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Technology Stocks : The *NEW* Frank Coluccio Technology Forum -- Ignore unavailable to you. Want to Upgrade?

To: Frank A. Coluccio who wrote (30750)	7/27/2009 10:46:45 PM
From: axial	Respond to of 46821

Hi Frank - Re: "... I wondered if you or anyone else also made the association that I did: Englebart's framing of "similitude" (see below) as it would now apply to the shrinking spatial diameter of securities trading venues in order to hasten transaction times:" I can see it, but the implications are not pleasant. Conceivably, trading would change completely: it would have to. Probably, there would have to be an interim period where it was banned, until all players could be put on equal footing. But that would be difficult. First, Kelly makes it clear (and we can see) that similitude's applicability differs differs from one field to another. Second, Kelly also recognizes (and again we can see) that similitude has limits; we may not have hit them yet, but we will. Whether those limits are temporary plateaus - the durations of which may be years, decades or centuries - or permanent, is unknowable. But it's fair to say that we can expect a pause, at least, in many areas. Is similitude is applicable to trading? To what degree? For example, is to ["normal" trading] as [microprocessors] are to [what?] That ratio's hard to envision, never mind complete. Third, if it is applicable, where are the limits? Should we go even further, and wire HFT to the trader's brain? Or have we already created something we can't control? Microprocessors are faster than humans; we know that. We also know that AI (Artificial Intelligence) is progressing rapidly, with some correspondence to microprocessors. But as noted upstream, trading in this manner would be "enhanced" just as athletic performance is enhanced by use of steroids. It puts "natural" performance at a disadvantage, and it creates unfairness. Such enhancement - here I'm thinking of such things as sending your clone to work, or neural implants that facilitate direct connection to networks and AI - have long been the realm of science fiction, and still are - but just barely. How they will evolve is unknown, but given mankind's advantage-seeking proclivities, the future seems clear: people will try to beat the system with enhancement. In that context, HFT may only be a precursor to more extensive penetration of finance by advancing technology. Yet as the Olympics have demonstrated, there's a deep-seated distrust of such enhancement, concurrent with recognition of the obvious: enhancement works: it creates an advantage. Therefore, the practice has been banned from the Olympics. Jim

To: Frank A. Coluccio who wrote (30750)	7/28/2009 1:02:26 PM
From: axial	Respond to of 46821

The Matrix, but with money: the world of high-speed trading [A more complete description of HFT] - snip - Too much, too fast? Apart from the issues of transparency and oversight raised by the HFT approaches described above, there's also the possibility that HFT, with all of its enormous speed and complete automation, poses a larger systemic risk to our markets. I mentioned earlier in this article that high-frequency trading was "estimated" to account for between 60 and 75 percent of all available market volume. This number, which you might think would be important to know, is only one of a number of survey-based, ballpark estimates; the real numbers aren't knowable because algo trades aren't marked as such. In other words, we have no way to tell how much of the current stock market activity—both prices and volume—is the result of computers trading against each other in the manner described above. It's also not clear whether all of this computerized buying and selling is actually good for the markets and for society as a whole. Couldn't we as a society better spend all of this money, computer power, and PhD brainpower on, say, coming up with a fossil fuel replacement? Supporters of HFT respond that their platforms provide much-needed market liquidity. They argue that, without HFT, there may not be enough buyers or sellers for a particular asset, so the market in that asset just stops functioning smoothly. Not everyone is convinced that liquidity is worth the attendant risks of HFT, which are very difficult to quantify when you're looking at HFT's potential impact on the market as a whole. Apart from the issues of transparency and oversight raised by the HFT approaches described above, there's also the possibility that HFT, with all of its enormous speed and complete automation, poses a larger systemic risk to our markets. At the back of everyone's mind is the 1987 program trading crash, described by Richard Bookstaber in A Demon of our Own Design. In the run-up to October of 1987, all of the major market participants had been using essentially the same computer-automated algorithm to hedge their portfolio risk. On Black Monday (10/19/1987), all of the portfolio insurance programs started dumping assets in lock-step, in response to a particular set of inputs. This synchronized selling begat more synchronized selling, and by the time this giant, market-sized feedback loop was shut down by the closing bell, the Dow had lost almost 23 percent of its value in a single day. Most of the debate around HFT is between those who think that a similar crash could not only happen again, but could be many times worse because the aforementioned increases in speed and trading volume, and those who insist that we don't yet know enough to make that call. It could be that this fast-moving system as a whole could quickly and dramatically fail in some unforeseen way, due to a combination of an external shock and unseen internal fragility; or, it could be redundant and robust enough to keep humming along in the face of anything we (or Mother Nature) throw at it. Either way, though, HFT's combination of speed, volume, secrecy, and lack of human oversight and intervention worries even those who trust the human players not use their machines to cheat at the game. arstechnica.com Jim