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To: andy58-in-nh

Computerized trading should be illegal.
I saw a show the other night, I forget what cable channel, where they showed that there are these huge super computer trading companies, connected directly, some within a few feet, of the market’s computers. They are programmed to scan the entire stock lists and make trades based on a few milliseconds data, “buy” huge blocks of stock and then “sell” them a few microseconds later at a profit. A human being stands little or no chance of actually “beating” the market to make a profit when it’s lifetime of stock “ownership” is measured in time on the microscopic scale......


15 posted on 10/25/2010 7:34:32 AM PDT by Red Badger (WOULD SOMEBODY PLEASE GIVE MEGHAN MCCAIN A BOX OF KRISPY KREMES SO SHE'LL SHUT THE HELL UP?!)
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To: Red Badger
The ultimate problem with high-frequency trading is that it defeats the fundamental purpose of a market: price discovery. In manipulating bids by means of mathematical algorithms, computers are not performing a market function. Rather, they employ game theory to create signals unrelated to true time/value, the purpose being to cause an environmental response subject to advantageous counter-execution. Think of it as a game of "chicken" played out in milliseconds.

Now: what happens when all the players are machines and they are all programmed to respond in precise mathematical ways to environmental variables such that their behavior conforms to predictable waves which graph along with virtually no standard deviation - until a rogue wave input comes along? A sudden spike appears - a "flash crash" or "flash boom" in a given issue - and this is exactly what has started to occur on a daily basis, forcing a cancellation of trades. But no one really cares because the market is rewarding companies indiscriminately right now, not based on fundamentals but on "hot money" and cold processes.

What I fear specifically is: one of these days, an external event (the dreaded "black swan") is going to create simultaneous waves of anomalous executions that will quickly synchronize into a monster wave of Biblical proportions - and none of us have the faintest idea how to build an ark.

16 posted on 10/25/2010 8:08:32 AM PDT by andy58-in-nh (America does not need to be organized: it needs to be liberated.)
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