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Jim McTague explains why this is the unhappy anniversary of the flash crash:

From Jan. 1 through April 30, 2010, investors put $668 million into stock funds, says the Investment Company Institute, the mutual-fund trade group. By the end of 2010, they had withdrawn about $96 billion. In 2011, there were $135 billion in outflows. This year, there have been more than $15 billion in outflows.

The hazards posed by the new robots were detected not by the regulators but by Sal Arnuk and Joe Saluzzi, partners in a small proprietary trading company. They blew the whistle in December 2008, accusing some of the owners of these high-frequency trading machines of manipulating the market. (They tell all in a book out next month called Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street are Destroying Investor Confidence and Your Portfolio.)

Eric Hunsader of Nanex, a small data firm, uncovered real-time evidence of market manipulation and also showed up the regulators. His Twitter feed tracking machine misbehavior has become must-reading for investors.

Nothing has changed since May 6 2010. The odds of another co-located, algo-driven, dislocation remains as high as ever.

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Source:
Happy Flash Crash
Jim McTague
Barron’s, MAY 5, 2012
http://online.barrons.com/article/SB50001424053111903935304577376060415615588.html

Category: Markets, Regulation, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

8 Responses to “Unhappy Anniversary of the Flash Crash”

  1. it’s, really, too bad, that the Solution isn’t as *Simple as..”Sonny, get the Nanites..”

    http://search.yippy.com/search?query=I%2C+Robot+Script+Sonny%2C+go+get+the+Nanites&tb=sitesearch-all&v%3Aproject=clusty

  2. just-sayin says:

    Until that fateful day, I used to dabble in the S&P Emini futures options market.
    While I watched in real time how my money could evaporate and subsequently
    realized it was caused by ‘computer games’, it became obvious the little guy like me
    had no place as a short term trader in the market.

    Ever since, my money is strictly in longer term (weeks to months) dividend paying
    instruments supplemented with some covered calls for extra income.
    I am continuously ready to ‘abandon ship’ should I see an Iceberg on the horizon.

    Like maybe after today’s European elections ??

  3. ToNYC says:

    HFT treats R-O-W as a digital virtual bucket shop. Make no mistake, this is black hole is exactly what the TBTFs depend on. A cleverly embedded way to shave capital and pretend to study the problem that pays to keep on studying it while destroying through legal expenses the Sean Egans of the real world.
    You could see it coming with the Goldman REDIBook and wiring captive clearing Speer Leeds through the Amex sub-floor, but it did no good just seeing it coming.

  4. Iamthe50percent says:

    Today’s European elections will undoubtably cause the market to fall because of the panic of those who worship austerity, but in the long run it sets europe back on the path to growth. I will increase my stake in Volkswagen tomorrow.

  5. gman says:

    I am agnostic on HFT but many of the metrics of investor confidence have much more to do with essentially being in a 13 year bear market that saw at its trough investors lose 70% in real terms in the sp 500!

  6. gman says:

    I as a human chimp buys highs and sell lows. I need to blame somebody..HFT programs are as good as any culprit!

  7. VennData says:

    If you’re so afraid of flash crashes, so sure they are going to happen, then put buy orders ten percent below the market.

    The day-raders, whether in their bedroom or on The Floor, have to deal with the fact that computers are better. Luddites like McTague are fodder for humor. His goofy far right political agenda stops when it comes to allowing computers to compete with the hand signal flashers who have vacated the floors and advertisers selling platforms are Barron’s. Only in America do these silly floors still exist.

    McTague is silly, take a trip abroad and see the future.

  8. cognos says:

    gman nails it.

    why is “another flash crash” not a huge opportunity?

    you too… can make enormous money from the volatility… just “buy low, sell high”… its kinda that simple.

    but you can’t right? you are afraid. you put in your “stops” (why?). so then… the computers and others will take advantage.