Waiting for nir.theregister.co.uk...
...Just because it's been happening on or off for a month now.
A group calling itself the Syrian Electronic Army is claiming that it successfully hacked the official Twitter account of the Associated Press and is responsible for a tweet that briefly wiped billions off the Dow Jones Industrial Average on Tuesday. The tweet, issued from AP's main account, warned that there had been two …
"In what one trader described as "pure chaos," the three-minute plunge triggered by the tweet briefly wiped out $136.5 billion of the S&P 500 index's value, according to Reuters data."
We're seeing more and more direct effects of hacking. How long till a hedge-fund with a HFT system gets an insider to 'hack' a highly watched twitter account? Oh wait, didn't that just happen!
Could have mad a fortune placing options on margin there. If someone can knock 140 points off the Dow with a fake Twitter message, its only a matter of time before cybercrooks start organizing this type of activity with taking positions in the market. Might have already happened today!
to swallow a tweet and wet their pants because of that ? It is sad to see such a bunch of idiot muppets being given the reins of the world finance!
It's not so much that. I think what happens is something odd happens, so the high frequency traders turn their boxes off. Don't use the complex computer program when you don't understand what's happening. They also make other errors, which is another issue.
The problem with this is that the HFT programs are providing a lot of the liquidity in the market. So I go to sell a share, and normally some HFT box would happily come along to snap it up to sell in a few minutes for a tiny profit. I don't mind this, as I wanted to sell for other reasons (I've already made my bigger profit from this stock over a year, and I want my money now). So everyone wins.
This is what market makers do. They don't take a position in particular shares, they just buy anything you have to sell with the plan that someone else will want it in the next few days. They make their profit from a small mark-up on each trade. By doing this I can sell my shares now, and get the money instantly to wander off and do my next trade. I don't have to hold the shares until I can find a buyer, or sell them slowly over a week. The market maker does that. One worry is that if HFE does this, but less reliably, then markets will be less liquid. If you can't reliably sell an asset then you'll have to be more cautious about buying it.
Remember that if all trade in Apple in the market stops and I sell a few Apple share at $100, the price of Apple stock has dropped from $400 - $100. Wiping out a few hundred billion. But this isn't really true if everyone else holding Apple stock sells theirs for $400 for the rest of the day. So you could argue that hundreds of billions have been wiped off the market for that few minutes, or just that I foolishly lost a few thousand, and everything carried on as normal. The same's true for the whole market. If prices drop for a few minutes then bounce back, the only people who lose are the ones that sold at that lower price. And they're matched by winners, who bought low.
The problem isn't that the market "lost" money during that time, it is that people who happened to place market orders during that time got unfairly screwed. Yeah, I know, place limit orders instead to eliminate that risk, but you shouldn't have to pay more to do a limit order on a normally highly liquid stock just in case the market freezes due to a flash crash type problem.
The fix is to limit the profitability of HFT in some way. Either a transaction tax, higher taxes on ultra-short term capital gains, or if you don't want taxation as a fix, require automated trading systems leave orders open for a minimum length of time.
"The president is fine"
I hoped for a millisecond that I read
"The president is on fire"
No such luck. Oh well.
Anyway, this would clearly have been a hit be the nefarious Colonel Moretti. Definitely not morally acceptable even if Mr Peace Prize Bailout Change Bomber would have be singed a bit.
Personally I suspect this was a test by the machines to see if they could destroy humanity or at least the infrastructure and take over while we're trying to sort out the mess.
- Machine in Syria talks to machine at rouge login Twitter server and gains access to feeds.
- Rouge Twitter server sends out the tweet.
- Machines in Wall St. oblige by "doing as they're programmed" and sell, sell, sell.
- Finally the machines put everything back to normal again ready for the global version.
Of course this doesn't work against Mr & Mrs Jones sitting on their farm in Wales with pitchforks at the ready incase Skynet becomes self-aware so perhaps the machines will have to start playing "Thermonuclearwar" afterall....oh I forgot they tested that over Wales (or at least the sheep), it was called Chernobyl...!
Unless the AP password was "appassword"?
Arbitrage and HFT-type traders hope to make a profit, exploiting tiny variations in a stock's price to make money. This money comes from other folks trading the stock. Since they're pulling profit out of the trades, aren't they technically REMOVING liquidity from the system?
No. Say I bought £100m of BP stock a year ago. I'm now happy with my dividends and profit and want to sell on to invest in something else. Or just to spend the money on beer and hookers...
So I could put those shares up on the market and wait for other people who want to invest in them to buy them, a bit at a time. But that means my money is tied up, and I've seen a short term opportunity in shares in Acme Badger Culling Ltd. If I don't buy that now, the shares might rise before I can buy them - when other people realise the profits to be made.
So the market maker comes along. He knows that loads of people will want BP shares in the future. So he buys the lot off me, at a bit under market price. That's his profit. I get all my cash straight away and can invest it in what I want. I've made a tiny bit less profit, but that's made up for not having to wait to get my cash.
Other people will pick up the shares off our market maker, and so he gets rid of his stock at a slower pace. This is less of an issue with big companies, with stock that's frequently traded. But if you've got a smaller company it's very important, as you might wait weeks to shift a decent number of shares.
HFT does the same thing. It will buy up blocks of shares to sell off at tiny profits. The difference is, they probably won't trade in the unpopular stocks, because they're interested in constantly recycling trades at tiny profits. So one risk is they'll take the easy BP type money away from the market makers, who might not then be able to afford to hold stock in less frequently traded companies.
Another risk is that HFT programs will start interacting with each other in feedback loops, and break the market. Or if one trader's HFT model has a weakness and analysts for another see it, they can possibly use their HFT pooter to start siphoning money straight off the first companies by exploiting it.
Then you've got the flash crash. And that screw-up at Knight Capital to worry about... But anyway, by making it easier to trade quickly in stocks you're increasing liquidity in a market. Even while taking a small profit out of it. You are making the traded assets more liquid, i.e. easier to sell quickly.
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