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Subject: Trading Shenanigans - Somebody Set Me Straight rss

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Born To Lose, Live To Win
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Sounds like it's time to have forced "suspension of trade" for a period of time of the announcement and a short time after for everyone to be ready to act who would act.

For those who know how the market floor works, would that be technically possible?
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MGK
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Alaren wrote:
But this story suggests that automatic trading is not only problematic but is now being used in conjunction with some kind of insider trading scheme on a grand scale.


I don't think it's some sort of purposeful conspiracy. It's probably just the combination of two factors:

1. Insider trading happens - always has, always will. People gossip. Even if you don't insider-trade yourself about your company or private information, if you tell your broker buddy over drinks and then he tells half a dozen friends, they will effectively insider trade and then return the favour to you later on and half the time neither of you will even think twice about it. Which is its own problem, but

2. Automatic trading exacerbates the problem that is the constant low-level and relatively small-scale existence of insider trading by upping the volume of what would be illegal trades dramatically. My software sees that your software is doing trades and does trades in response. Boom, market shifts.
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J
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Most likely the news had been transmitted to servers within the news organizations that were local to both NY and Chicago before the 2pm deadline. That would have allowed the news to be released simultaneously with no time lag and then the trades were made off this.

The Fed released a statement that the news organizations were embargoed from making the info public before 2pm. If that's the case, then nothing illegal went on.
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Kelsey Rinella
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I once played a game of telephone, with a Wall St insider on the other end. The way I heard it, most automatic trades anticipate the trades of others, buying what is about to be bought by someone else and then reselling for a very slightly higher price. According to my source, it's effectively institutionalized front-running, which just confirms my earlier suspicion that anyone who thinks of their business as being about money is out to screw me in any way they can get away with.
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Mac Mcleod
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In my opinion, the strength of the move was an indication that there was no leaked information.

The high frequency traders just traded really fast and their strategy for that announcement was to buy.

The irony being that the target pivot point (and a likely) top was so close ($172.97) that the surprise mainly just made the top happen all in one day instead of over the course of several days.

http://www.investopedia.com/terms/f/frontrunning.asp
Quote:
Definition of 'Front Running'
The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients have been given the information.

Investopedia explains 'Front Running'
For example, analysts and brokers who buy up shares in a company just before the brokerage is about to recommend the stock as a strong buy are practicing front running.

Another example is a broker who buys himself 200 shares in a stock just before his or her brokerage plans to buy a large block of 400,000 shares.


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Mac Mcleod
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Breaking news on slashdot is that the trades in chicago were 5 milliseconds too soon.

http://news.slashdot.org/story/13/09/25/1955220/somebody-sto...

This would imply the news was known before 2pm and the orders were queued up to fire at 2 milliseconds after 2pm. Apparently the fastest the data could have gotten to chicago was 7 milliseconds.

Which would make it insider trading. Be interesting to see if they prosecute.

Sheesh!
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Kelsey Rinella
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I think the idea was that what automated trading lets the house do is trade on information before investors have a chance to react, rather than before they have a chance to acquire the information. In the old days, it didn't matter--reaction was effectively instantaneous for everybody. Now, some people have a chance to react faster than others.

They aren't taking a position in the market, because they sell most of what they buy immediately. So they're not adding information to the market which wouldn't exist in moments, anyway, and the liquidity they provide would similarly arrive very shortly without their intervention, so they provide none of the social benefit markets generally provide.

The problem with front-running was that it increased inequality without adding any value--it was purely a scheme for taking a little more of the money that was changing hands. Automated trading follows a very similar pattern.
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Mac Mcleod
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http://www.zerohedge.com/news/2013-09-24/tip-box-fed-made-it...

information was widely available 5 minutes before.

those in the know on 'honor' system not to use it.

billions of dollars at stake and on 'honor' system.

lol.

fyi: Zerohedge can be overexcited at times so keep that in mind.
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Jorge Montero
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Here, welcome to legal front running:

http://en.wikipedia.org/wiki/Dark_liquidity

There's also the fun part about how there are trades that are never supposed to get through, but are there to either confuse other high frequency trading algorithms, or help with discovering how big a margin the high frequency trader can get.
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Read the rulebook, plan for all contingencies, and…read the rulebook again.
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Since we're talking about milliseconds. Would having the trades be exactly a full second after 2 p.m. have raised any expert eyebrows? I would think it should, but since we're splitting hairs over 2, 5, and 7 milliseconds, a full second seems like a yawning gulf in time, by comparison.
 
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Kelsey Rinella
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For me, it's not so much old news as incomprehensible news. The only people to whom this leak would matter are so wealthy that they're playing an entirely different game with which I have no familiarity. I can't answer even the most basic questions about it: are there sides? What are the allegiances and goals? Do their goals even matter besides making more money, or does that concern swamp everything else? How does any of this relate to things I might care about?

When I hear about coalitions of the super-rich maybe getting advantages over each other, I might as well be hearing that the Bavarian Illuminati discovered the Higgs Boson.
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