Computer-driven trading raises meltdown fears

Computer-driven trading raises meltdown fears

Analysts estimate that up to 60 per cent of trading in equity markets is driven in this way.

Traded in what way?

Trading in equities and derivatives is being driven increasingly by mathematical algorithms used in computer programs. They allow trading to take place automatically in response to market data and news, deciding when and how much to trade similar to the autopilot function in aircraft.

The answer to the question stated above should have an explanation point beside it as well as a few emotioncons or whatever the hell those irritating things are called.

If 60 percent of our trades are done via computer using complex algorithms to interpret and analyze news items in order to conduct trades a new question should arise...

Do governments and corporations make major decisions based upon probable outcomes which have been served up by a very complex machine running very complex top secret algorithms which in turn is supported via a complex web of fiber optics, telephone/data switching devices (remember the thread on this...SCI: FBI Fears Chinese Hackers Have Back Door Into US Government & Military) of which many control the flow of data/information and it looks like they may also conduct trades and maybe be even advise governments in a indirect way.

We have certain items in this world in which great wealth resides such as steel, oil, coal, water, 17 rare earths and of course oil yet information is the wildcard in the control of all of the above commodities.

The one frontier that the Chinese may have tried to infiltrate and probably have if you have read Mister Old Schools thread, is our rivers of computer/information/ data which is America's gift to the world via Apple, IBM, Microsoft and Intel may now be infected via a Trojan Horse that influence commodity and stock trades! Up to 60 percent.www.abovetopsecret.com...

Maybe this thread belongs in skunk works yet can you imagine if the meetings in Washington back in September 2008 when it dawned upon some of world leaders that the system was at systemic risk of meltdown...and they all understood that 60 percent of trades are electronic with risk of Chinese hackers influencing trades.

Mix that in with the rumoured super trade algorithms used by Goldman traders, the harsh hand dealt toward the British hacker and the more recent Chinese hacking Google war and I see a picture forming.

The internet has allowed the whole world to lose its anonymity including the once secret world of big money movement and the chaos created via these relative new channels is now becoming polarized.


The read below shows one example of how the relative new WWW is now influencing government.

Concerns have been highlighted by news that NYSE Euronext, the transatlantic exchange operator, has fined Credit Suisse proprietary trading arm for the first time for failing to control its trading algorithms. In the Credit Suisse case, its system bombarded the NYSE’s systems with hundreds of thousands of “erroneous messages” in 2007, slowing down trading in 975 shares.

The case was far from isolated, say traders. CME Group, the Chicago-based futures exchange, is investigating a case this month where a trader in “mini” S&P Index futures contracts “inadvertently traded approximately 200,000 contracts as both buyer and seller”.
EDITOR’S CHOICE
FT Trading Room: Exchanges news and analysis - Sep-09
Lombard: Man Group; Qinetiq; M&B - Jan-15

Last year, the London Stock Exchange suffered a three-hour outage after its trading system collapsed under the strain of a huge volume of orders. Some traders blamed the spike in volumes from algorithmic trading.

Do you see where some of this "systemic" risk comes from...it is coming from the algorithmic trading...from the computers that execute the algorithmic trading.

The system is causing its own collapse.

Sir Issac Newton predicted this. (lol)

A final version of the second law was put to rhyme by Flanders and Swann[3], based on the Clausius statement:

Heat won't pass from a cooler to a hotter
You can try it if you like but you far better notter
'cos the cold in the cooler will get hotter as a ruler
'cos the hotter body's heat will pass to the cooler!

en.wikipedia.org...

Or as the modern proverb states.."all capital moves West"...


www.abovetopsecret.com...


www.ft.com...


In summation the system itself is entropic or tending toward chaos.











[edit on 26-1-2010 by whiteraven]

A number of people I know use "bots" to do their buying and selling... most seem to have quite a few running at once, on some of the bot networks there are tens of thousands of people running the same bot that is hangling the whole shebang..

For me, that has always been one of those things that could easily go pear shaped.. not sure of the impact on the market, those I know are investing their own money (not sure if big business uses the same approach but on a bigger scale) Not to clued up on it all really... but seems rather risky, it would be interesting to know actually how much of each days trading was by human hands or computer model.

reply to post by thoughtsfull


First.
Thank You for the reply.

Second.

The article states 60 percent of the trades are conducted via this method.

I remember reading about the so called algorithm used by Goldman Sachs traders that creates its own mini bubble.

So it seems that we have a very very complex system that really is creating itself everyday...every moment...we are adding to it right now as I type...and this system not only is influencing global thought and reality via (unprecedented) without any historic precedent access to information and the lawmakers are trying to make laws to govern this new system yet this system is literary tied into the very economic structure/lifeblood of the nation via infrastructure of which no body can be 100 percent sure where all of the information is going or to whom or even if it all can be found.....


I know this is in no way original but it seems the MSM FT is now picking up on this. We are past the point of no return when it comes to our dependence upon our own machines which are in turn dependent upon a system which is increasingly entropic.

Scary ride. lol

personally ... i cannot see how it was ever deemed legal, or ethical ... With how regulated trading is, why in the World did we start letting computers preform investments?

They should be illegal, all trading should be preformed solely by HUMANS.

I totally agree that this should be a concern, especially when Wall Street can lie and fudge about the actual information used to make calculations.The algorithms can just perpetuate the lie on an exponential scale.


Plus, as stated below, it just makes pricing totally schizophrenic. Just look at your local gas station and how often the price per gallon changes.


arstechnica.com...

Taleb also has another major problem with computers that has nothing to do with their uses and abuses in banking. From Taleb's perspective, computers have made the whole of the modern economy too complex and too efficient. From inventory management systems that ensure that retail outlets hold the optimal amount of inventory (no less and no more) for a given day and location, to the massive options pricing machines that time trades with millisecond precision, the entirety of the computer-driven global economy is like one massive model that was assembled—most of it over the course of the past decade—on the governing assumption that the future would look pretty much like the past. And when that widely shared assumption breaks down, then the system ceases to behave in a predictable way, because it has been too finely tuned to operate under a set of parameters that no longer pertain

As recent as three generations most North American's were somewhat self sufficient.

In fact I was raised to respect self sufficiency.. as a Utopian ideal...yet it seems that now we have given ourselves over to dependancy of a system.

Just imagine what would happen if North America lost the use of the internet for a week...it would have a dramatic effect upon our society and according to the above article cripple 60 percent of the trades in the world.



edit...Although one could argue that the entropy of any niche whether biological or economical eventually hits a peak as well as a valley.

Just observe Lynx and Rabbit populations.

Talk about leverage...this little area could bring down the Death Star..lol.

[edit on 26-1-2010 by whiteraven]