Robotrading: should it be banned?

I'm going to consider this a little further but these algorithms are made to make a penny on the dollar.. but it's pretty fair to assume they can lose a penny on the dollar rather easily. If you watch the market daily you rarely see any enormous movement until some type of news is released, then volume jumps. I can think of only a very few NASDAQ based positions than fluctuate very awkwardly daily but you will never see enormous volume for unknown reasons. The funny thing about the market is how psychologically based it is... I once thought I could straight off statistical info and make mad $.. but people constantly overreact and follow like sheep. An algorithm wouldn't follow like sheep when you get an unexpected dip and volume spike.

Regardless measurements go into stock analysis.. insider holdings.. short trades etc.. Each position has a certain degree of volatility that is measured. These algorithm based traders are playing w/ small cap stocks that show enormous fluctuation daily. Large and mid caps are often stabilized by ETF's, Mutual Funds, Insider owners and long positions. Which explains why they often follow the S&P and quarterly results.

Bottom line... I'm not to worried about the micro/small cap stocks causing a market collapse...

Quote from barnz008 : http://www.youtube.com/watch?v=TDaFwnOiKVE Skip to 3:20

Very interesting, thank you. Did I hear that guy right, this accounts for 70 percent of trades?

Quote from lemontart68 : Very interesting, thank you. Did I hear that guy right, this accounts for 70 percent of trades?

Yes. It's an often quoted figure I've heard tossed around for a few years. A feller named Scott Patterson who wrote a book about it ("Dark Pools") also verified a similar figure based on some data collected by another firm (don't recall their name, not Nanex) in a recent interview I watched.

I should post a screen shot of what HFT bot "trading" looks like on the charts because I see it all the time...even as slow as 1 min time frames.

Quote from DJPlayer : These algorithm based traders are playing w/ small cap stocks that show enormous fluctuation daily.

HA! Not true. You could probably make a case for keeping things going in those sectors, but just look at the volume tank since 2007 when these guys really started taking over. If the trend continues, volume on the NYSE will hit zero in the next 10-15 years. Less volume, more algos; more algos, less volume. Methinks something is afoot.

Quote from StarNova : Fair enough. But even the physicist / scientist said you have these trades going on with basically no adult supervision. It's a disaster waiting to happen if you don't put safeguards in place.

That's what I was getting at. Disaster is inevitable, get out before it happens.

Quote from agent00f : Has it ever occurred to you that the same people/politicians/banks/economists/etc would exist even without a gubmint, and that their failure would still impact you (and everyone you know) regardless of whether you invest with them? Highways are a useful thing, even if they're not owned by the gubmint.

It has. I'm not a member of the elite, I will be greatly affected by any collapse no matter how much I have prepared myself. That being said, our acceptance of their fraud is their true power. Take that away and it would be an entirely different situation.

They can be, but we have solid information that the highway is no longer a safe place to be for anyone not driving an M1A2 Abrams.

Anyone can robotrade with their computer. They obviously won't have the development of the big boys though who have devoted large amounts of money to try and perfect such things.

I know a guy who who has spent I think he said a million of his own money over the years for his personal robotrade setup. (I say "his own money," though much of it was created when he still ran his own fund, so it's not like he's always done it only for himself.) The thing does work, though some years it works better than others, and it does require tweaking.

Anyone can make their own robotrade setup for free if they want, though again, your tools and testing to know what works and what doesn't won't be at the level of people with very large amounts of money.

Should it be banned? eh. I think a main thing is that if someone is going to use such things, then they deserve to take the heat if it goes wrong. Some of those flash crashes are bs since the battlebots go nuts, lose money from going nuts, and then the exchange steps in and says, "All trades during the flash crash are void." That's bs. A buddy of mine had a big short going during a flash crash. $$$$. It got voided. bs.

They did that for Knight Capital too, but not enough, and Knight Capital, which a mere week ago was a HUGE market maker, now faces possible extinction. Justice is served, imo.

Live by the battlebot, die by the battlebot.

Quote from Deusxmachina : Anyone can robotrade with their computer. They obviously won't have the development of the big boys though who have devoted large amounts of money to try and perfect such things...

Yeah, but the game as it's now played in the high frequency big leagues is a completely different deal versus what people used to call automated and rules-based trading. Now you're talking about multiple groups having many parallel processing servers colocated on dedicated interconnected high-speed networks trading tons of shares in milliseconds to take advantage of transient fractional price differences that might only last for a second. By the time anyone recognizes something has happened, it's a done deal and you're way down the road as far as whatever consequences.

Quote from PhucilliJerry : It has. I'm not a member of the elite, I will be greatly affected by any collapse no matter how much I have prepared myself. That being said, our acceptance of their fraud is their true power. Take that away and it would be an entirely different situation.

Sure, but money assuredly buys power (esp via PR) in a social order that tautologically equates the two.

Quote : They can be, but we have solid information that the highway is no longer a safe place to be for anyone not driving an M1A2 Abrams.

This thread is rather about banning weaponized vehicles from the highway.

I don't believe it should be banned. If someone programs a computer to gamble for them then that is fine by me. They have no unfair advantage over the rest of us. Trading will automatically halt if stocks start to get dumped across the board so even if the majority of trades are done based on algorithms not much bad can come of it except they may lose their shirts...again fine by me.

More resources should be spent on controlling insider trading and fraud that does lead to an unfair advantage. Once again separating investment banking from commercial banking would probably be a good start.

Quote from dynamite : I don't believe it should be banned. If someone programs a computer to gamble for them then that is fine by me. They have no unfair advantage over the rest of us. Trading will automatically halt if stocks start to get dumped across the board so even if the majority of trades are done based on algorithms not much bad can come of it except they may lose their shirts...again fine by me. More resources should be spent on controlling insider trading and fraud that does lead to an unfair advantage. Once again separating investment banking from commercial banking would probably be a good start.

Think of it like bump drafting in racing. Everyone can do it, that doesn't make it a safe strategy for the user or everyone else on the track. Just because something is equally risky for everyone doesn't mean it should be allowed. The automatic stop thing just makes me angrier. Like someone else in the thread said. They invalidate all the trades back to before the crash. This is essentially ADMITTING that the algorithm trades are invalid. All of them. It's just they only want to keep the ones that make money, and reject the ones that explode the market.

Make it go away by implementing a transaction tax on each securities trade.

It's too dangerous to the economy to allow hyperative automated trading, especially when so few institutions can control large amounts of the market and are likely to act in lock step.

Quote from larrymoencurly : Make it go away by implementing a transaction tax on each securities trade.

Worst idea ever.

Quote from Deusxmachina : Anyone can robotrade with their computer.

Fine, go ahead but you're not going to "win" when the big one happens cause the bots that sit on the exchange can "see" all the stops and will "know" about it before some dope with a Macbook. In other words, you can protect yourself but all it takes is a nanosecond to turn your account into a black hole.

Quote from larrymoencurly : Make it go away by implementing a transaction tax on each securities trade.

Is it a "transaction" bot A "selling" the same security back and forth to bot B a few million times per second?