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HFT…….High Frequency Traders in the Stock Market……..

The drop in the market a little more than a week ago has flushed out a new fact…..

A large amount of trading these days are done by a new phenomenon…

High Frequency Traders (HFT)….

Unlike the traditional trading system that involves people watching an issue then picking up their phone to call a broker…whio will then buy that issue…

This occurring in minutes or up to an half an hour….

HFT trading is done solely by computers in nano seconds…..That’s thosand of a second!

The computers are set to find the movement of an issue…and move in a and out of the issue en.mass during the lag between when the market knows it’s moving and it actually moves…

That time frame could be minutes, hours…..or seconds!….

Because of the speed of these transactions…..

There is no way for humans to oversee them in real time…

The only way to do so would be to set protocols in the computer’s software…..

Which isn’t being done right now….

The stuff is real complicated…..

But the technical crash that happened a little more than a week ago shows what can happen when computers get in a loop …….

Technology always needs humans to oversee it….

High-frequency trading firms, which number over 100, use computers programmed with complex mathematical formulas to comb markets for securities priced too high or too low because traders haven’t had to time to react to the latest data. The computers then buy or sell in a split second, locking in a profit.

The opportunities seem hardly worth noting. They’re not just fleeting, but small, often a penny or less.

But those pennies can add up to a lot of money, enough to draw the attention of Goldman SachsGroup Inc., the giant Chicago hedge fund Citadel Investment and other big financial firms. In recent years they’ve paid hundreds of millions of dollars for stakes in high-frequency trading companies.

The money has stoked what was already fierce competition among the firms for a leg up.

To spot opportunities and act on them before others, HFTs are constantly hunting for faster computers. They also locate themselves close to the big exchanges’ data centers. That can cut their trade times by milliseconds.

One way these traders make money is by exploiting the fact that stock indexes sometimes don’t immediately reflect falling or rising prices of their component stocks, said Manoj Narang, chief executive at Tradeworx of Red Bank, N.J. If Microsoft shares rise 5 percent but an index fund that includes it such as the SPDR S&P 500 lags by a fraction of second to adjust, his computers will automatically buy shares of SPDR S&P 500 at the lower price and then sell them again when they are fully valued.

Or maybe Microsoft is trading in London at a penny less than it’s trading at the same moment in New York. A high-frequency trader will buy shares in London and wait for them to rise.

Since the discrepancy lasts a mere fraction of a second, speed is key.

Narang boasts it takes only 15 millionth of a second for his computers to place a buy or sell order after detecting an opportunity.

Or, as he puts it, ”If you try to pick up the penny, we’ll probably beat you to it.”

So is that good or bad for the market?

If you listen to HFTs, all their fast trading benefits big and small investors alike. More trading means more bids and asks for shares, and that cuts the time needed to find someone willing to buy what you’re selling or vice versa. Costs also fall. With more bids and asks, the difference between the price you seek and the price offered (what traders call the ”spread”) will likely narrow. You get to keep more of your money.

High-frequency traders see themselves as part of a long tradition of using technology to shake up Wall Street…..

More……..

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May 16, 2010 Posted by | Blogs, Breaking News, Computers, Counterpoints, Media, PoliticalDog Calls, The Economy, Updates | , , | 5 Comments

Last Thursday’s stock fall could have been the ‘Machines’…….

See what happens when you take humans out of the equation?

Computers….The ‘Machines’ just do their thing…..

Traders parsing the mystery of Thursday’s stomach-churning stock-market plunge are focusing on whether rapid-fire computer trading, coupled with the market’s complex trading systems, triggered a free fall that appears to have begun with an order to sell a single stock.

A big order to sell Procter & Gamble Co. shares came a little after 2:40 p.m., when the stock market was already jittery over turmoil in Greece. Minutes later, the market plunged, ultimately declining nearly 1000 points before rebounding rapidly.

The sell order was sent to the New York Stock Exchange, where it caused a log-jam in trading. Suddenly, P&G shares, among the market’s most stable, fell about 35%.

It’s not clear precisely how the P&G trade affected other securities. But the tumbling blue-chip stock helped drag down the Dow Jones index. Traders believe the big drop in P&G was picked up by computer models, which set off a chain reaction of selling in other stocks.

The violent fall has prompted an examination of the limitations of existing market “circuit breakers” and exposed weaknesses brought about by the changes in the character of modern stock markets, where most trading takes place at high speed between computers, rather than directly between human brokers.

At a minimum, traders said, the selloff shows that regulatory oversight of stock trading has not kept up with the changing nature of trading.

“There’s no mechanism in the current system to stop an error from crushing a stock,” said Dan Mathisson, head of electronic trading at Credit Suisse. “The regulators will need to explore restricting the use of market orders, or adding some type of circuit breakers.”

Human ones, guys…

More……..

May 8, 2010 Posted by | Breaking News, Computers, Counterpoints, Government, Media, Other Things, PoliticalDog Calls, The Economy, Updates | , | 4 Comments

Last Thursday's stock fall could have been the 'Machines'…….

See what happens when you take humans out of the equation?

Computers….The ‘Machines’ just do their thing…..

Traders parsing the mystery of Thursday’s stomach-churning stock-market plunge are focusing on whether rapid-fire computer trading, coupled with the market’s complex trading systems, triggered a free fall that appears to have begun with an order to sell a single stock.

A big order to sell Procter & Gamble Co. shares came a little after 2:40 p.m., when the stock market was already jittery over turmoil in Greece. Minutes later, the market plunged, ultimately declining nearly 1000 points before rebounding rapidly.

The sell order was sent to the New York Stock Exchange, where it caused a log-jam in trading. Suddenly, P&G shares, among the market’s most stable, fell about 35%.

It’s not clear precisely how the P&G trade affected other securities. But the tumbling blue-chip stock helped drag down the Dow Jones index. Traders believe the big drop in P&G was picked up by computer models, which set off a chain reaction of selling in other stocks.

The violent fall has prompted an examination of the limitations of existing market “circuit breakers” and exposed weaknesses brought about by the changes in the character of modern stock markets, where most trading takes place at high speed between computers, rather than directly between human brokers.

At a minimum, traders said, the selloff shows that regulatory oversight of stock trading has not kept up with the changing nature of trading.

“There’s no mechanism in the current system to stop an error from crushing a stock,” said Dan Mathisson, head of electronic trading at Credit Suisse. “The regulators will need to explore restricting the use of market orders, or adding some type of circuit breakers.”

Human ones, guys…

More……..

May 8, 2010 Posted by | Breaking News, Computers, Counterpoints, Government, Media, Other Things, PoliticalDog Calls, The Economy, Updates | , | 4 Comments