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High-Frequency Traders Are the Ultimate Hackers, Says Mark Cuban

Soulskill posted more than 2 years ago | from the or-script-kiddies-of-the-financial-world dept.

The Almighty Buck 538

An anonymous reader writes "Billionaire Mark Cuban talks in an interview with the Wall Street Journal about how he thinks high-frequency trading can be quite damaging to stock markets. He goes so far as to call high-frequency traders the 'ultimate hackers.' He says, 'They're running software programs that have one goal, and that's to exploit the trading systems as early and often as possible. As someone who wrote software for eight years and who keeps up very closely with the technology world, that scared the hell out of me. The only certainty in the software world is that there is no such thing as bug-free software. When software programs are trying to outsmart other software programs and hack the world's trading platforms, that is a recipe for disaster. ... How many times an hour are there failures across individual equities around the world because of software running algorithms battling each other for supremacy to make a profitable trade? We have no idea. It's not a question of if or when we have meltdowns, it's just a question of how big and where. It's straight out of War Games. And that's before we even get to the possibility of nefarious or sovereign hackers getting involved.'"

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Predictably... (1, Funny)

Danny_Freak (1043608) | more than 2 years ago | (#40462023)

I for one welcome our new software overlords.

Re:Predictably... (4, Interesting)

Cryacin (657549) | more than 2 years ago | (#40462213)

You know, there's a reason why trading servers are still in the borough of Bank in London, on Manhattan island in New York, connected to newly laid fibre optic cable in Sydney etc. And it's not cheap real estate/labour costs. It's the speed of light. Seriously. Sub ms counts in this game.

Re:Predictably... (5, Informative)

dintech (998802) | more than 2 years ago | (#40462775)

This is totally correct. Most people now just locate whole junks of their algo platform in the same data center as the exchange (co-location). Once it's there, I've seen people questioning and arguing about minutiae such as which switch its connected to or length of ethernet/fibre cable vs competitors. Tiny fractions of a millisecond are very significant in this game. Then there's the kernel optimizations, assembly in-lining, FPGAs etc.

I think (probably unpopularly) that it's a bit unfair to brand these guys as 'hackers' implying that it's some sort of dirty word. Smart engineers will always find a way to make something faster, better, stronger. To think that people in finance would accept that things "have got fast enough now and we should just stop" is a bit naive. Why should finance technology be any different from any other kind of technology?

Also, bugs ARE of course there and is basic fact of having an imperfect model. These are pretty much immediately exploited in quite a Darwinian way by other market participants. This is why one model makes more money than an other. I'm not sure why the article's author thinks this is some kind of blinding revelation. Even in extreme examples such as during the flash crash, for every stupid model making disastrous trades, there was someone on the other side of each trade making a massive profit. Survival of the fittest, welcome to capitalism.

One final though is that people can't just 'hack' the exchange. Organisations like the FSA exist to ensure that each transaction that occurs is audited to make sure that it has a financially sound objective, not just gaming the system for weaknesses. Market participants can fined very significantly for getting this wrong.

This article is really just uneducated scare-mongering.

This is insulting... (5, Insightful)

hawks5999 (588198) | more than 2 years ago | (#40462069)

This is insulting to hackers.

It's also highly questionable (4, Insightful)

Weezul (52464) | more than 2 years ago | (#40462249)

It's commonly argued that HFT lowers transaction costs overall, presumably that's not such a simpl question, but ..

There are definitely rich people who make a lot less money now that HFT lowers *some* transaction costs. It's therefore worth picking apart the messenger's credentials a bit.

And the SEC, Obama, congress, etc. would actually regulate Wall St. if their lives depended upon it. Instead, they'd simply pass laws making HFT hard for smaller outfits, while granting Goldman-Sacks and Morgan-Stanly increased HFT.

Can you explain? (5, Insightful)

rsilvergun (571051) | more than 2 years ago | (#40462557)

Also, do we really want lower transaction costs? They might shave pennies or even dollars off a stock market trade, but if the point of the stock market is investment in a company (rather that shifting wealth around) wouldn't we want incentive to stay vested in a company?

The trouble with HFTs is they siphon money w/o adding value. As near as I can tell they're the definition of an economic parasite. Again, I'm open to being proven otherwise, it's just I don't see what value they add. They don't hold onto the stock long enough for the real investors to use the capital they put into the market. They just seem to drive up the cost for real investors....

As for Obama, he's got his hands full with oil and commodity speculators....

Re:Can you explain? (1, Insightful)

khallow (566160) | more than 2 years ago | (#40462689)

Also, do we really want lower transaction costs? They might shave pennies or even dollars off a stock market trade, but if the point of the stock market is investment in a company (rather that shifting wealth around) wouldn't we want incentive to stay vested in a company?

The point of the stock market is trade not investment. Investors are only some of the participants in a market. The speculators and market makers are obvious trade groups that doesn't invest. But even if you like a lot of ignorant people out there, want to go out of your way to shaft speculators, etc, there's still the corporations that sell shares of stock on these markets. Higher transaction costs and longer required holding times mean that their stock becomes less valuable and riskier to hold.

But even if you just consider investors, the transaction costs eat into profits and make it harder to get out of a investment, if you need the money for something else.

The trouble with HFTs is they siphon money w/o adding value.

Nonsense. They provide liquidity.

They just seem to drive up the cost for real investors....

How? Seriously, how? If I place a limit order to buy a stock at $100, then it doesn't matter what the HFT players do, they can't force me to buy for more than $100.

Re:Can you explain? (4, Insightful)

walshy007 (906710) | more than 2 years ago | (#40462853)

Nonsense. They provide liquidity.

Out of curiosity, how would someone in practical real life terms use this millisecond liquidity, as opposed to say, being limited to five seconds or such.

I find it difficult to believe that myself as a mere human could use this sub millisecond liquidity for anything useful. I welcome an example where it's benefit is significant.

Re:It's also highly questionable (5, Insightful)

TubeSteak (669689) | more than 2 years ago | (#40462593)

There are definitely rich people who make a lot less money now that HFT lowers *some* transaction costs. It's therefore worth picking apart the messenger's credentials a bit.

Lowers transaction costs? Which ones!?
Two years and two days ago I used this analogy to describe HFT [slashdot.org]

Lets say you're at the supermarket.
You reach out your hand to take [product] off the shelf,
by the time you reach out to take another [product], the shelf is empty!

A HFT saw your first signal and then swept the shelf clean,
bought all of [product], and is offering to sell [product] to you at a markup.
Oh, and the HFT has done the same thing at every other supermarket you would visit.

Has the market been made more efficient?
Or is the HFT behaving like an anti-social asshole?
I'd say the answer to both questions is "yes,"
but that the needs of society outweighs the needs of the market,
which is why we have farking regulations in the first place.

The fact that we're still talking about this years later is not a good thing.
The only thing HFTers do is to sneak in between a mismatched sell and buy order so that they can steal pennies.

The stock market got along fine without high frequency trading and there's absolutely no reason to hang onto it now,
  except that it profits a bunch of 1%-ers on Wall Street and their lobbyists.

Mod parent up, please (1)

Anonymous Coward | more than 2 years ago | (#40462923)

HFT exists for nothing but to make money for a select, small fraction of traders. It has nothing whatever to do with adding value, providing liquidity, or identifying those corporations that are adding value to our world. It is a completely destructive mechanism, and should be eliminated by the simple expedient of placing a one-second delay in trade executions, the one-second delay being randomly specified as being as low as 0.5 seconds and as high as 1.5 seconds. We need to kill HFT - what we do understand of its consequences indicate that it is of no value to any but its practitioners, and we don't understand at all its negative consequences. See, for example, http://www.wired.com/wiredscience/2012/02/high-speed-trading/ [wired.com] .

Gotta love Mark (5, Interesting)

Anonymous Coward | more than 2 years ago | (#40462075)

Mark is currently trending because of the way that he handled ESPN analyst Skip Bayless last week, on live tv. He completely owned.

http://www.youtube.com/watch?v=hv2jqFd2-qI [youtube.com]

Re:Gotta love Mark (4, Insightful)

Anonymous Coward | more than 2 years ago | (#40462301)

OTOH he trashed Facebook after the IPO, and looked pretty good until it was discovered that he was long in the stock.

Cuban is a weird hybrid, he's a smart guy and a tinkerer but he has more than a little Donald Trump in him.

Is it illegal? (-1)

Anonymous Coward | more than 2 years ago | (#40462083)

I have a feeling many-a-armchair liberal will try to convince me so.

Re:Is it illegal? (5, Funny)

zerro (1820876) | more than 2 years ago | (#40462117)

it is pure, unrestrained capitalism. What could possibly go wrong?

Re:Is it illegal? (5, Insightful)

Anonymous Coward | more than 2 years ago | (#40462207)

It's anti-free market for sure. They're skimming off the system without contributing a damn thing and adding inefficiency and misinformation into the markets. It shouldn't be illegal, but congress should enact a transaction tax on trades that is just big enough to make HFT not worthwhile.

Re:Is it illegal? (4, Interesting)

Jane Q. Public (1010737) | more than 2 years ago | (#40462243)

"it is pure, unrestrained capitalism. What could possibly go wrong?"

It is nothing of the sort. Capitalism is a means of producing things. Wall Street produces nothing.

Wall Street isn't "capitalism". It's a government-endorsed casino. There's a pretty big difference.

Re:Is it illegal? (2, Insightful)

bunratty (545641) | more than 2 years ago | (#40462535)

The companies that produce things raise money by selling shares of their company (stocks) or borrowing money (bonds) on Wall Street. So, no, Wall Street doesn't produce anything on its own, but it provides a service that enables others to. It certainly doesn't resemble a casino. In fact, I was outraged when I heard my son's class was using coin flips to determine the winners and losers in the class's "stock market". Investing is not gambling!

Re:Is it illegal? (5, Insightful)

artor3 (1344997) | more than 2 years ago | (#40462797)

Long term investing isn't gambling, but day-trading most certainly is. The number of factors that go into a stock price's short term movements are so numerous as to be incomprehensible. You'd have better luck predicting a coin toss based on starting velocity, wind speed, ambient humidity, etc., than you would predicting a stock's day-to-day movement based on all available data.

Re:Is it illegal? (2, Insightful)

bunratty (545641) | more than 2 years ago | (#40462925)

Day trading is not investing either.

Re:Is it illegal? (2)

steelfood (895457) | more than 2 years ago | (#40462885)

That's how things are supposed to work. Reality is not the same.

Re:Is it illegal? (1)

mmustapic (1155729) | more than 2 years ago | (#40462785)

Capitalism is about accumulating capital. You can produce things, rent things, trade stocks, whatever.

Re:Is it illegal? (3, Informative)

tukang (1209392) | more than 2 years ago | (#40462791)

Capitalism is a method of allocating resources through the private sector and that's precisely what Wall Street does. If I give you money to start your business, did I produce something? How is that any different from a company like facebook (which I hate btw) going public and getting $16B to expand its business?

Capitalism is just one method of allocating resources. Another method of allocating resources is to have the gov't do it - i.e. communism.

Re:Is it illegal? (0)

Anonymous Coward | more than 2 years ago | (#40462873)

You're one naive retard.

Re:Is it illegal? (2, Interesting)

Anonymous Coward | more than 2 years ago | (#40462367)

No it isn't...Once governments bail out the banks and prop up the system it isn't capitalism at work anymore.

Re:Is it illegal? (5, Insightful)

Genda (560240) | more than 2 years ago | (#40462619)

I'm sorry but have you seen who's working at the Federal Reserve or the FDIC? Bankers and Wallstreet CEOs, that's who. The banks and the government are the same guys and the line between them is no more. Regulation? Hahahahahahahahh... what a quaint notion. We got here through Capitalism... because corporations want power and they can rig the government game in their favor. Its time for something completely different and I don't mean a penguin on the telly!

Re:Is it illegal? (3, Funny)

TubeSteak (669689) | more than 2 years ago | (#40462813)

it is pure, unrestrained capitalism. What could possibly go wrong?

Well, if you look at the history of capitalism,
this will probably end with the USA invading another country over the price of bananas.
Monkey business I tell you, it's all monkey business.

System is broken. (4, Insightful)

msauve (701917) | more than 2 years ago | (#40462115)

All trading should be required to be at the hand of a human. No trade should be able to be reversed (buy/sell) in under a minute (if not more).

Re:System is broken. (1)

Jane Q. Public (1010737) | more than 2 years ago | (#40462187)

I agree with msuave and OP both. High-frequency algorithmic trading is a recipe for disaster.

Look at what happened on Amazon, when two sellers used software to set their prices just barely higher than the other guy. They got into a loop and before you know it, the books they were selling were priced at more than $1,000,000!

Now imagine that kind of loop operating behind the scenes on Wall Street.

Disaster. I tell you.

Re:System is broken. (0)

khallow (566160) | more than 2 years ago | (#40462501)

Look at what happened on Amazon, when two sellers used software to set their prices just barely higher than the other guy. They got into a loop and before you know it, the books they were selling were priced at more than $1,000,000!

Now imagine that kind of loop operating behind the scenes on Wall Street.

You'd get a very profitable disaster. As Dubya said, "Bring it on!".

Re:System is broken. (4, Insightful)

orlanz (882574) | more than 2 years ago | (#40462901)

BUT, wouldn't that be a great thing? The moron who had a software glitch would be out of the market in about 1 second cause his bank account (or those backing him) is empty. I don't really see a problem with putting $100 books up for $1,000,000. The fact that someone bought that book shouldn't concern us. People should have the freedom to make stupid decisions. Its the fastest correction system ever, takes money from those too stupid to keep it and gives it to those who would use it better... all entirely voluntarily! Because of this possibility, businesses have fail safes, fund transfer limits, and insurance to spread the risk. HFT is the worst thing for really rich accounts. They can't ignore it, and they can't keep from over leveraging it.

However, I do have a problem with how unfair the market is. If a company makes a mistake and loses 500 billion in pension returns for a 10,000 retirees, they get a small hit and tell the underlying investors... nothing of the reduced returns. The idiot fund manager won't make his 50% bonus that year. If a retiree questions, he is told that is just how the market works; risk/benefit BS. Never mind the fact that if the company just returned all the fees, bonuses, & taxes they took for prior year's returns which were undone by this loss, the investors would be whole.

Now, if a single unregulated independent fund manager loses a 100 billion dollars for ~2500 people... we plaster him all over the news, make sure he gets put in jail, demand that the orders be undone, demand the regulators or government make people whole, blah blah blah. He was bloody unregulated, these "investors" could have just as easily gone to a casino! But NO, they are powerful people and we need to kiss their toes.

At the same time, we dare not regulate the unregulated independent fund managers who continue to mail monthly statements of high returns. And companies scream that we restrict the big companies who manage retiree funds too much.

THAT's the REAL problem with the markets.

Re:System is broken. (2)

hawks5999 (588198) | more than 2 years ago | (#40462189)

Under a minute? HFT happens in nanoseconds. Heck, some of the trades even happen in the future.

Re:System is broken. (1)

Jane Q. Public (1010737) | more than 2 years ago | (#40462203)

"HFT happens in nanoseconds. "

That was his whole point.

Re:System is broken. (2)

msauve (701917) | more than 2 years ago | (#40462309)

Whoosh. Really, it was only a couple of sentences. I can accept not reading the linked article, which is /. norm, but not reading the comment you're replying to?

Re:System is broken. (4, Interesting)

EdIII (1114411) | more than 2 years ago | (#40462295)

Just as importantly, every single mortgage note should be hand transferred, recorded, and witnessed. If a mortgage holder cannot produce the note to a court, the mortgage is null and void, and a judgement entered by the court setting it in stone.

That should go a long way to preventing some of the fraud and outright theft that Wall Street has performed.

How many people have had their homes stolen, we may never know.

Re:System is broken. (1)

msauve (701917) | more than 2 years ago | (#40462341)

You're arguing that borrowers should be able to get out of their obligations. I don't see how that is any different ethically than a lender abusing the system.

Re:System is broken. (5, Insightful)

EdIII (1114411) | more than 2 years ago | (#40462445)

You're arguing that borrowers should be able to get out of their obligations

ABSOLUTELY NOT

I'm arguing that lenders should be required to prove they are the correct and lawful party to be making payments to, and the correct and lawful parties when attempting to sue someone.

The way it stands right now with securitization and loans being sold to multiple parties in some cases, you have no way of knowing if the lender claiming you owe money is really owed money in the first place.

Part of that problem was the recording of one lender selling the loan to another lender. They sped things up and got very, very, very sloppy. It should have never been possible to sell the same note twice (worth hundreds of thousands of dollars in many cases).

Re:System is broken. (1)

Genda (560240) | more than 2 years ago | (#40462675)

That's not even the ugly part, when banks discovered they'd fouled things up so badly they started going to court with obviously counterfeited documents, often many documents from different financial organizations with the same single names here labels and president of finance there titles as executive loan officer, and all being done by some little old lady being paid minimum wage in Kansas. Its a wonder the banks were sued into the stone age and the executives jailed for fraud.

Re:System is broken (3, Interesting)

EdIII (1114411) | more than 2 years ago | (#40462829)

That's the whole point about it being stored in the courthouse, in the same county as the property, for the lifetime of the loan.

If it is required by law to be a physical document, and that all transactions must be witnessed by an officer of the court, it is pretty damn hard to counterfeit a transaction without the illicit cooperation of an officer of the court.

It is already a matter of public record the ownership history of a property. All I am asking is that it become a matter of public record the history of any past or present loans against the property as well.

If you did that it would make very hard for anybody, home owner and lenders alike, to lie.

Re:System is broken. (1)

140Mandak262Jamuna (970587) | more than 2 years ago | (#40462475)

The borrower is not getting out of any obligations. All the borrower wants is to make sure he is paying off the right lender. The borrower has all the right to demand the guy dunning payment to prove that he is the real lender or has bought the note from the lender. If they misplaced the note, if they did not dot the i's and dash the tees tough luck the entity that thinks it owns the mortgage does not get a penny. That does not mean the borrower goes scot free. The mortgage note reverts to the original lender or the last legitimate provable owner of the note and they get paid.

Re:System is broken. (1)

msauve (701917) | more than 2 years ago | (#40462601)

From the OP: "...a judgement entered by the court setting it in stone."

That's a lockout for any opportunity to straighten out the paperwork. It shouldn't be fair for the borrower, and it shouldn't be fair for the lender. Both should be made to hold up their obligations.

If you don't want your mortgage paper sold, don't deal with a lender which does. I'm not aware of any which will guarantee that, but there are a few where it's very unusual.

Re:System is broken. (2)

EdIII (1114411) | more than 2 years ago | (#40462751)

I actually missed a word in there.

If a mortgage holder cannot produce the note to a court, the mortgage claim is null and void, and a judgement entered by the court setting it in stone

If that company cannot provide the note, then their claim should be dismissed with prejudice. Not just that, but the court should allow injunctions from the start preventing eviction, and allow for damages. That's what I meant. After the fact, there should be no mistake that they were wrong.

Deeds of trust are problematic too because of the law in most states that allows for the plaintiff to evict defendant without having to prove a damn thing. I've seen it countless times where the judge will allow the eviction and inform the defendant that they need to file a separate lawsuit. In the meanwhile... your ass is on the street. That makes it very hard for a normal person to have the resources to defend themselves and deal with the logistics of said defense.

As for note, I don't object to it being sold at all. What should be happening, at all times, is that the note is recorded in the same county as the property, and that each transaction from one owner of the note to another needs to be witnessed by an officer of the court.

If you had that it would preclude any disputes. Their would be a readily available history of the ownership of the note and it would be a mere triviality for the lender to provide it. It would become a non-issue.

I strongly object to the current state of affairs where a lender can claim the belief they own the note, but not really provide any evidence or be held up to such reasonable standards.

Re:System is broken. (1)

reve_etrange (2377702) | more than 2 years ago | (#40462507)

No, he just said that a bank should have to prove they own my house if they want to repossess it. Quick, why should they not have to prove their documentation is valid?

Hey, look, I own msauve's house, hand it over!

Re:System is broken. (1)

msauve (701917) | more than 2 years ago | (#40462623)

That is NOT "just what he said."

Re:System is broken. (2, Insightful)

xs650 (741277) | more than 2 years ago | (#40462327)

I agree and would like to see the minimum hold time on stocks set at 30 days or a change in valuation of 10% or greater whichever occurs first. Then the stock flipping parasites could go to Las Vegas to do their gambling and the stock market would once again be only for investors.

Re:System is broken. (3, Insightful)

msauve (701917) | more than 2 years ago | (#40462389)

I think 30 days is far too long. One should be able to react to current news, so something over a minute, but less than a day seems reasonable.

Re:System is broken. (5, Insightful)

140Mandak262Jamuna (970587) | more than 2 years ago | (#40462499)

Something like a minimum holding period in seconds or minutes, prohibition on naked shorts (you must borrow the security to short), and a small transaction fee to fund the enforcement mechanism would go a long way to bring sanity to the markets. Even in the commodity markets, some entity should estimate production of pork bellies or frozen concentrated orange juice or whatever and create "chips" that should be borrowed and returned to back the shorts. The shorted volume should not exceed estimated production by several times as it routinely happens now.

Re:System is broken. (1)

reve_etrange (2377702) | more than 2 years ago | (#40462531)

Is the problem really the rate of trades, or is it the relative proportion of the economy that has no basis in reality (i.e. actual goods and services)?

Re:System is broken. (2)

khallow (566160) | more than 2 years ago | (#40462753)

I think it's high leverage. Not only does it help isolate the market from reality, it amplifies any losses or errors greatly.

Re:System is broken. (2)

TubeSteak (669689) | more than 2 years ago | (#40462793)

I agree and would like to see the minimum hold time on stocks set at 30 days or a change in valuation of 10% or greater whichever occurs first. Then the stock flipping parasites could go to Las Vegas to do their gambling and the stock market would once again be only for investors.

No offense, but this is a dumb idea and would break the stock market.

There are plenty of reasonable proposals to neuter the effects of high frequency trading without cluster bombing the entire exchange system.
Most of the proposals are technical and not immediately obvious to someone who doesn't understand the market mechanics,
but we're talking millisecond to microsecond solutions here, not days or hours or even seconds.

Re:System is broken. (0)

Anonymous Coward | more than 2 years ago | (#40462371)

If this happens, who is going to provide the liquidity? Banks? Hah!

Re:System is broken. (1)

Anonymous Coward | more than 2 years ago | (#40462487)

NYSE already placed limits in HFT (for stocks obviously) after the 'flash crash'. Cuban should come up to speed. What market(s) did he study? I trade the SP 500 emini contract (ES) for a living. I make about 8 trades a day for one point profit/loss on each trade. Each winning trade lasts about 30s to 2 min. Technically that makes me a HFT.

Being an AC, I don't expect anyone will even read this. :)

Re:System is broken. (2)

bill_mcgonigle (4333) | more than 2 years ago | (#40462567)

It's almost as if the markets are allowing this behavior to reward their favored parties, rather than to aim for fairness.

So, easy enough: start a competing market that implements fair rules. I'm sure between the SEC and the mountains of financial regulations there is room for a startup to disrupt the market...

Re:System is broken. (0)

khallow (566160) | more than 2 years ago | (#40462577)

All trading should be required to be at the hand of a human. No trade should be able to be reversed (buy/sell) in under a minute (if not more).

The rebuttal is simple. There's no reason to do so.

For all the talk, it doesn't matter if a stock is traded by computer or a deep pocketed program is seriously bugged. The big failures of HFT get cleaned out quickly, sometimes before you'd even notice. Then they become irrelevant. In other words, there is a self-repair mechanism, that if allowed to work, will fix this problem faster than any regulatory option would.

Re:System is broken. (1)

msauve (701917) | more than 2 years ago | (#40462733)

"there is a self-repair mechanism, that if allowed to work, will fix this problem faster than any regulatory option would."

Only if one looks at reactive regulation. Proactively, it could have prevented the damage to ordinary investers which occurs during events such as that of 6 May 2010. The market should be about investment, not another legalized form of gambling. A market order should be a reasonably safe trade, and there should be no need for "despikers," except possibly for very low volume securities.

Re:System is broken. (0)

Anonymous Coward | more than 2 years ago | (#40462583)

Personally I like the idea of having all buy and sell orders matched up, resolved, and executed at the end of the trading day. There's little to no legitimate reason to have them resolve faster than that, unless you support day trading and HFT manipulations.

Re:System is broken. (1)

ed1park (100777) | more than 2 years ago | (#40462673)

We should go one step further. 100% short term capital gains tax (credit: Warren Buffett). Occupy Wall Street should embrace this.

Re:System is broken. (0)

Anonymous Coward | more than 2 years ago | (#40462799)

All trading should be required to be at the hand of a human. No trade should be able to be reversed (buy/sell) in under a minute (if not more).

Anyone that suggests laws to cover non-violent or non-fraudulent activities should be executed.

Looks like... (0)

Anonymous Coward | more than 2 years ago | (#40462119)

Mark Cuban has been reading too many slashdot headlines.

The REAL question: (2)

skine (1524819) | more than 2 years ago | (#40462133)

The real question here is; just how far can we stretch the definition of the word "hacker."

Basically, he's saying that it's exactly the same thing to use a KeyGen as to write one.

Re:The REAL question: (2, Interesting)

Anonymous Coward | more than 2 years ago | (#40462237)

HFT systems are extremely complex systems created and maintained by highly skilled programmers. There's no banker playing desk jockey with a pieces of software on his desk. It's an automated system that exploits the rules of the market.

This is news because CUBAN says it? (1)

Ravensfire (209905) | more than 2 years ago | (#40462135)

MANY people have complained about program trading before with far better credentials than Mark, yet it's suddenly news because he whines about it? It took him 10+ years to figure this out, or did he take some serious losses and it just whining about losing (something else)?

Easy to be a critic, harder to suggest alternative (2, Insightful)

sparetiredesire (465731) | more than 2 years ago | (#40462137)

People like to complain about algo trading and HFT without suggesting how they'd improve it.

Technology and money! Scary!

It is an open market. People use computers to participate now. There are very tricky engineering and social problems involved, but I really don't see anyone suggesting a better way to do things. If a bank needs to exchange dollars for Euros, what should they do? Call someone on the phone because they're afraid of competing in an electronic market?

Re:Easy to be a critic, harder to suggest alternat (2, Interesting)

Jane Q. Public (1010737) | more than 2 years ago | (#40462227)

The only way to improve it is to abolish it. And it should be abolished, before something very, very bad happens.

"If a bank needs to exchange dollars for Euros, what should they do? Call someone on the phone because they're afraid of competing in an electronic market?"

Getting a current exchange rate -- or making an exchange, for that matter -- are not the same things as HFT. Both are quite possible without any HFT at all.

Re:Easy to be a critic, harder to suggest alternat (1)

ThePeices (635180) | more than 2 years ago | (#40462263)

I have a simple and easy solution.

Ban HFT and algorithmic trading.

problem solved.

Re:Easy to be a critic, harder to suggest alternat (1)

Anonymous Coward | more than 2 years ago | (#40462287)

They can wait about five seconds. Really. That's all it would take to eliminate this problem. A batching system with five-second intervals.

Re:Easy to be a critic, harder to suggest alternat (1)

wisnoskij (1206448) | more than 2 years ago | (#40462391)

Improve it by getting rid of it.
The idea of financing a company to share in their future success is fine and doing so is good in general and adds value to the economy. But you add no value to anything by investing in a company for a fraction of a second and then somehow making a profit off of that.
It is no better then theft.

Unless an investment is a long term investment it could not possibly help anyone. Put a minimum length on holding the shares. Be it a minute, an hour, a week, or a month at least it would be a step in the right direction.

Re:Easy to be a critic, harder to suggest alternat (2)

reve_etrange (2377702) | more than 2 years ago | (#40462545)

I agree...but their seem to be real downsides to having this purely financial component of the economy be so large relative to the part that is production and exchange of actual goods and services.

Re:Easy to be a critic, harder to suggest alternat (3, Insightful)

Rytr23 (704409) | more than 2 years ago | (#40462611)

Didn't he already suggest perhaps a penny per trade fee or half a penny, something like that as a way to curb HFT? In any case, either a money or time constraint added to the mix would probably put an end to it as it is today. But that would never happen because too many people make way too much money on this scam.

A trading tax (2)

bunyip (17018) | more than 2 years ago | (#40462145)

The HFT programs would slow down a lot if it cost them, say, one cent per share traded. That would not be a burden to average investors, or even the super wealthy, but it dampens the enthusiasm for shifting millions of shares a day to skim tiny fractions.

Re:A trading tax (1)

humphrm (18130) | more than 2 years ago | (#40462211)

They already pay a fee per trade at many levels, up to and including their clearing houses which pay a fee to the exchanges. Adding a penny tax on top of the fees isn't going to make much difference, other than slightly reduce revenues down the chain.

Re:A trading tax (0)

Anonymous Coward | more than 2 years ago | (#40462319)

Hmmm... so let's say that there's a stock priced at $1.00 per share. I buy 10,000 shares at $10,000, plus the $100 tax. For the sake of simplicity, we're not going to include fees. In a month, the stock rises %1 in value and then I decide to sell it. Yay! Not a bad return!. Not so fast. I just sold it for $10,100 and didn't make shit despite the risk I took and the higher price. A one cent tax on trades would have a devastating affect on lower priced stocks.

Re:A trading tax (2)

reve_etrange (2377702) | more than 2 years ago | (#40462653)

It varies, but the actual trading fees are currently about twice what you suggest.

Don't fear software bugs (1)

gmuslera (3436) | more than 2 years ago | (#40462157)

that they do what is intended to do is pretty scary already.

As an HF Trader... (2, Interesting)

Anonymous Coward | more than 2 years ago | (#40462167)

HF traders in general aren't searching for 'glitches,' but mispricing opportunities. HF traders take the risk of warehousing their views on prices, while providing liquidity and the rest of the world takes full advantage. We often mud-wrestle for less than a penny per share, while being villified for being the downfall of modern economies. In truth, you should be pointing the stinky finger of blame at the institutions making the 'macro' decisions, those with the power to manipulate economies, governments and coporations on a larger scale...

Who wants to eat some astroturf?

You mean you play a wannabe HF trader on /. (0)

Anonymous Coward | more than 2 years ago | (#40462451)

HF traders take the risk of [gibberish elided] providing liquidity

Disingenuous. Saying HFT adds liquidity is like saying spitting in a thunderstorm is adding liquidity.

We often mud-wrestle for less than a penny per share

Narrowing spreads provides miniscule benefit to individual investors but at huge risk.

That's not astroturf you are offering to be eaten, it's pure shite and I for one won't swallow it for a moment

Re:As an HF Trader... (1)

shutdown -p now (807394) | more than 2 years ago | (#40462527)

Why can't we point a finger at both you and them? We have plenty of fingers to go around.

Re:As an HF Trader... (1)

Anonymous Coward | more than 2 years ago | (#40462533)

HFT is skimming. It does not provide liquidity. I've worked in the financial sector, so from first hand experience with hedge funds, it is skimming. It's easy to get blinded by millions and billions.

Re:As an HF Trader... (4, Insightful)

Anonymous Coward | more than 2 years ago | (#40462603)

Bullshit...HF trading is just front-running by other means in the sense that they make profits because they have info about stock prices before other investors (hence the need for high speed lines and co-location). HFT traders make a profit... so they are taking money out of the system... not adding liquidity to the system. Typical bankers - they steal from you and try to convince you that they are doing you a favor.

Re:As an HF Trader... (1)

Anonymous Coward | more than 2 years ago | (#40462615)

Not true. The exchanges make money from those who trade the most. Hence make it take it . Worse than make it take it, they crave volume so badly they have and in some cases still do, move trades in front of smaller volume players. How is that good for the market ? That is hacking the system.

When there are execution codes from an exchange that change how orders are transacted relative to retail investors and lower volume traders, how is that not hacking the system ?

And when was the last time you made a trade, at any speed, in an equity that didnt already have significant volume ? You going to put up all those retractable bids/offers in an equity where there are few trades ?

If you want to place blame away from the HFTs , place it on the exchanges being public and the HFTs are exploiting their desperation. I can accept that . But its still hacking the system

Mcuban

Risk vs Rewards (0)

Anonymous Coward | more than 2 years ago | (#40462179)

There is an inherent risk in everything we do, if the risks are too high and you don't forsee being rewarded playing this game, just play a different game. How about the long game that actually provides value to companies that might produce value to society?

There isn't any fun quite like watching the world fall to ruin outsid your window while your nest egg is unaffected... until you have to bail them out.

Maybe, (1)

no-body (127863) | more than 2 years ago | (#40462195)

just what it needs - a total meltdown of the system, so something else can happen.

Re:Maybe, (0)

Anonymous Coward | more than 2 years ago | (#40462361)

Because things changed so much after the last meltdown....

A-yup (1)

mrex (25183) | more than 2 years ago | (#40462261)

This just confirms my long-standing suspicion that Mark Cuban is a seriously smart dude.

Pfft...Mark Cuban (1)

certain death (947081) | more than 2 years ago | (#40462281)

If it were coming from anyone else, I might actually pay attention, but coming from Mark Cuban is like hearing Santa talk about Super Computers.

Two sides.... (4, Insightful)

hamster_nz (656572) | more than 2 years ago | (#40462289)

I chatted with some guys on an FPGA forum about this. They were convinced that HFT was good, as it increased the liquidity of the market.

I ran the line that it's bad, as it exploits that over the short term all players in the market do not have complete information on the state of the market, and is therefore a highly sophisticated form of insider trading.

In truth it it is just a mechanism to suck wealth away from those who actually create it (or invest in stocks of companies that create wealth), and does more harm than good.

Re:Two sides.... (2)

TubeSteak (669689) | more than 2 years ago | (#40462869)

I chatted with some guys on an FPGA forum about this. They were convinced that HFT was good, as it increased the liquidity of the market.

You can increase liquidity without siphoning billions from the market.

Anyone who tells you otherwise is full of shit...
Or maybe they're unaware that stock markets functioned before the invention of high frequency trading.
I mean, JP Morgan and friends were "market makers" [wikipedia.org] back when trades were sent out ticker tapes.
They certainly didn't need racks of servers running custom code to provide liquidity back then.

Transaction tax (4, Interesting)

Arancaytar (966377) | more than 2 years ago | (#40462325)

Much like spam mail, HFT would cease to be an issue if a transaction came with even a tiny overhead. (And in both cases, I doubt it'll ever happen.)

fix it. (3, Insightful)

deimtee (762122) | more than 2 years ago | (#40462353)

The easiest fix would be to stop the roll-backs when they fuck up. Let a few of them go broke instead of "oh I didn't really mean that, can I have a do-over?" and the rest might have a bit more caution.
Or remove the ability to post a bid then remove it before it can be actioned. Make any bid stand for a minimum time before it can be withdrawn. 10 seconds would be long enough.
On the downside, if you fix it, you don't get all the fancy new superfast internet links.

When there were only humans involved,... (1)

BobandMax (95054) | more than 2 years ago | (#40462375)

...entities called "market makers" manipulated the market and made sure that they and their cronies made the lion's share of profits. The market is just different today. It is no better or worse than it has ever been. It is still possible for individual investors to make good money in the market but must educate themselves first. Most retail investors who lose money in the market buy when it is obvious the equity or market is topping, all the smart money has gotten out, and they think they can make a "quick buck." That has always been true and still is. A knowledgeable investor, using relatively inexpensive tools, can make >20% yr/yr, almost regardless of market conditions. Most people will not take the time to educate themselves and avoid emotional responses.

High-frequency trader here (4, Informative)

davidoff404 (764733) | more than 2 years ago | (#40462381)

As is so often the case, it's not high-frequency trading per se that's the problem; it's high-frequency trading done incorrectly that worries me. I've worked within the industry for almost eight years now and have heard a lot of stories about HFT gone bad.

A highlight was probably the $150 million lost in the course of eight seconds by a proprietary algorithmic trading group at a very well known US bank. This group (which has since been spun off into an independent unit) focused almost exclusively on high-frequency statistical arbitrage. An analyst there apparently noticed an oscillatory deviation that occurred between certain futures very early in the trading day. Obviously, he was allowed to code an execution strategy to take advantage of this. They made quite a bit of money for about a month or so.

What they seemingly didn't take into account was the effect that a new broadcast engine at Globex would do to their strategy. You can imagine their horror as they watched their trades slip almost completely out of phase, buying when they should have been selling and selling when they should have been buying. Eight seconds later, $150 million had been blown through a combination of piss-poor design and leverage.

Re:High-frequency trader here (0)

Anonymous Coward | more than 2 years ago | (#40462651)

but isnt every algorithmic trading policy at risk when others react to what they see happening in the market ? Have you seen algos trying to outsmart other algos in a back and forth ?

Even done correctly, it's still bad for society (5, Insightful)

davidwr (791652) | more than 2 years ago | (#40462843)

Done "correctly," HFC is bad for society because, like insider trading done "correctly," it specifically screws the "have nots" to benefit the "haves."

Yes, the screwed-up trades are a problem, but those are the side-show. The real problem is that those with the ability to do HFC can use that ability to "jump ahead in line" and screw those who don't have this ability.

Why aren't capital gains taxed the easy way? (5, Interesting)

GoodNewsJimDotCom (2244874) | more than 2 years ago | (#40462411)

How hard would it be to say:

Stocks/bonds/commodoties have an undodgable tax of 0.2%? This is collected out of the trade automatically and sent to DC in real time.

I'm not in a thinking mood whether this should be on sales or purchase. It would hurt high frequency traders because they'd be paying mad taxes, but people who invest like a sane man for long term the tax is negligable.

Re:Why aren't capital gains taxed the easy way? (0)

Anonymous Coward | more than 2 years ago | (#40462737)

That's a nice idea.

If you'd like it to happen, simply engage a firm of lobbyists and make a series of large donations to various political figures. If you can't afford that, too bad. The high-frequency traders can.

Re:Why aren't capital gains taxed the easy way? (1)

Anonymous Coward | more than 2 years ago | (#40462787)

My problem with this is that once DC gets it's foot in the door, it then pushes more and more in. Start at 0.2%, soon it will be 2%, then 20%. Remember the percentage SSI started at? Fed income tax?

HFT is evil. It needs to be stopped. But taxing every transaction is just letting spendthrifts in DC pull more money out of us.

Re:Why aren't capital gains taxed the easy way? (1)

hamster_nz (656572) | more than 2 years ago | (#40462871)

I assume that most politicians have money in Stocks / bonds / commodities and other investments (maybe in blind trusts).

They would never impose a tax that they had to pay!

Re:Why aren't capital gains taxed the easy way? (2)

ihavnoid (749312) | more than 2 years ago | (#40462875)

The problem is that, they don't need to rely on the stock market to do the high-frequency trading. Options (the right to buy/sell something for a predetermined term) is a good candidate, and there are all sorts of markets that can mimic any stock or commodity, while regulation is nonexistant.

Good luck writing the tax code for every single financial instrument.

Actually, We in Korea have a small tax for every trade on the stock market. The HFT guys are running on the derivative market, where they merely trade the "insurance" policy which covers price fluctuations on the stock market.

/. loves Mark Cuban (0)

Anonymous Coward | more than 2 years ago | (#40462553)

Since when did /.
get an erection whenever Mark Cuban says anything.
Yet another Mark Cuban non-story.

I'm trying to act surprised (1)

axlr8or (889713) | more than 2 years ago | (#40462889)

Nope, not working. I wish he wouldn't have used the term 'Hackers' however. The name just keeps getting denigrated more and more. What the Feds can do to fix this however, is spike the system like what was done before. And this time, make them pay for their mistakes.
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