snap up a bargain if and when it ever happens, but the problem is, if the stock suddenly drops due to a pending bankruptcy or some other equally devastating reason, you'll get your stock purchase, making some other desperate seller very happy, and never be able to recover the cost.

-Restil

Re:Is there a chance (0)

Anonymous Coward | more than 3 years ago | (#33143366)

Does an offer to buy or sell actually affect the price? I would expect that you'd actually have to complete a trade to actually affect the trading price.

I wonder if some trading algorithms just use a Gaussian distribution of the current price and its fluctuation over a given time window, and then it randomly makes bids throughout the distribution. Every 1 in 1000 trades may be 3 standard deviations away from the current price. There's likely very little harm for them to make these offers, since they don't affect the price if the trade isn't taken. But there would be a huge upside in the event of a sudden change in the valuation of a company--like the discovery of accounting fraud at a company. Getting that random bid in early may give the algorithm a few ms warning that the whole thing is about to go south and try to dump shares ahead of the rest of the automated algorithms.

Re:Is there a chance (2, Informative)

e065c8515d206cb0e190 (1785896) | more than 3 years ago | (#33143458)

Nope, the practice you describe is absolutely illegal (and can be easily detected). Also, it would need to involve matching sell and buy orders at prices far from "the market", but this article just mentions (buy or sell) orders that will never be fulfilled. This is just electronic (maybe algorithmic, maybe even HF) guys probing the market for something.

Re:Is there a chance (1)

blair1q (305137) | more than 3 years ago | (#33143514)

No. If the receiving system doesn't know the difference between a bid and a trade, it's too broken to be tricked.

Summery innacurate (0)

Anonymous Coward | more than 3 years ago | (#33142980)

I just love how this live was snipped outta the summery.

"The trading bots visualized in the stock charts in this story aren't doing anything that could be construed to help the market. Unknown entities for unknown reasons are sending thousands of orders a second through the electronic stock exchanges with no intent to actually trade."

Hoping (2, Insightful)

alanebro (1808492) | more than 3 years ago | (#33142984)

It's probably someone programmed it to spam with lowball offers in hopes that some actually succeed. It wouldn't take very many successes for the buyer to make a profit.

Flood attempts? (5, Interesting)

pesho (843750) | more than 3 years ago | (#33143022)

This looks like high frequency traders have moved on from just gaming the market and now are trying for flood each other with bogus data hoping to trigger a bug in the competition's software or simply overwhelm it.

Obvious (1, Interesting)

Anonymous Coward | more than 3 years ago | (#33143038)

It's quite obvious to me. Those trades are going up to test and confuse the competitors' trading bots. That's what I would do.

If it's confusing to real people, then it's certainly confusing to a bot trading program.

Re:Obvious (1)

SixFactor (1052912) | more than 3 years ago | (#33143558)

I'd mod you Interesting, but I'd previously replied to a comment upstream. All war is deception, indeed.

Designed to create opportunities (2, Insightful)

topham (32406) | more than 3 years ago | (#33143052)

They are designed to create timing opportunities in other trades.

Corewars with money (5, Interesting)

vlm (69642) | more than 3 years ago | (#33143062)

Its corewars, but with real money instead of simulated computer memory.

http://www.corewars.org/ [corewars.org]

The name of the game is to send a "signal" that confuses the other guys bots, such that you fool them into making you money.

Very much like aircraft radar guided missiles vs radar jammers vs anti-jamming missiles

It's all about the Candlesticks Jack (5, Interesting)

Anonymous Coward | more than 3 years ago | (#33143088)

They're obviously designed to manipulate trading volume in order to fuck with the church of technical analysis believers.

When you understand how the spread of ask/bid prices impact candlestick charts, and subsequently: the market's perception of bullish and bearish indicators, you can see how sinister this really is.

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:introduction_to_candlesticks

A Solution to this and the eBay 'sniping' problem (5, Interesting)

MarcQuadra (129430) | more than 3 years ago | (#33143124)

I have a simple solution for problems that could be caused by these high-speed robots doing the trades, and also for eBay's 'sniping' problem (where your item sits for days untouched, and then the bids all land in the last thirty seconds).

Just add some 'fuzzy logic' to the time things happen. eBay auctions would randomly end 'between 10:05 and 10:10", forcing snipers to bid before the end of the trading. Same for the stock market, just have trades execute, by law, on a 'random' basis within a certain time period after they're filed. I'm not sure what the right balance between stability and liquidity is, but I'll guess that a two minute window would discourage most high-speed trading.

Re:A Solution to this and the eBay 'sniping' probl (0)

Anonymous Coward | more than 3 years ago | (#33143288)

Oddly enough, this is exactly the solution Blizzard uses for the Auction House in World of Warcraft.

One never gets a specific auction end time, just a "time remaining" in a few enumerations: Very Long, Long, Short

Re:A Solution to this and the eBay 'sniping' probl (4, Interesting)

Chad Birch (1222564) | more than 3 years ago | (#33143308)

I've never really understood the complaints about eBay sniping. Set your maximum bid at the actual maximum that you want to pay. Whether someone snipes or not, if your bid is the highest you will win. If it's not, you won't.

Even if it is an actual problem for some reason though, I'd think that the simplest solution would just be to extend the auction slightly every time there is a new high bid. Add 5 or 10 minutes every time the bid increases, and sniping would be totally ineffective.

Re:A Solution to this and the eBay 'sniping' probl (0)

Anonymous Coward | more than 3 years ago | (#33143454)

Agreed, but you should use sniping with that, since other people will reconsider how valuable they think something is when they're about to loose it.

Re:A Solution to this and the eBay 'sniping' probl (2, Interesting)

Cramer (69040) | more than 3 years ago | (#33143628)

Or simply seal all bids until the end, or only allow one bid... Then no one knows what anyone else has bid and you don't get into lame "over spending" bidding wars.

The problem with sniping is that people rarely have a hard maximum -- and even rarer that they stick to it. Plus, seeing other people bidding on an item spurs others to bid on it. I've seen items not sell repeatedly (relisted 5+ times, at the same price) yet get plenty of traffic; as soon as one person places a $0.99 bid, the bidding war is on. (nobody is interested until someone else is.)

Re:A Solution to this and the eBay 'sniping' probl (2, Informative)

Nate53085 (782588) | more than 3 years ago | (#33143350)

Please don't call this fuzzy logic. Fuzzy logic is a generalization of traditional logic (see http://en.wikipedia.org/wiki/Fuzzy_logic [wikipedia.org]) It is deterministic and NOT inherently random. Sure, you can add randomness to it, but adding randomness does NOT make something fuzzy logic.

Re:A Solution to this and the eBay 'sniping' probl (2, Insightful)

Anonymous Coward | more than 3 years ago | (#33143372)

The solution to the eBay sniping problem is to operate like a real auction, i.e., when the auctioneer gets a new bid as he is counting down to
close the auction, the closing time gets extended. So, for example, every bid on eBay in the last 5 minutes extends the closing time by 5 minutes. Same rule applies to the new extended closing time. So no one willing to continue bidding ever gets cut off by the clock.

Re:A Solution to this and the eBay 'sniping' probl (1)

SleepyJohn (1481257) | more than 3 years ago | (#33143578)

They do exactly this in New Zealand on TradeMe. Auction extends by two minutes every time a bid is placed within two minutes from the end. Great system for sellers; irritating as hell for those used to 'sniping' bargains on eBay while still resident in the UK. Probably on balance a better system though.

Free Market Checklist (5, Insightful)

copponex (13876) | more than 3 years ago | (#33143442)

You have proposed a solution to introduce more accountability, transparency, or ethical considerations into the free market. Wall Street will not accept your proposal because your solution:

(x) reduces profits gamed from the current flaws
(x) introduces accountability
(x) introduces transparency
(x) introduces ethical considerations

Re:A Solution to this and the eBay 'sniping' probl (0)

Anonymous Coward | more than 3 years ago | (#33143538)

to prevent this trading, simply charge 0.1 cent for every transaction performed. It won't hurt people, just algorithms.

Re:A Solution to this and the eBay 'sniping' probl (2, Interesting)

mhajicek (1582795) | more than 3 years ago | (#33143546)

Interesting idea. IIRC eBay already has an anti-snipe option to delay the close to X minutes past the last bid.

Re:A Solution to this and the eBay 'sniping' probl (1)

blair1q (305137) | more than 3 years ago | (#33143584)

Violates a principle of business law: these machines, despite being machines, know the price they're going to trade at before they agree to the trade. If you put in fuzzy timing you are also necessarily putting in fuzzy pricing.

You and me, since we have to go through brokers, are always dealing with fuzzy pricing when we make "market" orders, and speculating that our price will be met in a reasonable time when we make "limit" orders. We can never look at the book and say, "give me 200 of that 1000-share offer at the asking price". But we cede our rights to know the facts when we sign up with a broker instead of becoming licensed to trade directly in the market; in return, we get some measure of protection from the regulations we place on brokerages, but that of course is an imprecise system in itself.

Seen it in MMO trading (0)

Anonymous Coward | more than 3 years ago | (#33143130)

Where people have automated auction price tracking mods, market manipulators would put things up for ridiculous low/high amounts to screw with the relatively simple average price tracking calculations. The auction price didn't represent actual trades, but the log of actual trades was never publicly available anyway, all you had to go on was ask prices. Looks like anti-algorithm countermeasures.

Correct the market (4, Interesting)

Anonymous Coward | more than 3 years ago | (#33143164)

High frequency trading is an abuse of the system. Stop it, take the market away from gamblers and return it to investors.

Nefarious Indeed (1)

cpscotti (1032676) | more than 3 years ago | (#33143192)

Doesn't seem to me that it is just "bizarre". Whenever someone is doing something "for no reason", look other way! Seems some kind of ninja smoke for me. Maybe there are even thousands of bots that are trading normally but we don't notice. The real thing is that if you control a LOT of this bots you can suddenly begin to drive the trade market to where you feel like.
Anyway, didn't RTFA yet..

Just proves amateurs don't know... (3, Interesting)

Giant Electronic Bra (1229876) | more than 3 years ago | (#33143204)

This is not 'weird' at all. It's just one bot trying to fool another by making it think there is excess liquidity on one side. Oldest trick in the book. Also entirely against the rules. So it proves there are slugs out there gaming the market, but there's no question about WHAT they are doing, that's perfectly transparent.

Wow, that's better (5, Insightful)

Itninja (937614) | more than 3 years ago | (#33143208)

WoW has rules against using scripts, bots, and 3rd party programs to play for you. Failure to abide by the rules get you banned.
The stock market trading system has no rules against scripts, bots, and 3rd party programs to buy millions Every time I think about how WoW regulates the artificially increasing of fake wealth while the stock market has no regulation regarding the artificially increasing of actual wealth, I die a little inside.

Re:Wow, that's better (5, Funny)

Anonymous Coward | more than 3 years ago | (#33143474)

If you hold a stock for more than a few microseconds, you're labeled a "f*cking camper" now.

Failover testing (2, Insightful)

Anonymous Coward | more than 3 years ago | (#33143210)

My problem here is the quote "Unknown entities for unknown reasons are sending thousands of orders a second through the electronic stock exchanges". How can you have unknown entities trading? They have to be identifiable in order to make a trade! Or am I insane?

This is probably just testing by foreign actors to see how hard or easy it is to destroy the market, don't worry about it. Keep you gold under your mattress and everything will be all right.

PINGO (2, Interesting)

allanster (1857072) | more than 3 years ago | (#33143228)

It's called a "ping" and there's a perfectly good explanation for who is doing it and why... you can lead them to google but you can't make them search.

tunnels? (1)

dltaylor (7510) | more than 3 years ago | (#33143236)

Is this anything like the IP-in-DNS, or, that the pattern/trade IDs and prices are coded messages?

Could be off-the-books messages passed between individual traders and/or houses.

Looks like the trading links would be a good place for a real-time wiretap to capture insider trades that do not show up in the email and 'phone logs.

Re:tunnels? (1)

blair1q (305137) | more than 3 years ago | (#33143606)

Seems like a horrendous system to set up, and a great way to get caught, since that data is logged by default.

MUDs and the Stock Market (5, Interesting)

Renraku (518261) | more than 3 years ago | (#33143254)

Back when I used to play MUDs, I remember setting up triggers in Gmud. I idly thought to myself, "What if I could do this with the stock market?"

Back when I used to play World of Warcraft, I remember all the auctionbots people would set up to automatically undercut you down to one copper over what was profitable. You could search for a specific item, see one person selling it for say, 1000 gold, put your item up for 990 gold, search for that item again, and see that all five of their items up for sale are now 989 gold and 99 silver. If you set it somewhere absurdly low like 500 gold, it would be bought out by a bot within seconds of posting it. Of course, after buying it, their prices were back to normal. Of course botting is illegal in World of Warcraft.

Again, I applied this thinking to the stock market. What if you had bots to buy if the price was favorable for very popular stocks, but they could manipulate the market to make the price favorable? This kind of manipulation can and will lead to some dire consequences as people no longer act predictably for fear of the bots manipulating them.

Emergent Behavior (3, Insightful)

PIPBoy3000 (619296) | more than 3 years ago | (#33143280)

I suspect that a fair amount of this is emergent behavior - complex patterns from simple rules. For example, if two bots are making test purchases of a stock, one penny greater than the last buy, up to a fixed, you end up getting these odd patterns. The two programmers may not have planned the interaction at all, though they have these weird Game of Life sort of patterns in the data.

No mystery here... (0)

Anonymous Coward | more than 3 years ago | (#33143330)

They are creating false outliers to screw up others' algorithms.

nothing bizarre or new about larceny... (-1, Troll)

Anonymous Coward | more than 3 years ago | (#33143342)

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The reasons are actually well known (4, Informative)

brian0918 (638904) | more than 3 years ago | (#33143376)

I've seen this reported on Zero Hedge for months now. The purpose of spamming the market with order quotes is to slow down the competitor's computers, to give you a slight edge in monitoring the market. Basically, you flood the market with order quotes. The competitors' algorithms have to take these into account, while your algorithm can be designed to ignore them. This gives you a slight edge over the competitors in processing actual market data and making determinations.

Facinating (3, Insightful)

m.dillon (147925) | more than 3 years ago | (#33143380)

It looks to me like the orders are trying to match against dark pool bids/asks, and/or all-or-nothing bids/asks. Another possibility is that they are trying to extract non public information from the trading system by purposefully loading the system down and timing responses.

High frequency trading bleeds money away from institutional investors (by sussing out dark pool bid/ask levels) and from market makers (by stealing ETF rebates for volume). Also, most brokerages use fairly simple algorithms to handle market orders which can be sussed out by the more sophisticated algorithms used by the HF traders.

None of this will really effect the retail investor, it amounts to a penny or less on some transactions. Frankly, people have it easy these days where the bid/ask spread is a single penny. When I began trading in my late teens the bid/ask spread was in fractions and was considerably more than a penny. Retail investors get much better pricing these days.

-Matt

Simple solution - stamp duty on orders (0)

Anonymous Coward | more than 3 years ago | (#33143478)

Charge 100th of a basis point stamp duty on all orders (0.0001%).
Not enough to alter the economics of high-freq trading but would kill order book spamming strategies.

(BTW, I'd like to do the same for spam email: if it's not worth $0.0001 to send it's not worth reading.)

Hello, SEC? (0)

Anonymous Coward | more than 3 years ago | (#33143508)

This is blatant market manipulation, why aren't the exchanges in trouble for allowing this? Why aren't the traders responsible in trouble? Where the hell is the SEC?! This is exactly the kind of thing they are supposed to stop. Are we still a nation of laws?

Exchanges are already starting to correct for this (1)

Cthefuture (665326) | more than 3 years ago | (#33143544)

Recently the exchanges are starting to get tougher on brokers as far as the maximum number of unfilled or modified orders they are allowed. In turn the brokers are getting tough on clients that are submitting too many of these bogus orders.

Could it be... (2, Insightful)

BigSes (1623417) | more than 3 years ago | (#33143548)

Some sort of automatic low bid type thing? Let's say you see 50 brand new cars on eBay with no reserve and you automatically bid $10 on every single one, knowing you have practically no chance in winnin, but thinking that one might stand. Perhaps its an automatic feed designed to buy shares of say, Walmart, but only if it hits .30 cents a share?

Test Runs? (1)

ndrw (205863) | more than 3 years ago | (#33143570)

Very interesting article. I find the comment that these might be test runs, or high frequency traders testing their algorithms before the markets open to be fairly reasonable. If you're trying to see if your program works, and you don't actually want to run a bunch of transactions, you might just set up loops that increase the price by steps, or increase the number of shares by steps.

new technical jargon applied to environmental (0)

Anonymous Coward | more than 3 years ago | (#33143632)

disasters etc.... the term is 'disappeared' (see also: magic). what an innovation! 0 sorry, that word has been fauxed as well. next words to fall (lose their meaning); weather, seismic, coincidence, ufo etc.... words/phrases will be destroyed as needed until you get 'it'.

DDoS? (0)

Anonymous Coward | more than 3 years ago | (#33143642)

The article discusses potential uses in terms of financial gain - such as introducing noise to confuse the competition.

At some point, someone may take this technique and attempt to simply overwhelm the system with THAT being the actual goal.

Then again, such an act can also provide financial gain if you prepare for it and provoke it. Given the greed involved, I guess May 6th will be a reoccurring event.

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