"We risk becoming the best informed society that has ever died of ignorance"
- Rubén Blades

"You can't make up anything anymore. The world itself is a satire. All you're doing is recording it"
- Art Buchwald

"It's getting exciting now, two and one-half. Think of everything we've accomplished, man. Out these windows, we will view the collapse of financial history. One step closer to economic equilibrium"
- Tyler Durden

"It is your corrupt we claim. It is your evil that will be sought by us. With every breath, we shall hunt them down."
- Boondock Saints

Tuesday, September 27, 2011

Get Rich Or Die On Wall Street

Well here we are again.  Yesterday's trader on BBC didn't seem to shake anybody out of the US markets as the major benchmarks all rose on God-knows-what hogwash news and information.  I located the following two articles that will be of interest to all of us who deal within financial markets and not able to afford co-location in order to participate in the "dark pools" that run shit.  Given that we're more concerned with the "foul ball" as oppose to the fact it was hit with a corked bat, the debate coming from "trusted" institutions is leaving those with weak spines in the dust.  To survive in the financial industry is to live on your own, in the wild, not really trusting anyone outside your herd but able to detect those who are worthy of it.  In an environment where you can't be wrong (outside of TBTF) and where there are about 16% (U-6) of the population seeking better employment, its up to all of us to pull our own strings.  Knowledge truly is power in this field and the more facts you can test, the more evidence you can observe, the better you will be adding at Alpha for your clients.
Below is the BIS release along with a video that introduces the PDF after it which is titled The Future of Computer Trading in Financial Markets

AN INVESTIGATION by senior bankers of high-frequency trading suggests the supercharged form of buying and selling may not be as risky as some have feared. The release of the study comes amid wild swings in currency markets, although the Australian dollar last night clawed back some ground after falling below parity last week. High-frequency trading is often blamed for volatility on markets, including last year's "flash crash" where the Dow Jones Industrial Average plunged about 600 points in a few minutes during a single trading session. 

But evidence has since pointed to the crash being triggered by a rogue algorithmic trade rather than by pure trading. The report by the Swiss-based Bank of International Settlements has questioned whether high-frequency trading is a "socially efficient" use of resources, likening it to formula one motor racing where the social benefits of investment in cutting-edge technology is not always apparent. While high-frequency trading in itself was not likely to lead to systemic risk in foreign currency markets, it could accelerate problems once they appear, the report found. This gave high-speed trading "systemic implications" because of its potential to amplify a financial shock. Typically, the hedge funds and banks that engage in high-frequency trading generate profits through a large number of small-size trades. But this also implies they take little risk per transaction compared with traditional market-makers.
What sets high-frequency traders apart from traditional trading is the frantic pace that powerful computers can detect and act on opportunities. Indeed, some high-frequency traders can detect and trade in less than a millisecond. As a guide, it is said to take about 150 milliseconds for a human to blink. The report also highlighted there was still a human oversight to high-frequency trading. "While high-frequency trading is dependent on technology to function and trade positions are often being opened and closed faster than human comprehension, there still remains an important human element," the BIS report said. "In turbulent times, it is a human trader who makes the discretionary call as to whether to turn off the trading model if it has not already ceased trading." In Australia, regulators are already preparing for high-speed trading in equities with the planned entry of trading platform Chi-X. This will provide direct competition to the Australian Securities Exchange.

Computer Trading In Financial Markets

The Future of Computer Trading in Financial Markets Working Paper