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Dacryphile
Posted - 2010.05.07 04:04:00 - [1]
 

Edited by: Dacryphile on 07/05/2010 05:50:37
Edited by: Dacryphile on 07/05/2010 04:09:02
Using trading algorithms, they monitor all item's value changes, and buy and sell without any human interaction bringing profit to the owner of the software while they sit back and drink milkshakes.

They almost wrecked the Dow Jones today, dropping it 1,000 points in a few minutes sending the whole market into a panic.

I'm curious about MD's thoughts on these events.

Edit: Here is a pic of today's trading blip.

Better article courtesy Machete Visor

Marshiro
Posted - 2010.05.07 04:29:00 - [2]
 

I wouldn't mind if I could get a piece of that quant action. Now that is market manipulation on the large scale :D

Durente Galaica
Amarr
Fortunate Few
Posted - 2010.05.07 05:05:00 - [3]
 

Put your tin foil hats on fellas. Frankly, I don't believe this was accidental.

Why would the market recover so quickly? He sold, crashed the market, bought up the new stupidly low stocks, caused the rebound and will now retire tomorrow with billions.

He did his research. Obviously he was working with large enough amounts over a period of time to notice the behavior of his competitors. Studied the crash in 2008-2009, the market climate is currently on high alert and decided to cash in.

The super brains with no other passions and morals go into trading, because thatís where the money is. Is it so hard to believe someone would screw over everyone else to make a buck?

Machete Visor
Posted - 2010.05.07 05:31:00 - [4]
 

Good article on the 0.01 ISK Game on the stock exchange...


http://www.zerohedge.com/article/day-market-almost-died-courtesy-high-frequency-trading

Good overall trading site

Dacryphile
Posted - 2010.05.07 05:50:00 - [5]
 

Originally by: Machete Visor
Good article on the 0.01 ISK Game on the stock exchange...


http://www.zerohedge.com/article/day-market-almost-died-courtesy-high-frequency-trading

Good overall trading site
Great read, better than the watered down msnbc article. Linking it in the OP.

Mme Pinkerton
The pink win
Posted - 2010.05.07 07:12:00 - [6]
 

Edited by: Mme Pinkerton on 07/05/2010 07:21:25

I would be surprised if nobody had algorithms to detect these patterns very early on (compare with only slightly correlated markets to rule out "real" events as a cause of the disruption) and establish a floor by buying cheap. There's so much money to be made in such a situation that I wouldn't expect this to happen more than a few times before the market participants adapt.

The worst thing you could probably do in such a situation is to suspend trading and give people time to realize the extent of the crash. Reverting transactions seems to be a decent (but messy) idea as it would hurt potential manipulators.

Otherwise... game theory/negative externalities at work?

Machete Visor
Posted - 2010.05.07 07:24:00 - [7]
 

Edited by: Machete Visor on 07/05/2010 07:25:11
Originally by: Mme Pinkerton
Edited by: Mme Pinkerton on 07/05/2010 07:16:25

I would be surprised if nobody had algorithms to detect these patterns (compare with slightly correlated markets to rule out "real" events as a cause of the disruption) and establish a floor by buying cheap. There's so much money to be made in such a situation that I wouldn't expect this to happen more than a few times before the market participants adapt.

Otherwise... game theory/negative externalities at work?


Developing a 'fat tail' event algo would make sense.

The downside to that strategy is that NASDAQ reversed all the trades that occured at the now described 'bogus' prices (for example, google was down to $34 per share... from over $400 1 minute before). So the exchange will limit the impact of such a huge slide.

In this case, it seems like the volume that was put it far outweighed any realistic buying power the market could muster. I don't know the numbers we are talking about, but it sounds like someone tried to sell a huge block of P&G shares. To much for anyone to snap up in the 1 minute that it took to plunge...

Of course, the people that did buy at the bottom have had their trades reversed. And the selling firm (a wall street bank) ass has been saved by not having to cover the mistake trade.




Mme Pinkerton
The pink win
Posted - 2010.05.07 07:32:00 - [8]
 

Edited by: Mme Pinkerton on 07/05/2010 07:41:01

... and it teaches us to be very careful with setting mechanistic stop-losses^^

That's a point where I would really like to see some innovation as a result of this event - the current system of "sell when price drops below <x>/<x>%" is far too simple to make sense, would be nice to have some more advanced strategies (that are more able to cope with events like this) available as prepackaged solutions for individual customers.

I am not talking so much about having better solutions for algo traders but about incorporating some more intelligent rules into the run-of-the mill-investment opportunities offered to you by your bank (think of retirement funds, etc.).

Akita T
Caldari Navy Volunteer Task Force
Posted - 2010.05.07 07:33:00 - [9]
 

Edited by: Akita T on 07/05/2010 07:36:44
Originally by: Dacryphile
They almost wrecked the Dow Jones today, dropping it 1,000 points in a few minutes sending the whole market into a panic.

No, what almost wrecked the market was a stupid careless human entering a "b" instead of an "m", on top of either the same human having had disabled the warnings because he was too lazy to hit an extra "yes, I really want to trade that" or several other careless humans that failed to put in the proper code to catch such mistakes, and ultimately, a bunch of careless humans that never bothered to do the research to put in the proper algorithms that would handle the situation created by the bunch of other careless humans before them in a non-destructive manner.

Vaerah Vahrokha
Minmatar
Vahrokh Consulting
Posted - 2010.05.07 07:37:00 - [10]
 

Quote:

I would be surprised if nobody had algorithms to detect these patterns (compare with slightly correlated markets to rule out "real" events as a cause of the disruption) and establish a floor by buying cheap



The technique (that I exposed days ago on this forum BTW) is used by market makers to make great cash and since a long time.

Example, stop loss trap (simplifying a lot):

- Quant software detects it's time of day to self-enable.

- Quant software analyzed historical data and determines we are past distribution phase and a new bullish trend is readying to form Elliot wawe #1

- Quant software can analyze orders (even in Forex, the software owner almost certainly has purchased a contract with visibility on raw orders).

- Being a market maker it *knows* where small traders stop loss orders are placed or can easily infer where they are placed at with so simple math that it can be done with a graph and a ruler (!) (this in response to MMe's support for insider trading Wink).

- Being a market maker and / or liquidity provider, a big sell order is placed that WILL make the trend spike down (reverse for bear market). The spike WILL catch the traders stop losses and will

a) Deprive them of money
b) Kick them out of the current orders
c) Therefore establish the market maker as temporary only player

- At this point and in a fraction of second - and still in automatic - the liquidity providing is activated and an hugely massive buy order is placed.

- Slower software and human operators at this point "see" the trend steeply rise and run to buy "before it's too late".

- At this point the quant software (or an human, the timing is not really critical now) dumps the buy order to the above and cashes in the free profit.


The same happens with take profit orders: the market maker makes the trend spike up so that the regular traders take profit thresolds trigger (expecially if it's their market maker, usually a big tier 1 broker) and those traders are all kicked out of the trade.
Then - after few seconds - a massive order that will see the market maker alone in the middle of the action and the others forced to manually step in again (and pay the order commission again BTW, double bonus for market making brokers).

This lead to a dominance situation, where who pays the market maker is its prime victim. Hence the widespread hate for MMs.

Machete Visor
Posted - 2010.05.07 07:46:00 - [11]
 

VV - Here is another nice strategy..

Market maker has a request from a client to buy 50 shares of IBM stock at $24 per share. Market maker knows there is a limit order out there to sell IBM shares, but it is 'hidden' because they dont post until the limit is met. Assume it is at 23.00.

Ordinarily, market maker (assuming he doesn't have IBM stock in inventory) posts a buy order for $24. Someone fills it, etc etc.

With an algo trading engine, market maker sends out a buy order at 23.99 for 1 share. No hits. Cancel. 23.98. No hits. Cancel. 23.97. No hits. Cancel. Etc etc etc. 23.00. DING DING DING! Hit 23.00 again for 49 shares. Sell 50 shares to client for profit of $1 per share. All this takes place in a millisecond.

Basically then I just hook my retail platform up to my algo trading engine. As my clients put in orders, I automatically do the search above and take the profits. Not a person to pay except the coder and the tech who keeps the box running. Thank you!




Mme Pinkerton
The pink win
Posted - 2010.05.07 07:53:00 - [12]
 

Edited by: Mme Pinkerton on 07/05/2010 07:59:06
Originally by: Vaerah Vahrokha
This lead to a dominance situation, where who pays the market maker is its prime victim. Hence the widespread hate for MMs.

I think in that thread we were talking with slightly different scenarios/experiences in mind - I had the NYSE in mind (and basically described the traditional role of a NYSE specialist):
if the market works all right there is no need for the MM to interfere (and iirc brokers are limited in the volume they are allowed to trade on their own to avoid scenarios of them manipulating a working market); but if the market is very slow and the standing orders are not realistically priced, you want to have a MM who offers to take your position into his books at a decent price.

and bringing this discussion back to EVE - adapt or die Twisted Evil

edit: @Machete's example - I don't see anything wrong with this; the MM pays for his access to limited information directly (renting a booth, etc.) and indirectly (by being willing to carry market risk even if nobody else is willing to do so), this only works if he is able to get some return on his investment in preferential access to information.

Vaerah Vahrokha
Minmatar
Vahrokh Consulting
Posted - 2010.05.07 08:06:00 - [13]
 

Quote:

... and it teaches us to be very careful with setting mechanistic stop-losses^^



Stop losses AFAIK are a technicality.

For your stop to work there has to exist some conditions:

- the underlying platform has to react in real time. In case of "runs" this does not happen since everyone are slamming the connections at the same time.
Results: varying delays, usually costing a capital.

- in some markets, someone HAS to have an opposite order so that your position can be closed. Of course during a run, people all want to leave ASAP and almost don't put in new orders. This means that the stop loss becomes just a wishful request.

This is why every decent broker suggests his customers to use multiple accounts so that his "working horse" can get margin called without losing everything he ever earned.
Even then, in some markets there can be margin calls that don't get notified in time (again due to platform overload) and positions are not auto-liquidated quickly enough.

In this case, the broker will forcibly and demand by law for out-of-margin call additional and full coverage off the trader and this can really destroy someone's life.



Quote:

if the market works all right there is no need for the MM to interfere (and iirc brokers are limited in the volume they are allowed to trade on their own to avoid scenarios of them manipulating a working market



The market works (for Forex at least - it's the one I know better) for about 3 hours a day.
The remaining 21, it's in a super-low-liquidity status and MMs DO interfere and liquidity providers (also used or are MMs themselves) DO interfere AND deleverage (that is, eat aka small traders aka leverage users alive).


Quote:

but if the market is very slow and the standing orders are not realistically priced, you want to have a MM who offers to take your position into his books at a decent price



MMs are only "accepted" because they are able to parcel-ize trading lots (100,000 euros = 1 lot) into a small size enough that low liquidity aka retail traders can manage. IE you will deal with mini (10,000) or even micro (1,000) lots instead of covering for a whole lot.
But the benefit ends here, and it's why nowadays new brokers are advancing (ie request is big and raising) that have no dealing desk and let the orders "flow thru" the real actors (banks) without MMs.


Quote:

and bringing this discussion back to EVE - adapt or die



The problem is that in EvE your worst (ie compromised account) is to go down and poor till you need to restart mining.
In RL, your worst is that a whole country or continent loses their retirement funds, their companies become worth a fraction, their money is crushed, their populace riots and people DIE.

This is how people adapt in RL. They don't go mine a roid, they go throw molotovs and kill innocents.

Claire Turing
Posted - 2010.05.07 11:38:00 - [14]
 

He accidentally the entire market.

CCP Shadow


C C P
C C P Alliance
Posted - 2010.05.07 16:58:00 - [15]
 

Edited by: CCP Shadow on 07/05/2010 16:59:25
This discussion is largely about real world issues rather than being about EVE. I've moved this thread from Market Discussions to Out of Pod Experience.

Edit: Also removed off-topic posts. Carry on.

-- Shadow

Pycke
Posted - 2010.05.07 17:43:00 - [16]
 

That goes to show even the most advanced algrithms can't predict the market.

Surfin's PlunderBunny
Minmatar
Sebiestor Tribe
Posted - 2010.05.07 18:31:00 - [17]
 

Originally by: Pycke
That goes to show even the most advanced algrithms can't predict the market.


Or they can and this was their plan all along!

Zeba
Minmatar
Honourable East India Trading Company
Posted - 2010.05.07 18:35:00 - [18]
 

Originally by: Surfin's PlunderBunny
Originally by: Pycke
That goes to show even the most advanced algrithms can't predict the market.


Or they can and this was their plan all along!
Pretty much this. I'm sure the key players made billions on the fluctuations.

Derovius Vaden
Posted - 2010.05.07 19:49:00 - [19]
 

Originally by: Durente Galaica
Put your tin foil hats on fellas. Frankly, I don't believe this was accidental.

Why would the market recover so quickly? He sold, crashed the market, bought up the new stupidly low stocks, caused the rebound and will now retire tomorrow with billions.

He did his research. Obviously he was working with large enough amounts over a period of time to notice the behavior of his competitors. Studied the crash in 2008-2009, the market climate is currently on high alert and decided to cash in.

The super brains with no other passions and morals go into trading, because thatís where the money is. Is it so hard to believe someone would screw over everyone else to make a buck?


Because the market 'mods' hit the big red 'wtf' reset button. Very Happy

Wendat Huron
Stellar Solutions
Posted - 2010.05.08 00:31:00 - [20]
 

The market need to ban bots. Simple as that.

Kephael
Caldari
GoonWaffe
Goonswarm Federation
Posted - 2010.05.08 01:16:00 - [21]
 


Danton Marcellus
Nebula Rasa Holdings
Posted - 2010.05.08 17:18:00 - [22]
 

So this is how Skynet starts out.

Caldari Citizen20090217
Posted - 2010.05.08 23:26:00 - [23]
 

I *really* wish I understood this stuff, but I can't even make money on the eve market let alone irl where mistakes actually hurt. WTB economics skillbook.

Originally by: Wendat Huron
The market need to ban bots. Simple as that.


Which will only lead to better bots. If online gaming has taught the world anything its that botting is impossible to stop if there is a benefit. Even if there was a 100% guranteed bot detector you would get the bot to output instructions and have a sweatshop guy input the numbers.


 

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