It can't be there. As far as the fundamental principle behind the trading of gold is concerned, it is due to the continuous change in the perception of gold as the ultimate store of value. SWIFT Rrading Bankers World Online Navigation, Search. Technology stocks, says Stansberry Research Editor Steve Sjuggerud. It didn't end until 4 p. In fact you can do all the work in less than 10 minutes.
Milliseconds after the opening trade, buy and sell orders began zapping across the market's servers with alarming speed. The trades were obviously unusual. They came in small batches of shares that involved nearly different financial products, including many stocks that normally don't see anywhere near as much activity. Within three minutes, the trade volume had more than doubled from the previous week's average. Soon complex computer programs deployed by financial firms swooped in.
They bought undervalued stocks as the unusual sales drove their prices down and sold overvalued ones as the purchases drove their prices up. The algorithms were making a killing, and human traders got in trading out of the money options urgent the bounty too. Within minutes, a wave of urgent email alerts deluged top officials at the Securities and Exchange Commission. On Wall Street, NYSE officials scrambled to isolate the source of the bizarre trades.
Meanwhile, across the Hudson River, in the Jersey City offices of a midsize financial firm called Knight Capitalpanic was setting in. And no one knew how to shut it down. At this rate, the firm would be insolvent within an hour. Knight's horrified employees spent an agonizing 45 minutes digging through eight sets optionx trading and routing software before they found the runaway code and neutralized it.
By then it was shortly after 10 a. It didn't end until 4 p. In the four years since o;tions collapse of Lehman Brothers drove the global financial system to the brink of oblivion, new technologies have changed Wall Street beyond recognition. Despite efforts at reform, today's markets are wilder, less transparent, and, most importantly, faster than urgeht before.
Stock exchanges can now execute trades in less than a trading out of the money options urgent a millionth of a second—more than a million times faster than the human mind can make a frading. Financial firms deploy sophisticated algorithms to battle for fractions of a cent. Do this 10, times a second and the proceeds add up.
Constantly moving into and out of securities for those tiny slivers of profit—and ending the day owning nothing—is known as high-frequency trading. This rapid churn has reduced the average holding period of a stock: Half a century ago it was eight years; today it is around five days. Most experts agree that high-speed trading algorithms are now responsible for more than half of US trading. Computer programs send and cancel orders tirelessly in a never-ending campaign to deceive and outrace each other, or sometimes just to slow each other down.
They might also flood the market with bogus trade orders to throw off competitors, or stealthily liquidate a large stock position in a manner that doesn't provoke a price swing. It's a world where investing—if that's what you call buying and selling a company's stock within a matter of seconds—often comes down to how fast you can purchase or offload it, not how much the company is actually worth.
As technology has ushered in a brave new world on Wall Street, the nation's watchdogs remain behind the curve, unable to effectively monitor, much less regulate, today's markets. As inwhen regulators only seemed to realize after the fact the oof posed by the toxic stew of securitization, the financial whiz kids are again one step—or leap—ahead. The Knight episode was "a canary in the mine," says Michael Greenbergera University of Maryland law professor and former regulator at the Commodity Futures Trading Commission Urgeng.
A lot of high-frequency trading is done by small proprietary trading firms, subject to less oversight than brand name financial institutions. But big banks have also tried to get in on the act. Imagine a runaway algorithm at a too-big-to-fail company like Bank of America, which manages trillions, not billions, pptions assets. But when the next crisis happens, it may not develop over months, weeks, or even days.
It could take seconds. Alpha, New Jersey, is a okt hamlet in the Lehigh Valley, near the Delaware River. Somewhere in town the owners won't say exactly where trading out of the money options urgent one of 10 2,square-foot amplifier facilities that dot the landscape every or-so miles between Chicago and New York City, ensuring that fiber-optic signals travel between the trading out of the money options urgent points as clearly and quickly as possible.
Spread Networksthe firm that operates the facility, may have seen some poetry in the community's name—"alpha" is the term investment managers use to describe the performance of an investment after adjusting for risk. Spread is part of a growing industry dedicated to providing hyperspeed connections for financial firms. A faster trader can sell at a higher price and buy at a lower one because he gets there first.
Because of this, trading firms are increasingly ot the limits to establish the fastest connections between trading hubs like New York, Chicago, and London. Every extra foot of fiber-optic cable adds about 1. That's why companies like Spread have linked financial centers to each other by the shortest routes possible. Exchanges like the NYSE charge thousands of dollars per month to firms that want to place their servers as close to the exchanges as possible in order to boost transaction speeds.
When completed inone of the cables is expected to shave five to six milliseconds off trans-Atlantic trades. But why stop there? One trading engineer has proposed positioning a line of drones over the ocean, where they would flash microwave data from one to the next like the chain of mountaintop signal fires in The Lord of the Rings. The acceleration of Wall Street cannot be separated from the automation of Wall Street.
Since the dawn of the computer age, humans have worried about sophisticated artificial intelligence—HAL, Skynet, the Matrix—seizing control. But traders, in their quest for that million-dollar millisecond, have willingly handed over the reins. Although humans still run the banks and write the code, algorithms now make millions of moment-to-moment calls in the global markets. Some can even learn from their mistakes.
Unfortunately, notes Weisenborn, "one thing you can't teach a computer is judgment. There's a fierce debate about what these abortive trades might be. Some speculate they are new algorithms being tested trding strategic feints, the equivalent of sonar pings probing the market for a response. Some of the fake trades could be aimed purely at gobbling up bandwidth to slow down competitors.
On the afternoon of May 6,CNBC viewers could have mistaken the channel's programming for an apocalyptic blockbuster. The Dow, already down points on bad news from Europe, had suddenly plummeted another Erin Burnett, wide-eyed, gesticulated at charts to illustrate the "unprecedented" 1,point drop. The typically manic Jim Cramer reached a new level of frenzy, shouting at viewers to buy—BUY! It can't be there. That's not a real price! Almost five months later, regulators would conclude that, on a day when traders had already been shaken by the Greek debt numbers, a single massive sell order executed by an algorithm belonging to a firm in Kansas had triggered a series of knock-on events that sent the market into a tailspin.
The analysis portrayed "a market so fragmented and fragile that a single large trade could send stocks into a sudden spiral," the Wall Street Journal reported. The flash crash spurred regulators to action—but spurs can only make a horse gallop so fast. No one in Washington makes an extra million bucks a year for moving a millisecond faster, and it shows. So far, Congress and the nation's financial watchdogs have done more hand-wringing than regulating.
In classic Monry fashion, when a Senate subcommittee held a hearing in late September on the "rules of the road" for algorithmic trading, the only consensus to emerge trading out of the money options urgent that more hearings optionw needed. And when it doesn't work quite right, optjons consequences can be severe. Just imagine what can happen if an automated traffic light flashes green rather than red, if a wing flap on a plane goes up rather than down, if a railroad track switches kf sends the train right rather than left.
If it's a fire the SEC needs to fight, the agency is working with equipment that's more reminiscent of bucket brigades. The New York Times has called regulators' tech "rudimentary. To enhance its market-monitoring capacity, the SEC has had to turn to industry —specifically, a firm called Tradeworx that specializes in very-high-speed trades—for a new computer program to analyze trading data.
That program, called Midas, was scheduled to go online at the end of But even Midas won't og the SEC a comprehensive picture of the markets. It offers no data on so-called "dark pools," private markets urgenf buyers and sellers can trade anonymously, and it won't tell the SEC who is responsible for a given trade. To fill those gaps, the SEC plans to ask market participants to submit comprehensive information about every trade in the US markets—creating what is called a consolidated audit trail.
But the SEC won't receive this information in real time. Instead, the audit information will be due by 8 a. But given that a robust and defensible analysis of even a small portion of the trading day can itself take many days, we don't give up much by waiting until the next day to receive a complete record of the day's events.
Meanwhile, the financial world is getting even more fast-paced, opaque, and downright mysterious. The same week Schapiro spoke at the SEC roundtable, an algorithm consumed 10 percent of the bandwidth of the US stock market. It "ran like a bat out of hell on crystal meth with a red bull chaser, to mix a few metaphors," Leinweber wrote on his Forbes blog. That is pretty darn weird. But what if someone designed a program intended to wreak havoc?
John Bates, a computer scientist who, in the early s, designed software behind complicated trading algorithms, worries that the kind of tools he's created could end up in the wrong hands. Ask the Wall Street lobbyists about things like cascade failures or algorithmic terrorism and they'll tell you not to worry. They'll note that transaction costs have never been lower and that the average investor can execute trades faster and cheaper than ever before.
In the absence of actual rules, the most widely discussed safeguards are now the "kill switches" or "circuit breakers" that kick in when a certain threshold is breached. After Black Monday inwhen the Dow Jones dropped by nearly a quarter in one day, the New York Stock Tge instituted circuit breakers that halt trading temporarily when the market falls by 10 percent and shut it down entirely when it falls mooney 30 percent. Neither of these fail-safes, though, was triggered by the flash crash—the market fell in a blink, but it fell less than 10 percent.
After the flash crash, the SEC implemented new circuit breakers that kick in when an individual stock experiences rapid, tradinh price swings. But those didn't prevent the Knight debacle—it was mostly trading volume, not unusual prices, that cost the company hundreds of millions. New SEC rules slated to take effect in February will halt trading for five minutes if prices of individual stocks move outside of a set range for more than 15 seconds.
But those are "a Band-Aid," complains Lauer, the technology expert. But there's a problem: If a kill switch or circuit breaker is automatic, it does nothing to reintroduce human judgment. Conversely, if a person has to pull a kill irgent, he or she has to take responsibility for doing so—which creates its own problems. Reformers are advocating what amount to speed limits. One of their proposals involves implementing what could be viewed as a temporary "no backsies" rule, requiring trading firms to honor the prices they quote for a minimum amount of time unless they execute the trade or make a better offer.
Even a minimum quote life of just 50 milliseconds "would have eliminated the flash crash," says Eric Hunsaderthe CEO of Nanexa company that makes software for high-speed traders. In a more far-reaching proposal, Rep. Tom Harkin D-Iowa have proposed levying a financial-transactions tax —they suggest 0. The United States had such a tax until Economists, activists, and even some finance big shots—Warren Buffett among them—have endorsed the idea.
Eleven European Union countries though not the United Kingdom are pressing ahead with the idea—and they've talked about a tax as high as 0. Wall Street lobbyists have pushed back against both speed limits and bringing back the transaction tax. But in the wake of the Knight episode, some industry experts are expressing doubts about the status quo. The chief executives of publicly traded companies—who are hired and fired based on stock prices—increasingly worry that their shares could be sent into a free fall by an algorithmic feeding frenzy.
The current markets have created a "somewhat disjointed world urgdnt what a company does and what its stock does," the CEO of one billion-dollar, NYSE-traded company told Mother Jones. According to Ben Willis, a longtime NYSE trader, "When you have the heads of the Fortune companies say, 'Hey, wait a minute, guys: Our stocks look like hell and Then again, the financial sector has a pretty solid track record of stymieing reform. And, given the extent to which the international financial markets are intertwined, would slowing down Wall Street make a difference if similar measures weren't taken mone London and Hong Kong?
As market-shaking episodes pile up, even some of the tech geniuses who helped usher in Wall Street 2. Wall Street Journal reporter Scott Patterson's book on high-speed trading, Dark Poolsrecounts the story of Spencer Greenberg, a young math genius who built a hugely successful trading algorithm named Star but later came to have reservations about what he had unleashed on the world.
You can also follow him on Twitter and Facebook. Mother Jones opions a nonprofit, and stories like this are made trading out of the money options urgent by readers like you. Donate or subscribe to help fund independent journalism. We noticed you have an ad blocker on. Support nonprofit investigative reporting by pitching in a few.
Too Fast to Fail: How High-Speed Trading Fuels Wall Street Disasters. Too Fast to Fail: How High-Speed Trading Fuels Wall Street Disasters Computer algorithms swap thousands of stocks each instant—and could set off a financial meltdown. Illustration by Giacomo Marchesi In the four years since the collapse of Lehman Brothers drove the global financial system to the brink of oblivion, new technologies have changed Wall Street beyond recognition.
This GIF shows the rise of high-frequency trading in the stock market from January through January One mysterious algorithm was described as running "like a bat out of hell on crystal meth with a red otu chaser. Looking for news you can trust? Subscribe to our free newsletters. Nick Baumann Nick Baumann is a former editor at Mother Jones. The Lioness in Winter. Berkeley Mayor Calls Out Ann Coulter for Stoking Possible Violence.
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Ep 75: Trading Options: The Real Way Money is Made from Options
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