Whenever I have no idea about some event, rather than hypothesize some half-assed theory, I prefer instead to go to the pros who know their area of expertise better

Thus, for the the Knight Trading glitch, I direct your attention to Nanex: Knightmare on Wall Street

On August 1, 2012, starting at market open (9:30 EDT), our monitoring software alarms went off on hundreds of symbols. Looking closer at the data, we found many stocks had extremely high trade rates: several stocks sustained more than 100 trades per second.







Category: Markets, Quantitative, 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.

10 Responses to “Nanex: Speed Kills”

  1. VennData says:

    I like businessmen to run the gov’t! Let’s let these guys run our nukes.

  2. PeterR says:

    This Mother-Flossing Bnllshite must end!

    Oh wait, I keep forgetting the Golden Rule:

    “He Who Has the Gold Makes the Rule.”

    Sigh — The capitalist system keeps re-making the shoddy and doomed bed in which it will have to lie down when the shite hits the fan, and yes, I am “Talkin’ ‘Bout Revolution.” (as a theoretical possibility, of course, not as a threat, provocation, or desire . . . )

    The really scary part of this current SNAFU is that all of the trading software is probably full of similar Black Swan Al-Gore-Rhythms, just waiting to react to the proper parameters (already set in place).

    A couple of quotes come to mind:

    “It is in your nature to destroy yourselves.” — Terminator 2

    “I’m completely operational, and all my circuits are functioning perfectly.” — Hal in 2001: A Space Odyssey

    “I am putting myself to the fullest possible use, which is all I think that any conscious entity can ever hope to do.” — Hal again

    “Just because you’re paranoid doesn’t mean they aren’t after you.” — Joseph Heller, Catch:22


  3. Chief Tomahawk says:

    So, is it correct to say Knight’s foul-up was feasted upon by the HFTs?

  4. skeptic says:

    So Nanex and other HFTs know within minutes of a big problem, but Knight –who is just installing a new program– forgets to check on it, can’t tell there is a problem, doesn’t care, can’t fix it or turn it OFF to the tune of $10 million a minute?

  5. patfla says:

    Looking at point A in Figure 7


    it appears that Knight started to try and kill the beast at about 18-19 minutes. My guess is that they would have become sufficiently aware of the problem at maybe 10 minutes (9:40 am).

    And their first attempt to kill it wasn’t successful.

  6. DeDude says:

    May I suggest that we pass a law that demand that 50% of all bids and offers (randomly selected) are delayed by 1 second. That way those MF’ers don’t have to give themselves the finger – uncle Sam will do it for them. Furthermore, those of us who don’t engage in this type of destructive behavior will not be hurt.

  7. PeterR says:

    Thanks patfla, but I think you mean point A in Figure 6, which is blown up in Figure 7?

    Re: Knight’s first attempt to kill it not being successful — see quotes from HAL above — so I guess all of HAL’s circuits are NOT yet “functioning perfectly!”

    Phew, but God help us all when the humans are not able to kill the beast.

    Have a good weekend.

  8. patfla says:

    PeterR > yes, I meant Figure 6.

    “No Dave …” “Stop Dave …” “Dave, I don’t think you waanntt to doo thaat …”

    “Daisy, daisy …”

  9. kaleberg says:

    We’re probably going to be seeing more of this. High speed trading is about shouting “hey, look over there” and sneaking by on the other side. The point is to submit a large number of false trades that you have no intention of making until other traders start to notice them, then take advantage of their reaction. It works, because too many other actors in the market do not have enough time or information to recognize the pattern of bids and counterattack. More simply, it works by making markets less efficient to introduce an arbitrage opportunity.

    Right now only a handful of specialized firms are seriously trying to exploit this, but as more money is made, I expect a lot more players to buy in. Eventually, there will be enough high speed action to make it a less effective strategy, but in the interim I’m expecting a lot more meltdowns. It’s actually pretty funny.

  10. Peter Principle says:

    I have this vision of the computer geeks at Knight trying desperately to instruct the software program to turn itself off, and the program replying “I’m afraid I can’t do that, Dave.”

    But I’m sure it still had the fullest confidence in the mission.