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Algorithmic Trading Rapidly Replacing Need For Humans 331

DMandPenfold writes "Algorithmic trading, also known as high frequency trading (HFT), is rapidly replacing human decision making, according to a UK government panel which warned that the right regulations need to be introduced to protect stock markets. Around one third of share trading in the UK is conducted by computers fulfilling commands based on complex algorithms, said the Foresight panel in a working paper published yesterday. Nevertheless, this proportion is significantly lower than in the U.S., where three-quarters of equity dealing is computer generated. The Foresight panel, led by Dame Clara Furse, the former chief executive of the London Stock Exchange, argued that there are both benefits and severe risks to algorithmic trading. There was 'no direct evidence' that the computer trading in itself increased volatility, it said, but in specific circumstances it was possible for a series of events with 'undesired interactions and outcomes' to occur and cause massive damage."
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Algorithmic Trading Rapidly Replacing Need For Humans

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  • by Hatta ( 162192 ) on Friday September 09, 2011 @01:22PM (#37353476) Journal

    It's not replacing humans, it just improves profit making for those who want to trade

    By siphoning value away from those who want to do something productive.

  • This is bullshit. (Score:5, Insightful)

    by brxndxn ( 461473 ) on Friday September 09, 2011 @01:31PM (#37353616)

    HFT does not help the market in any way. It does not promote the investing of capital. Going into and out of a company in less than a second is ridiculous. Steps need to be taken to stop HFT in its tracks before the whole market is ruined.

    This will fix HFT:

    1. random delay in all trades.. stick a 100ms to 1000ms delay before all trades are posted on the market
    2. tax all trades by a miniscule percentage.. give straight to government debt
    3. enact a rule that all trades stand.. erroneous trades made by a computer algorithm will never get rolled back

  • by Tsingi ( 870990 ) <graham.rick@gmail.cFREEBSDom minus bsd> on Friday September 09, 2011 @01:40PM (#37353726)

    In other words, the system will become so complex that we will quite literally be unable to ever quite figure out what's going on, until, of course, it all collapses, kills trillions of dollars in value, renders most economies smoking ruins, and then everyone will finally ask "Why the fuck did ever let that happen?"

    Umm, I think we've already been there.

  • Awesome... (Score:5, Insightful)

    by RobinEggs ( 1453925 ) on Friday September 09, 2011 @01:41PM (#37353748)
    I've never been convinced that HFT is anything but a scam to make institutional investors more money without doing more research or making more socially responsible investment decisions.

    The company worth truly investing in, in the sense that you hope it survives and hope it continues to grow as opposed to only making you lots of money, is the one that will treat the environment, their employees, their supply chain, and their customers with respect while paying investors and owners a respectable return.

    HFT algorithms don't give a fuck about any of that, exactly like the stereotypical Wall Street broker doesn't care about any of that; in fact HFT algorithms were written when brokers realized they could make more money in corrupting and managing young mathematicians than in doing their own jobs. HFT just further emphasizes empty, short-term speculation without regard to the product sold, the behavior of the company, or the future potential of the company. It enables the irresponsible greed of people who just want to make a dollar in the next day to become the irresponsible greed of people who just want to make a dollar in the next 0.0000000001 seconds.
  • Re:Awesome... (Score:4, Insightful)

    by FoolishOwl ( 1698506 ) on Friday September 09, 2011 @02:05PM (#37354166) Journal

    If investment decisions are better made by computer program than by human investors, what justification is left for private ownership of capital? And what's the argument against planned economics?

    Can we have another look at the idea of democratically deciding upon our social priorities?

  • by ipoverscsi ( 523760 ) on Friday September 09, 2011 @02:19PM (#37354390)

    The purpose of the stock market is to provide price discovery. If you had perfect information at all times you would know the price of a good and the stock market would be pointless. But because perfect information is impossible, the stock market crowd-sources the gathering of information so that the true price can be discovered.

    Determining the price of a good is something only a human can do. Price is a value quantified, and determining value requires sifting and filtering of information and the application of significant amounts of gut instinct. Computers cannot set prices since they don't have any concept of value -- they have neither needs not wants.

    Computer assisted trading -- trades where people set stops and buy limits -- is okay because the human has done the work to determine the valid price ranges a priori; the computer simply executes the bid on behalf of the user.

    High Frequency Trading, however, should be illegal since it does not involve human value judgements at all. It simply allows a computer to front-run actual humans and siphon off people attempting to perform a useful act -- that is, price discovery.

  • by Bob the Super Hamste ( 1152367 ) on Friday September 09, 2011 @02:47PM (#37354890) Homepage
    My understanding is that HFT get to see incoming orders before they are processed and then react to them. So lets say that some orders come in one says I would like to sell 1000 shares of stock x at $10.00 a share and one of the other orders comes in and says I would like to buy 1000 shares of stock x at $10.01. In this case the HFT puts in an order to buy 1000 shares of stock x at $10.00 a share and then puts in an order to sell 1000 shares of stock x at $10.01 a share. They have effectively skimmed $10.00 out of the system. Now go and do this several million times an hour and bingo you now are skimming truck loads of money out of the system. they probably make even less per share but this is just an example with easy numbers.

Can anyone remember when the times were not hard, and money not scarce?