Stock traders find speed pays, in milliseconds

High-frequency trading may give traders using powerful computers an unfair advantage in the stock market, critics say.
(From The New York Times)

The story "Stock traders find speed pays, in milliseconds" published July 24, 2009 at 3:23 PM is no longer available on CNET News.

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[norcalrivercat]

....that's not good.

[YankeePoodle]

market loses integrity... no more investment in US... welcome to 3rd world

[SactoGuy018]

This is all the more reason why the Obama Administration needs to do the following steps to improve financial system stability:

1. Tighten regulations on hedge funds, derivatives and credit default swaps by requiring actual liquidity backing to trade in these investment instruments. No controls on these "exotic" investment instruments was a huge reason why the stock market crashed in September 2008.

2. Increase the minimum margin requirements for trading in stock futures and commodities from 5% to 15%, with as high as 25% on critical items like crude oil, certain refined petroleum products, natural gas, certain foodstuffs, certain industrial metals and precious metals. Higher minimum margin requirements will keep out the "make a fast buck" speculators and result in far more stable price changes (no more rocketing up and down the price of commodities like what happened to crude oil in 2008).

3. Revamp the Sarbanes-Oxley Act to better balance new stock IPOs with accounting requirements. Sarbanes-Oxley as it is currently written has pretty much stopped all new IPO activity in the USA.

4. Reimpose the full provisions of the 1933 Glass-Steagall Act to get the banks out of the equities business. If you look at the 1987 stock market crash, note that because banks couldn't directly trade in equities back then, they effectively became a de facto "economic backstop" that held up the US economy as the stock market recovered from that bad experience. If the Glass-Steagall was in place last fall our economy would likely have recovered a lot faster because the banks would still be standing, not be on the verge of collapse.

5. Force corporate officers that hold shares in their own company to hold it for at least a year before any stock can be sold.

[jaytee518]

These are some of the best ideas I've heard yet on changing regulations to avoid another future bubble and make the banks and traders accountable. I doubt it would ever come to pass though. The game's been rigged and even the folks in Washington D.C. are in on it. Selling out the future of the country so they can all make a fast buck. They should all be hung from the neck until dead for treason against the United States because in the long term that's what it amounts to....economic treason.

[SactoGuy018]

jaytee518,

My #2 suggestion is historically important because when the stock market crashed in 1929, it was because the minimum margin requirements were just too low--I've read it was as low as 2% back in the 1920's! Bringing it back up to the 15%-25% range I suggested would keep out the "make a fast buck" speculators and result in WAY more price stability, and could actually help in reducing the inflation rate caused by out-of-control price speculation.

[aazippo1]

Wow, you have to admit that is pretty amazing!

RT
www.complete-privacy.tk

[Delestoran]

Once we made things that people wanted. The power of our industry was tremendous and moved the world. Now, we are held hostage by "bankers," "investment firms" and "insurance companies" who are nothing more than gamblers who spend their days fixing markets to their advantage. When they "win" everyone else loses. Goldman made 3.4 billion dollars last quarter. How did that help anyone else in this economy?

What happens when we stop investing in these fixed gambling rackets? Perhaps we should go back to making things instead of betting on which way a "market" is going to go.

[handtop]

why don't you mind your own business

[bluemist9999]

This is just what happened around the time the Roman Empire collapsed --- heavy interest in speculation, increasing debt loads. Whether it caused the collapse or not, it indicates the US is headed in the same direction.

[jaybny]

floor traders have always been able to execute faster then retail investors... now human floor traders have been replaced by computer "floor traders".

It used to cost millions to buy a seat at the exchange,. now it cost millions to buy the hardware, build the software and rent the space in a data-center.

nothing has changed...

"Loopholes in market rules give high-speed investors an early glance at how others are trading."

this is BS. Is it was true, no-one would trade anymore. it would a 100 times bigger fraud then Madoff. Fraud is fraud, nothing to do with High Frequency Trading. Except this time the exchanges themselves need to be in on it. It would be like the Casino cheating their customers. Its just bad for business.


(Goldman Sacks, on the other hand seems to be cheating their own RediBook customers by sniffing the traffic. So just don't trade through Goldman, and you'll be fine. )

[ayf276]

I fail to see how this is a problem? ETrade did a similar thing with disruptive technology enabling the masses to trade. High power computing is and will be a commodity. Microtrades are not a problem the problem is exposing the API's and the computing power that make these trades possible to the masses. I expect that companies such as Etrade and like will be expanding their offerings so that others can participate in the "day trading" microtrades as well. You could also harness existing platforms like EC2 to do this kind of work. Goldman Sachs has done nothing wrong.

[knobsturner]

Is this not an easy problem to fix? Just hold onto traffic for 0.5 sec on the way in and 0.5 on the way out. No more millisecond trading. It would make sense to have a trading system where someone in Chicago or Miami was not at a disadvantage due to location.

It seems that Wall street really likes the 'criminal look'.

There are other ways to invest money. Lots of people are changing to those methods. Like the mattress, real estate, and gold.

[handtop]

alephnull0, a commenter on digg.com said this and I tend to agree with him/her

"I hope people realise that algo trading massively increases liquidity in the markets, which is invaluable for mark to market pricing.

Secondly, algo trading hugely reduces volatility in many cases, as the price of a stock will approach what investors and institutions think it is worth in millionths of a second. If some news comes out that IBM are worth less, the share price will reflect this much faster because of algo trading.

Basically, algo trading makes the markets more like 'efficient' markets. If anything, this makes them MORE predictable and hence safer.

I _will_ laugh when an algo trading bot isn't properly tested, and ends up costings some firm USD 4bn."

[rvallee]

The whole point of stock markets is to allocate investments and savings to companies that use these funds to finance their activities and drive profits and residual income from the resulting work. This scam completely destroys the reason why stocks exist in the first place.

Leave it to investors and Goldman Sachs to drive the finance industry down the drain again while stealing billions through fraud. They know they will be bailed out anyway even if they destroy entire economies.

This is borderline criminal and entirely pointless. Trades should have a locked period during which selling is not permitted. Short selling strategies are nothing but a giant casino with whole societies' pensions, savings and property.

[SactoGuy018]

See my five-point plan I posted earlier. Implmenting that five-point plan will bring a LOT of stability back to the stock market, which in turn will bolster economic confidence in the long run.

[Scopip]

This article is extremely misleading. There are easy solutions to this problem, if it is in fact a problem.

[AppleSuxLeo]

BWA continues to increase. They make the DSG dual-clutch gearbox for VW and almost every brand is using their turbocharging expertise to increase mileage and give mongo bottom end torque from smaller displacement engines. BWA FTW !

[sheatrader]

This article for the most part is just an over reaction to the realization that trading algos exist. The only thing mentioned that could be unfair was "While markets are supposed to ensure transparency by showing orders to everyone simultaneously, a loophole in regulations allows marketplaces like Nasdaq to show traders some orders ahead of everyone else in exchange for a fee."
Thus any regulation meant to stop this unfairness would be to end said loophole. The Obama administration doesn't need to get involved and all the things sactoguy018 said are just off point. There will always be computers entering orders faster than humans can, all you can do is ensure a fair and transparent market.

[Epyon2012]

Both of my computers run at 4.0 and 4.3 Ghz with a thermal electric chillers anyone needs a super fast PCS? you can run MAC OS on it too! ~:)

[hass267]

What you need is not a powerful software but a proven and tested stock trading system that tells you what stocks to invest in, when to get in and when to get out with maximum profits. If you are interested you can take a look at Chris Rowe's Internal Strength System that exact system that he had used to make millions on the Wall Street while still in his 20s:

http://www.ninjatraderblog.com/trading/2009/11/chris-rowes-internal-strength-system-criss/