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One Algorithm Made Up 4% Of All Trading Last Week, And No One Knows Where It Came From
TBI ^ | 10-8-2012 | Linette Lopez

Posted on 10/08/2012 2:26:11 PM PDT by blam

One Algorithm Made Up 4% Of All Trading Last Week, And No One Knows Where It Came From

Linette Lopez
October 8, 2012

No one knows where it came from, or what it was meant to do, but 4% of all trading in the U.S. stock market last week was executed by one algorithm, CNBC reports.

Nanex, a market data firm, told CNBC that the algorithm was placing orders once every 25 milliseconds and then canceling them. The orders went out in bursts of 200, then 400, and then 1,000 orders.

Then suddenly, around 10:30 AM on Friday, the algorithm stopped entirely.

Nanex has the animation that helped them zoom into the mysterious algorithm posted here.

So why would someone put out fake orders like this?

A trader explained to us that this is a high frequency trading firm's way of baiting buyers interested in purchasing a specific stock and forcing them to reveal their positions. Once the potential buyer has put out their bid, the HFT cancels the order and the buyer is left out in the open. Usually, its a set-up for another trading strategy the HFT is about to execute.

Tricky.

(Excerpt) Read more at businessinsider.com ...


TOPICS: News/Current Events
KEYWORDS: djia; markets; nanex; stocks

1 posted on 10/08/2012 2:26:17 PM PDT by blam
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To: blam
This is exactly why NOBODY should be in the market.

It is corrupt to the core, and run by psychopaths.

2 posted on 10/08/2012 2:33:07 PM PDT by E. Pluribus Unum (Government is the religion of the psychopath.)
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To: blam

How professional time travelers build a stash preparatory to their arrival.


3 posted on 10/08/2012 2:33:59 PM PDT by muawiyah
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To: blam

So the Russians/al Qaeda/Iran staged a dry run?


4 posted on 10/08/2012 2:33:59 PM PDT by muir_redwoods (Hopey changey low emission unicorns and a crap sandwich)
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To: blam

Karl Denninger wants the exchanges to require any order placed to remain valid for two seconds. That would instantly stop this nonsense - but some powerful people would be inconvenienced.


5 posted on 10/08/2012 2:34:55 PM PDT by Mr. Jeeves (CTRL-GALT-DELETE)
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To: muir_redwoods

Or China.


6 posted on 10/08/2012 2:35:18 PM PDT by MeganC (Our forefathers would be shooting by now.)
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To: blam

Soros?


7 posted on 10/08/2012 2:38:23 PM PDT by Fresh Wind ('People have got to know whether or not their president is a crook.' Richard M. Nixon)
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To: blam

Put a one penny tax on every trade. Just one penny. Mom ‘n Pop investors can afford to pay one cent when they cash out of their investments easily. Just one cent.


8 posted on 10/08/2012 2:39:17 PM PDT by Sirius Lee (The enemy of the American People? islam and the media)
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To: E. Pluribus Unum

Agree 100%. This is precisely why I got out of the market forever in very early 2008. Haven’t looked back.

There’s lots of other ways to make money.


9 posted on 10/08/2012 2:39:43 PM PDT by upchuck (I miss my dog Snoopy. May 16, 1997-September 24, 2012 -- 15 years, 4 months. Forever in my heart.)
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To: blam

This is excellent strategy.

If I was offered a system in which I was allowed to place orders, have the system tell me how many and at what price my orders would be filled by others, and then cancel them milliseconds later, I would do exactly what these programmers did.

It’s like playing poker with the ability to look at the other guys’ hands. Who wouldn’t do that?

What has to happen is the trading systems have to disallow the withdrawal of orders. Otherwise, you just get this: gaming. If you let poker players to place mirrors around the room to look at the other guys’ hands, don’t be all surprised when they do exactly that!


10 posted on 10/08/2012 2:43:04 PM PDT by Uncle Miltie (You didn't build that. The private sector is doing fine. We tried our plan and it worked.)
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To: blam
This started in the 1980’s. It was blamed for the October 1987 crash. Since then HFT has accounted for more and more of the volume:

http://topics.nytimes.com/topics/reference/timestopics/subjects/h/high_frequency_algorithmic_trading/index.html

11 posted on 10/08/2012 2:43:56 PM PDT by Brad from Tennessee (A politician can't give you anything he hasn't first stolen from you.)
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To: blam

Well I have to disagree with this article. If the orders were put out and then cancelled before executed then there was no trading. Until they are executed they are just orders. How can non executed trades be 4% of the market? Doesn’t make sense.


12 posted on 10/08/2012 2:44:11 PM PDT by sheana
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To: muir_redwoods

Election day?


13 posted on 10/08/2012 2:50:48 PM PDT by donna (Pray for revival.)
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To: sheana
"Well I have to disagree with this article. If the orders were put out and then cancelled before executed then there was no trading. Until they are executed they are just orders. How can non executed trades be 4% of the market? Doesn’t make sense."

Ask the author, Linette Lopez that question.

I have no answers.

14 posted on 10/08/2012 2:52:25 PM PDT by blam
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To: muawiyah
hey, you're on to what we do, will do did.

Be back in a minute, yesterday.
15 posted on 10/08/2012 2:53:16 PM PDT by stylin19a (Obama -> Ransom "Rance" Stoddard)
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To: Mr. Jeeves
Karl Denninger wants the exchanges to require any order placed to remain valid for two seconds.

I'm 100% for this. I'd also institute a per share penalty fee for orders placed and then withdrawn. Doesn't need to be much but it would eliminate fake orders placed to shape the market.

16 posted on 10/08/2012 2:53:49 PM PDT by Paine in the Neck (Socialism consumes everything)
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To: MeganC

China’s our financier; I don’t think they want us broke. We owe them too much


17 posted on 10/08/2012 2:56:58 PM PDT by muir_redwoods (Hopey changey low emission unicorns and a crap sandwich)
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To: blam

Somebody knows who placed them


18 posted on 10/08/2012 2:58:34 PM PDT by babble-on
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To: upchuck
There’s lots of other ways to make money.

Let's here them.

19 posted on 10/08/2012 3:00:29 PM PDT by Digger (A)
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To: Digger; upchuck

Here here!


20 posted on 10/08/2012 3:06:11 PM PDT by null and void (Day 1357 of our ObamaVacation from reality - Obama, a queer and present danger)
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To: sheana
... If the orders were put out and then cancelled before executed then there was no trading. Until they are executed they are just orders. How can non executed trades be 4% of the market? Doesn’t make sense.

It stands to reason that the trading system must account for all trade activity, whether executed or cancelled. Whoever hired the math wizards that put this together is trying to influence the market and/or profit from another computer's reaction to their feint.

21 posted on 10/08/2012 3:14:39 PM PDT by ken in texas (I was taught to respect my elders but it keeps getting harder to find any.)
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To: blam

If you figure out what all this means, let me know : )


22 posted on 10/08/2012 3:55:25 PM PDT by stephenjohnbanker (God, family, country, mom, apple pie, the girl next door and a Ford F250 to pull my boat.)
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To: Brad from Tennessee

I may be mistaken, but I believe what was involved in the 1987 crash was simple automated computer trading...the decline levels exceeded the parameters of the programs, and since they had no floors or stops included they just kept selling and fed into the downward spiral.

High-frequency trading that effectively games the exchanges is a comparatively recent phenomenon, within the last few years.


23 posted on 10/08/2012 8:25:22 PM PDT by M1903A1 ("We shed all that is good and virtuous for that which is shoddy and sleazy... and call it progress")
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To: M1903A1
[High-frequency trading that effectively games the exchanges is a comparatively recent phenomenon, within the last few years.]

I understand. I was referring to autonomous computers for trading in general. I remember a year or two ago Goldman went after some Russian national who had designed and patented one of their systems. It incorporated multiple telephone switches. The guy ran off with the schematics and copies of the software. They caught him and he was indicted. But the story gave a glimpse of how these systems could issue then cancel orders in a millisecond.

24 posted on 10/08/2012 8:45:06 PM PDT by Brad from Tennessee (A politician can't give you anything he hasn't first stolen from you.)
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To: upchuck

“Agree 100%. This is precisely why I got out of the market forever in very early 2008. Haven’t looked back.”

Let’s talk after a post-Romney victory.... You might miss the biggest jump since WWII. And I mean that!


25 posted on 10/08/2012 9:26:41 PM PDT by Bshaw (A nefarious deceit is upon us all!)
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To: Brad from Tennessee

Seems to me that event was what brought HFT to light in the first place.


26 posted on 10/10/2012 11:44:01 AM PDT by M1903A1 ("We shed all that is good and virtuous for that which is shoddy and sleazy... and call it progress")
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To: M1903A1

Yes.

http://www.nytimes.com/2009/07/24/business/24trading.html?_r


27 posted on 10/10/2012 12:17:37 PM PDT by Brad from Tennessee (A politician can't give you anything he hasn't first stolen from you.)
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