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Category: 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.

4 Responses to “Ghost Exchange: The Movie”

  1. louis says:

    “scaring folks that are really smart”

    It’s a big club and you ain’t in it.

    http://www.youtube.com/watch?v=i5dBZDSSky0

  2. TapeReader says:

    I spend my days writing code that monitor the trading bots.

    These bots have a tremendous impact on the immediate Supply & Demand balance.

    Sometimes we see these Trading Bots battle it out for dominance…sometimes we see these trading bots rotate cleanly from Selling to Buying…and they take the whole market with them.

    There are trading bots that are specifically designed to run stops, thereby creating a quick spurt of liquidity that these bots can turn their trades around in.

    There are bots that ‘read’ the news….oddly enough, we see what appears to be bots that are definitely ahead of the news.

    If you are interested in learning more about how all of these trading bots (call ‘em HFT, call ‘em bots, call ‘em whatever you want) you can find more information here:

    http://sceeto.com/

    I am glad that this movie is out there because we obviously did not learn our lesson from the Flash Crash.

    There is also a lot of irresponsible journalism out there regarding these ongoing crashed (there are many more on beyond the notorious Flash Crash)…I recently read an article saying that flash crashes were ‘much ado about nothing’.

    Here’s a quote from the article and some of my vituperative response:

    “the real problem for small investors who have lost confidence in the markets isn’t HFTs — it’s that they’re playing the game on the wrong ball field. They shouldn’t be trading actively, and they shouldn’t care about daily, weekly or even monthly changes in prices, let alone intraday changes.”

    Really?

    People shouldn’t care about changes in price? Why then, you simpleton, are they investing if changes in Price are not the most material yardstick of measure?

    The problem with your logic is that the investor who is in it for the long haul doesn’t get a second chance. If his IRA goes sideways for 2 decades and inflation in the money supply degrades his capital, does he get another chance at bat?

    If Joe Investor’s portfolio is exposed to a nuclear blast in NYC should he just ‘Buy-and-hold’?

    Your entire approach is underpinned by Joe Investor not having a Stop Loss on their portfolio.

    Do you realize this? Do you realize that you are telling people not to use Stop Losses and instead to just wait and see what happens?

    If I am managing a portfolio and I want to walk away from any investment that goes down 20%, then any and all flash crashes, will stop me out.

    How does a portfolio manager determine whether a severe market move was invoked by a some trading bots gone awry or by the inception of World War III?

    I think that this is material. But can one really know this in real time? What if a portfolio manager is wrong and the market dropping 50% in 1 hour isn’t caused by rogue bots but rather by rogue nations that will have a multi-decade impact on the S&P?

    Shouldn’t the prudent investor walk away from their equity holding and port their capital into Gold and\or food?

    According to the article’s logic, anyone spooked out of the market by a catastrophic event will be made whole in a few hours when the market resets….because, well, any move of this magnitude must be caused by the bots.

    Here’s another irresponsible quote from the same journalist:

    “The bottom line is that while the kinds of occasional crashes caused by computerized trading makes for good fodder for the daily press and for politicians, HFTs have actually had a significantly positive impact by lowering the cost of trading for prudent, long-term investors. You, too, can benefit from their presence by playing the winner’s game of passive investing as described in my book “The Quest for Alpha.”

    If an investor is buying once in awhile to hold for a decade or so, any infinitesimal fraction of a decrease in a market’s spread hypothetically created by some HFT activity is not going to have one iota of an affect on his decision making process, or his overall portfolio’s P&L.

    Why then is this meme about HFT guys providing liquidity is in the best interest of folks who buy and hold?

  3. Northeaster says:

    @TapeReader:

    Nice post.

  4. S Brennan says:

    The destructive capability of HFT/Bots has been clearly demonstrated. You would think the enemies of the USA/west would study this intentionally unarmored Achilles heel carefully, make plans…and dispose of us through economic warfare when the opportunity presented itself.

    There is so much more to defending a country than weapons systems, an easily accessed infrastructure upon which hundreds of millions of lives are made to depend should be defended…not left naked to attack.

    To compare this “Pearl Harbor in Waiting” to push button phones as one player did in this clip, is the height of criminal negligence…and stupidity. And to think that the folks that make money in this high risk* manner control the thoughts of government officials, be they congress, courts or presidency.

    *In case you missed it, “..in a bipartisan vote, Congress absolved Jon Corzine of criminal liability for the embezzlement of billions of dollars”

    “…much of the missing money belonged to farmers, ranchers and other business owners” who were looking to protect their farms, ranches and businesses from financial losses…Mr. Corzine, a major contributor to the Obama campaign, a Democrat, former Senator from New Jersey, a former CEO of Goldman Sachs who maintains a net worth estimated to be in excess of $150 million, Mitt Romney by comparison has $50 million” – Dan Reed, Baltimore Sun

    And now back to our regularly scheduled program with our bipartisan panel on “Laws for the Masses, Laws for the Elite”…and then later we’ll talk to the author of “Friends in High Places…Does it Really Have an Impact?”…and after that…we’ll discuss “Human Sacrifice & Austerity…Wall Streets perfect pairing?” with our Republican & Democratic panel of experts. Sparks should really fly as we discuss, whether to convince the victim to mount the alter with disingenuous words…or with brute physical force…I dare say, I think we all know what side Democrats & Republicans will come down on…but stay with us won’t you? – it promises to be a spirited discussion!

    http://articles.baltimoresun.com/2012-11-28/news/bs-ed-corzine-20121128_1_jon-corzine-mf-global-obama-campaign