The Trades of a Lifetime in 20 Minutes | Hacker News Reader

The Trades of a Lifetime in 20 Minutes

nytimes.com

28 pointsjfi35 comments

Actually the people who bought at .01 got screwed; when the buy at .01 gets cancelled then you are suddenly in a short position if you've already sold the shares, and you'll have to cover.

...if you held the shares past the 20 minute cancellation window, right?

Quite the opposite. If you did not hold the shares past that window, then you'll end up in a short position.

Okay, I'm missing something. I buy at 0.01, then sell at 40.00 during the window. My buy and sell transactions both get cancelled, so how am I out anything?

I can see the guy on the other end of the sell transaction getting screwed, but what happens to me? I can see what you mean if I bought at 0.01 to cover a short, but I'm looking at a simple position.

Oops, you're right.

This was the first thing that sprang to mind as I read the article. How can this be their policy? How can the Nasdaq be so cavalier about this?

"Better luck next time, please come again!"

Even in a casino you get paid when the dealer makes a mistake. The gamblers wouldn't stand for anything else: they put their money at risk. It's only the crooked bookies who don't pay out when a big underdog wins. But even the crooked bookies try this this on the wrong people eventually, with all the expected consequences.

>Even in a casino you get paid when the dealer makes a mistake.

Perhaps, but I've seen article after article that says a "software glitch" caused the jackpot on some slot machine and they refused to pay out when a player hit it.

60% seems pretty arbitrary. Any idea where this number comes from?

Well, it is arbitrary. The problem is not so much that this particular threshold is arbitrary, but that the rule was made after the fact.

For what is worth, in Japanese exchanges the price of any stock cannot go up or down by more than a pre-defined limit. For instance, if Sony's closing price was 100 yesterday, today the lower and upper limits would be 80 and 120. If the price goes down to 80, Sony stops trading. That's a kind of interventionism and some people don't like it, because you might have the stock and there might someone willing to buy for 79 but you can't sell it. But the limits do prevent wild volatility, and it's well known that they exist so everyone can take it into account.

maybe there were a limit order from nyse high graded manager at 59% of the last trade of one of the stocks and he likes to don't have to work again for the next couple of years.

But this demonstrates well the advantages of options and other instruments that were not traded on an exchange. Even just for hedging sometimes there are more profitable than the lowest limit order.

that's pretty ridiculous conspiracy theory!

here's more knowledgeable answer:

http://www.cnbc.com/id/37019184

As near as I can tell from talking to market participants, there is no rule on this. This appears to be a compromise reached among the electronic markets.

But why 60 percent? Why not, say, 40 percent, or 30 percent? Not clear, but one obvious answer is that there are a lot fewer trades that need to be busted when it's at 60 percent versus say, 40 percent. This saves a lot of grief.

An article full of children's words: 'Lost', 'Won', 'Players', 'Game', ..

Nobody will ever convince me that everything is alright with this type of trading, where lottery-style winnings are praised. It's not even about being a shareholder in a company you identify with, it's just about gambling at high stakes. It just shouldn't be this easy to make or lose money. It's the same disregard of reality that caused the investment banks to tumble.

How will we ever get back to sane investments with good intent for the businesses in question?

well. what do you propose?

A transaction tax for every trade. The money could be used to fund future bailouts of the financial firms. This idea courtesy of Mark Cuban.

The easiest way to eliminate HFT in particular would be to quantize the trading day, so that trades don't occur "when they occur," but rather are rounded to some integer-valued timestep. It seems to me, though, that most of the problem with the stock market is in its secondary products—indeces, futures, etc.—and that the simplest thing to do would be to ban the sale or creation of any tradable commodities linked to a stock's value.

the simplest thing to do would be to ban the sale or creation of any tradable commodities linked to a stock's value

this sentence doesn't make any sense to me

It means "ban index funds, stock futures markets, hedge funds, and every other imaginable thing that is basically a service provided by a proxy who buys a set of stocks and then gives you money if they do certain things." Stocks themselves represent interest in the company's financial welfare; these other things are abstractions, and the people who buy them are too many steps away from the actual company to care what it does, even though, by purchasing those abstractions, they are indirectly affecting those companies.

I'm afraid I don't have a superior alternative to current system. After all, the more regulations are placed, the less free the market is..

Who knows? Maybe one day, when a civilization is born again, people will have the knowledge to see that the currency is something that represents value and that there's something inherently wrong with making money out of money.

We have to deal with things as they are for the time being though. I just can't stand it when this disconnect between the real world and capitalism burns down decent companies and results in millions of people on the fringe of social security being pushed off the cliff. Why is it we take the few success stories, parade them, and ignore the cruel reality of all the victims? Maybe I don't have a solution, but we have to keep pointing out the flaws, otherwise people will simply adjust to a more and more twisted environment.

I don't want to compare apples to oranges, but remember that kingdoms were overthrown because of 10% tax (among other things of course) during the Medieval times. The lion share the state takes these days hardly matches my mother's benefits now that she's being fired after thirty years of manual labour, for a company that had their capital in the wrong markets.

So.. I guess she's still better off, with running water and electricity in tact. But have we done anything to pull the developing world out of it's misery, or isn't it worse off than the farmers in Medieval Europe, who at least had their fertile land to depend on?

We have to maintain our perpective on the negative effects of capitalism, whether or not there is a better solution at hand, so we can perhaps some day through criticism, constructive criticism and brilliant innovations evolve this system before it devolves us to a lesser kind.

I'll start by voting suggestions in this thread by people more educated than me in the area of finance. Somehow, ideas tend to bubble up when they're shared and endorsed.

I respect other peoples right to have a different opinion. However, I'd feel a lot better if opposing views were expressed in comments, not by merely voting down a comment. It's kind of hard for me to even distinguish which part of the comment was considered unworthy of this message board :-)

And what about the people who lost a lifetime of money in 20 minutes?

They got most of it back in the next 40 minutes.

Not if they had set stop-loss triggers to protect against a large loss. That works well for a slow falling stock, but it doesn't work for a plunging stock. The stop-loss for Accenture might have been $15, but by the time the market order sale was executed, it could have gotten down to $1. Unless the stop-loss was immediately followed by a limit order, all the value stored in that stock would have been wiped out.

In which case this would be bad luck for any individual who happened to have their life's savings in Accenture stock with a stop-loss order placed on it. I doubt this covers too many individual investors, though.

...and that trade would be canceled.

if movement was larger than 60%, which in most cases it wasn't.

The example specifically referenced stocks going down to $1 from $15, so my statement holds true for what it was in response to.

True, and I'm sorry, it wasn't my intention to dispute that. However, NASDAQ cancelled trades number is 286... 286.

that's why you don't use stop loss, only stop limit!

Actually, just to clarify, all the transactions in the 'fail window' are going to be cancelled.

no-one makes anything.

I can't wait for the law suits over this, at lot of money has been lost and it is (assuming no faul play on the parts of investers) clearly because of the exchanges.

Whatever money was 'lost' was also 'found'/gained/(won since this is gambling), and the people that make the rules are the ones that won, so...

Why am I getting down-voted? Institutional traders cleaned up because of this, the people that got screwed are the ones without the power to effect any changes to the system. The only way there would be (successful) lawsuits is if the situation were reversed.

Because your statement stinks of misunderstanding and lack of knowledge about how the markets function. It's anti-market populism looking for reinforcement. If you have some data or evidence that institutional players reaped great reward because they have undue influence I'd love to see it.

Well considering even the people with access to all the data on what happened still don't know exactly what went down, it'd be a little tough for me to prove anything. What we do know is the only people that were able to make trades were the institutional investors with access to the best (and fastest) tools, HFTs are designed to skim fractions of %s off trades and thus since there was a ton of volatility they would've cleaned up, and really- how could anyone have won but the big boys here? The real losers here that got screwed are ones that couldn't adjust their positions and had stop losses, or people that tried to but were ill-equipped, etc. The institutional investors were (most likely) on top of this, and able to reap the benefits- your Average Joe investor was not, and neither was your grandpa's pension fund. I may not be able to provide proof, but that's because no one (to this point, that we know of) can provide any proof either way.

I'm not anti-market, I'm pro free-market, and unfortunately what we have is not a free-market. Oh, and I'll get back to you with that data and evidence once the SEC hands it over to me.

First, You can believe anything you want, but I'm surprised you're making such claims since even you admit you have no data to back them up.

Second, All "high frequency traders" are not the same. In fact, using the term doesn't really mean anything apart from some time oriented description of trading. Some will profit from volatility, others won't. In fact, Tradebot has already said they stopped trading for the day because of losses.

You're assumptions about "Average Joe Investor" and institutional investors are quaint. That's about it.

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