Wednesday, August 07, 2013

Media Complicit in the HFT + Algo Trading Game

Our system suffers from a credibility trap or a mob mentality. It is an effective, tight knit community that has a filtration system to collect new members (nepotism + Ivy League schools) as well as a shaming process with concrete penalties to enforce conformity (the media + denial of patronage jobs). A first mover to step away from this will suffer the wrath of the rest of the group. If you turn on a made man, you suffer the loss of sources, revenue, jobs, etc. from the entire mafia network. Writers, Zero Hedge being the foremost, make a stink about high frequency trading, computer algo trading and the other feaures to today's markets that make them more complex, interconnected, prone to flash crashes and prone to gaming. One recent trend has been replacing human traders with algos that can read headlines for immediate reaction to new information. While covering for Oama by portraying the anemic recovery as glorious and all setbacks as unexpected, the media is also playing into the TBTF bank syndicate's hands. The media is complicit in the games Wall Street is playing with our markets.

The gold price suppression racket is a joint effort between the Western governments, the FED and the TBTF banks. The gold price is a barometer of the faith in the dollar system. They want it lower to keep the charade going. Bloomberg reported a story with the headline "China's Gold Imports From Hogn Kong Decline as Demand Slows". Algos see this and trade per the cue that demand for gold is slowing in the very market that has feverishly been buying. The story says that Chia's imports from Hong Kong dropped 4.8% from the month before down from 106 tonnes to 101 tonnes. That is the truth, but portrayed in a manner to make it appear as if demand was slowing by focusing on month to month changes. The article later reveals that the 101 tonnes is 49% higher than the 68 tonnes imported in June of 2012. Which stat reveals the trend?

We humans must read the entire article, but the robots read the headline and trade on the information as it was presented by the Bloomberg employees. I'm going to look at the nearly 50% jump in one year and reflect on what has happened in that year. A robot might not, but I do not know how the robot was programmed. This is just one example. Shhh, the Wall Street Journal did the same thing with India and silver imports, which was framed in a different manner by a non-US news source.With robots at the helm, an editor could play havoc with market trading just with simple word selection. An editor would never do that because to mess with Wall Street would possibly close access to financial sources, tips, etc. There is a reason Andrew Ross Sorkin throws lavish parties for Wall Street execs. Who will shadow write their memoirs? What happens if they rate your company's stock a sell because of your measly little article or headline? Money and access over principles. This is the technocrat, managerial class at work. They set the barriers to entry. They set the framing of facts. They pick what facts to use. If there are no facts to back up their story, they will invent them and suppress everything else. If you stand in their way, you will be ostracized if part of the team or marked for destruction if on the other side. Chisel away with a rock hammer because they must be destroyed. 


Anonymous said...

The HFT racket is about exploiting design flaws in the major digital exchanges. Knowing these flaws and having the right low latency access to the right fiber, you can send out "pings" and receive back data about what people are willing to pay that you otherwise wouldn't legally have. You issue the pings by having the ability to rapidly cancel sell and buy bids before they are actually taken. I don't know why it's so hard to find this simple explanation of what HFT boils down to. To my understanding very simple reforms (time constraints) to the exchange rules would kill HFT and kill the skim.

Anyway, the arbitrage opportunity (scam?) has probably been played out and from what I gather HFT funds are closing down left and right.

Algorithmic trading enabled by NLP technology is entirely different. It is not helpful to lump it together with HFT. All NLP does is enable folks to trade their pre-established convictions faster. Nothing wrong with that.

The useful rule of thumb with modern machine learning algorithms is that something a properly trained human can do quickly and easily, even if that training takes a long time, can be automated. Consider reading cursive or translating Norwegian to English. The algorithms grouped under machine learning don't offer any sort of crystal ball. You're just getting cheaper data entry clerks, translators, radar operators, and so forth. Rote stuff.

Son of Brock Landers said...

Great comment. I'm lumping in HFT as a stretch, but the algos + HFT = horrible havoc on the markets. The big boyz can still play with and fund their HFT just on the rebating fees.