How to make £30 million from your bedroom

[halbpro]

If it's illegal, why does the stock market allow a system where this can happen?

 

[Bold Seagull]

How many of our own Bankers were extradited or jailed for their roles in the financial meltdown of 2008?

None you say? Oh.

How many are still getting obscene bonuses and favourable tax laws?

All of them? Oh.

Bloke in Hounslow gets extradited for a law that doesn't exist in this country. All sounds fair then...

 

[beorhthelm]

If it's illegal, why does the stock market allow a system where this can happen?

that is the very pertinent question. rather than make it a crime, impose technical limits and restrictions that prevent it. its a long running debate, advocates claim the high frequency trading provide liquidity to the market and restricting that is a Bad Thing, markets would collapse, fire and brimstone would fall as the capitalist system ground to a halt. others say everything was just fine before the technology allowed for it...

 

[halbpro]

that is the very pertinent question. rather than make it a crime, impose technical limits and restrictions that prevent it. its a long running debate, advocates claim the high frequency trading provide liquidity to the market and restricting that is a Bad Thing, markets would collapse, fire and brimstone would fall as the capitalist system ground to a halt. others say everything was just fine before the technology allowed for it...

I don't really have an outright objection to high frequency trading, I meant more the "spoofing".

 

[maltaseagull]

Well I didn't watch the trial, but I read what was in the media, which wasn't just what his lawyers said. He's been accused of spoofing, but that's not a crime here, so he can't be extradited for it. So the US have come up with the idea that he materially contributed to a market crash, which wiped nearly a trillion dollars of value off the market, which sounds quite unbelievable. Particularly since the US regulator already concluded that the crash was because of a US hedge fund.

So he's being extradited for a crime he didn't commit, so that he can be tried for a crime that doesn't exist in UK law.

And spent 4 months in prison as he couldn't meet his bail conditions as the US was able to freeze his funds.

 

[sten_super]

its a long running debate, advocates claim the high frequency trading provide liquidity to the market and restricting that is a Bad Thing, markets would collapse, fire and brimstone would fall as the capitalist system ground to a halt. others say everything was just fine before the technology allowed for it...

Is that genuinely the position of advocates, that HFT really provides liquidity? Because that seems to me (as someone with only very tangential knowledge) as patently nonsense. HFT has created an arms-race that involves substantial wasted resources (e.g. the infrastructure races to shave milliseconds off communication times), it doesn't do anything to aid the efficient allocation of resources.

 

[beorhthelm]

I don't really have an outright objection to high frequency trading, I meant more the "spoofing".

spoofing generically means to pretend to be something legitimate, its very difficult to prevent with a technical solution without impacting on the legitimate trades. HFT allow the spoofing to occur because [technical reasons here, i dont know the detail], so the answer would be to address the HFT, which may create problems and has dubious benefits.

@ sten_super, i think we know that the markets have long ceased to be just about allocation of resources, and become a means to profit in themselves. HFT and a few other practice such as naked shorting have become worts on a good system in principle.

 

[sten_super]

@ sten_super, i think we know that the markets have long ceased to be just about allocation of resources, and become a means to profit in themselves. HFT and a few other practice such as naked shorting have become worts on a good system in principle.

That's why I asked the question - because the idea that HFT provides liquidity is rubbish, so I can't see how an advocate would pursue that line of reasoning. The only justification for HFT that I can see is naked profiteering.

 

[beorhthelm]

That's why I asked the question - because the idea that HFT provides liquidity is rubbish, so I can't see how an advocate would pursue that line of reasoning.

as far as i can tell its based on a technically correct view. more liquidity means easier to find a buyer/seller, means easier to trade, ergo the more liquidity the better. its better to have a 100 bids in the market than 10. but that doesn't scale beyond a certain point and takes no account of the quality or purpose of the liquidity. the algo traders are essentially trading among themselves and the market makers, while the actual traders are just dipping in an out of the ocean.

 

[sten_super]

as far as i can tell its based on a technically correct view. more liquidity means easier to find a buyer/seller, means easier to trade, ergo the more liquidity the better. its better to have a 100 bids in the market than 10. but that doesn't scale beyond a certain point and takes no account of the quality or purpose of the liquidity. the algo traders are essentially trading among themselves and the market makers, while the actual traders are just dipping in an out of the ocean.

Isn't it the algorithms that are providing that liquidity though, rather than (per se) HFT? I've read Tim Harford (amongst others) bemoan the wasted resources poured into HFT, and propose that trades be regulated to a fixed frequency - i.e. once a second, so the market clears once every second, rather than constantly on-the-fly. It massively reduces the opportunity for technological arbitrage without necessarily removing liquidity from the system.

 

[KZNSeagull]

As a layman, how can it be possible to sell something that you do not have? Naked shorting and this type of spoofing are exactly the same as far as I can see - you pretend to sell something that does not exist. The market is still a market - you go there to sell something that you own or are selling something on someone else's behalf and in the old days you would have had to prove that before you could sell - at least I hope that you would anyway! Surely it must be possible for the market to confirm electronically that what someone is doing is legit?

 

[Pretty pink fairy]

or maybe not

http://www.bbc.co.uk/news/business-35863848

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regards
DR

 

[beorhthelm]

Isn't it the algorithms that are providing that liquidity though, rather than (per se) HFT?

i think that was the case, until the arms race you mention came along and took it to another level. as i say though, somehow the regulators are buying in to the argument that raw trade volumes are better so allowing the HFT to go ahead unchecked, and apparently they'd rather an ineffective law against misbehaviour than address the root problem. as you say, simple market tick would be sufficient, but ruin a lot of trading worth billions. and remember the exchanges get a fee, so there not a lot of voice opposed.

As a layman, how can it be possible to sell something that you do not have? Naked shorting and this type of spoofing are exactly the same as far as I can see - you pretend to sell something that does not exist.

spoofing is different from shorting, its placing an order to trigger a reaction in other algorithms, before cancelling the order. you are deceiving the market providing either more trades or higher/lower price than is real, while cleaning up on the side with other counter-trades.

 

[Seagulltonian]

Surely if he'd been on BT, Virgin, Talk Talk or Plusnet for his Internet at home, he would stand absolutely no chance of making £30 let alone £30 million quid, because of the speed issue of UK Broadband Infrastructure??!!

 

[WATFORD zero]

This could easily be governed electronically. Unfortunately introducing electronic management will significantly lessen the opportunities for profit. It makes far more sense to try and prosecute when those profits go to someone for whom they were unintended

 

[alfredmizen]

So how come spoofing isn't illegal in the UK?

I dont know , but it should be ,its gaming the market pure and simple , but this bloke is a massive scapegoat , there were plenty of people doing what he did , theyve picked on him because the a lot of the others would have the funds and retained legal teams to fight the case.

 

[alfredmizen]

appears you very much have read what his lawyers are saying. if it was a simple as that the court would have thrown out the extradition as it wouldn't have any basis. he is wanted for charges of wire fraud and market manipulation. spoofing is a method of doing that, and has been made a specific crime in the US, but the methods are immaterial to the act itself. the link to the flash crash is background for the story, but they have apparently 400 instances to go by (hence running up a £30 profit), the case does not rely on one event. though no doubt he is being made an example of by the US, because this is probably going on all the time.

It is.

 

[alfredmizen]

How many of our own Bankers were extradited or jailed for their roles in the financial meltdown of 2008?

None you say? Oh.

How many are still getting obscene bonuses and favourable tax laws?

All of them? Oh.

Bloke in Hounslow gets extradited for a law that doesn't exist in this country. All sounds fair then...

Really ?? How do you know this ?? Thats right, you dont , youre talking absolute sh*t ,about something you know very little about , something I've seen you pull other people up for .

 

[alfredmizen]

that is the very pertinent question. rather than make it a crime, impose technical limits and restrictions that prevent it. its a long running debate, advocates claim the high frequency trading provide liquidity to the market and restricting that is a Bad Thing, markets would collapse, fire and brimstone would fall as the capitalist system ground to a halt. others say everything was just fine before the technology allowed for it...

Correct.

 

[alfredmizen]

Is that genuinely the position of advocates, that HFT really provides liquidity? Because that seems to me (as someone with only very tangential knowledge) as patently nonsense. HFT has created an arms-race that involves substantial wasted resources (e.g. the infrastructure races to shave milliseconds off communication times), it doesn't do anything to aid the efficient allocation of resources..

Again, correct.