How the Flash Crash Trader’s $50M Fortune Vanished
bloomberg.com
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I'm Canadian so the wealthy people AI know are either in finance or hockey players, and those that have lost money in areas outside their wheel house have all followed the same path.
1) Give money to a person they don't know very well to invest in a business idea they aren't an expert in.
There is no step two.
As a side note, i found this interesting....
> It wasn’t until Sarao left Futex in 2008 and struck out on his own that he started to make serious money. Public filings show his assets popped to 14.9 million pounds from 461,000 pounds in the 12 months ending in June 2009, long before he enlisted a programmer to build a system that authorities say was designed to cheat the market.
Not sure what helped more in his rise:
The 6 years he spent learning at another trading firm or the fact that on his own he probably had alot less risk oversight that allowed him to lever up more than he would have in side of an investment house.
> That near-obsessive drive to hold on to as much of his wealth as possible can also be seen in the way he conducted his business affairs. Looking to minimize his tax bill, he was introduced by his accountant to John Dupont, a director at the London arm of an Isle of Man-based financial advisory firm called Montpelier Tax Consultants
The best investment adivce I ever got was from my father. and I quote.... "Don't fuck around with your taxes any more than an H&R block adviser would let you. Getting a million dollar tax bills 7 years after you earned the money isn't worth it."
For a pro athlete looking at making millions for a few years and then facing a sharp drop-off thereafter, a Vanguard target date fund is probably not close to optimal. But you could do far worse and many do!
To answer your question, I personally don't know all the details about my Vanguard fund, though I understand the basics. But that's very different from a slick salesman in a suit selling me an opportunity to invest in Brazil in a high-risk high-return investment scheme.
This depends on the situation. If you get a bill in Y7 that is not significantly higher than the bill in Y1, it in fact would be worth it, because that capital could have compounded for 7 years.
Focusing on optimising your taxes is actually often worth it. I would dare say not enough people do it. But the more you optimise, the higher the risk becomes you have to pay it back. As with anything, it's risk vs reward.
At the returns this guy was making, it actually makes sense to defer paying taxes as long as possible.
I'd largely agree, people don't optimise their tax enough but large companies/corporations get away with it far too much.
It's a pretty big issue in the UK, the last figures I saw where Tax Evasion costs us 67bn a year (HMRC figures iirc) vs 1.8bn for all benefit errors (not fraud, that figure is errors and fraud).
We cracked down on benefit fraud massively... If I where a cynic.
That said: the more money you have, the more of a game it is. The rules get blurry when dealing with multiple countries.
If you were (or owned) a large company, you'd do the same. Or well, at least I would. Can't blame the game. Fix the rules.
There are many legal ways to minimize taxes. I might go a step beyond run of the mill tax accountant advice, but if you're getting advice from a guy who changes his phone number every week, that could be a bad sign.
I've met self employed people who don't even understand the difference between salary, corporate tax and dividends.
That's below the competence of an H&R block adviser. Having basic minimal competence is of course a good idea. But, the risk vs. reward from messing with your taxes is capped at a fraction of your income so there are generally far better risks to take.
"Rule No.1 is never lose money. Rule No.2 is never forget Rule No. 1." -Warren "Buff Daddy" Buffett
Also maybe worth mentioning the quote is based on a well known "2 Rules" phrase format. For example:
“There are 2 rules of life. Rule number 1 is ‘Never quit.’ And rule number 2 is ‘Don’t forget rule number 1.’” - Duke Ellington
and
"There are 2 rules for success. Rule 1: Never tell everything you know. Rule 2:.. ;)"
OK with that said, I wouldn't overthink the quote. Obviously you can't really guarantee you will "never lose money" and so it's not really a rule and even Buffett loses money sometimes.
If I had to guess what he means: I would say use the quote as fun/serious reminder to think about risk ahead of reward and remember concepts like margin of safety that help protect you from loses even if a stock doesn't go up like you expect and hope.
eg: You have $100k in your investment account. You have a bad year and lose 50% of your money, leaving you with $50k. You now need to have a 100% return in the next year to just make your money back, even though you only had a 50% loss. Seth Klarman, another highly successful value investor like Buffett is also a proponent of this way of thinking.
May I ask, did you read my full comment?
And do you know the definition of facetious?
I'm not trying to be rude, I just don't understand why you wrote what you wrote.
For example: when you mention "his mentor Ben Graham" did you think I had not heard of Ben Graham or that I didn't know he was Buffett's mentor so you added that too?
Granted it's possible I hadn't. Or maybe you wrote it as a courtesy in case other readers hadn't heard of him? I ask because you saw in my first comment I am quoting Buffett. Then in my reply to waqf I write about Buffett again, his mannerisms and his track record...So maybe I know at least a little bit about the guy. Maybe?
But then at the end of my comment I not only write the concept of "margin of safety", I put it in italics to emphasize it. How did you see that and still wrote what you wrote?
How can someone know the concept of Margin Of Safety and not know Graham? Margin of Safety comes from Ben Graham. "Margin of Safety" is the Title of Chapter 20 of his book The Intelligent Investor; where Graham explains what it is in detail. Plus he just talked about MoS all the time and called it the "central concept of investment". MoS is Ben Graham.
Also heads up. Margin of Safety is also the title of Seth Klarman's whole book. Have you heard about Seth Klarman or his book Margin of Safety? After reading your comment in full I am guessing you may have. If you haven't, it's worth looking up and has an interesting story attached (at one point the book was being stolen from libraries and going for thousands of dollars on eBay. Madness!). Also if you are into investing of any kind, not just value investing, I recommend reading the book. Very good.
Anyway sorry if this is weird or rude or has gotten too long. I'd really love to understand where I am not writing clear enough. Thanks.
Also as for "facetious". Seriously look up the word. If this is a real rule how do you follow "never lose money"? I'll wait.
In the meantime a rule is a prescribed guide for conduct or action. Someone can lose money from forces out of their control. It's like telling someone "Rule 1 of driving: Never get into a car accident". That's not a rule. You can't follow that rule. Someone could hit you even when you are driving perfectly. Rule broken. A real rule would say something like "always drive the speed limit" or "Never text and drive". Those are rules you can follow or break. I'll let you figure out the real rule here for Buffett (hint look in to Chapter 20 of Graham).
Lastly, your example about how if you lose 50% you now need to earn 100% on that to get back to where you where you started is something I see brought up often. It is sad and it is fucking stupid how it gets talked about. This is not some investment concept from one of the greatest investment thinkers in history nor his mentee. Ha, if only. What you are describing is just a basic math concept. Most people learn this in elementary school I believe. Kinda shocking sometimes how proud and confident people who are new to investing become of themselves when they realize they understand how percentages work and percentages work normal and as expected when talking about the monetary value of something changing too...
Does "X times 0.95 times 1.05" = X"? Of course not.
Replace X with your $100k portfolio, 0.95 is -5%, then 1.05 is +5%, does mathematics still work? Still not equal? Obviously.
I know people are trying to help others when talking about all this stuff. I am trying too. And Caveat emptor and all that. Don't believe everything you read on the internet. But it's a bit frustrating at times to watch and sucks when people lose their hard earned money when they try investing based on bad or misleading information they received; especially when good information that is written well is out there and free to read online or at a library. On the other hand I'm sure there are more than a few folks who are very happy when idiots try investing without doing their research first so they can take the other sides of their trades...Margin of Safety is so important and this is a real investment concept and it actually needs to be learned, but be warned it will take more than a minute to understand it. Passive ETF much less work.
TGIF :)
In regards to this quote, this is why hedge funds are so protective of their "secret sauce". At a fund I worked for, I saw an employee sued in federal court for intellectual property theft 4 hours before he was terminated. Criminal charges followed a few months later. (Don't email source of a quantitative trading system to your personal email, lest you want to be jailed & unemployed and untouchable by the rest of the industry).
If you're shooting for 10% per year and you lose 5%, you need to then get a gain of more than 5% to get even again, pushing you to take worse risks.
Hence, by simply focusing on a strategy of "Not losing money" you can come out ahead.
This was also the original Hedge strategy where you short some stuff and buy some stuff so you can get some of the gains without participating in all the losses. For instance, if you can capture 70% of market ups while only taking 70% of the downs, you'll beat the market.
Is not correct.
Anyway, it's a bit too harsh to downvote. He's just answering a question, and correctly says if you lose 5%, you need to make back more than 5% to get back to even.
https://blog.thinknewfound.com/2016/05/the-asymmetry-zone/
Literally, plot daily gains vs daily losses of S&P. If you only take 70% of the losses but get 70% of the gains (so multiply each win/loss % element in the series by 0.7, and apply the new sequence to a portfolio balance), you'll end up doing better than the market.
How about this, below is the link to the data (S&P 500 daily returns), whoever is right will donate money to an education-related charity at 70% of the dollar amount donated by whoever is wrong. So for example if you are correct, I will donate $100 and you donate $70, and vice versa.
Trader? Risk taker? For charity?
Here's the link: https://fred.stlouisfed.org/series/SP500/downloaddata
Happy to chat about it more if you want. But just intuitively and quickly everyone should be able to see why one can't say an equal 70% up/down capture ratio will just beat the market...
1. let's agree the market can do whatever the hell it wants. Up, down, whatever.
2. Imagine a market is down -5% and then up 10%. According to your story and capture ratios, when this happens your portfolio is down only -3.5% and then up 7%. Right? 70% of the down and 70% of the up?
I think you will find in just this example the market beats your portfolio by more than 1% here. This is just a simple example and I am being generous. When you look at real data you will not only find a similar pattern, but your portfolio gets absolutely crushed by the market.
Maybe an even quicker intuitive answer: If a 70% up/down capture ratio portfolio will beat the market, why isn't this a huge thing and everyone sells/changes their regular full market S&P 500 ETFs to do that?
> I think you will find in just this example the market beats your portfolio by more than 1% here. This is just a simple example and I am being generous. When you look at real data you will not only find a similar pattern, but your portfolio gets absolutely crushed by the market.
Here's a python script that generates random numbers to simulate the stock market. Each time you run it, you'll get a different result: http://pastebin.com/UNtDPjxd This is basically your "simple example" run many times side by side. Sometimes a hedged strategy works better; sometimes not.
The place I got this idea in the first place was a book I read in college about the history of hedging as a strategy. It noted one of the earlier demonstrations of why it's a good strategy was when a fund showed that participating in 70% of the gains/70% of the losses of the S&P beat the S&P. But which years? This matters. Unfortunately, I can't find the book anywhere. IIRC, I think we'd be talking about a stretch covering the 40s, 50s, 60s.
This is similar to how Milken pitched the junk bond -- it was originally based on a paper that showed a balanced portfolio of low rated bonds performs better than a balanced portfolio of high rated bonds (this is explained in Den Of Thieves). This was true back then because low credit ratings were so heavily discounted by market conditions (mainly, nobody wanted to buy them).
> why isn't this a huge thing and everyone sells/changes their regular full market S&P 500 ETFs to do that?
For the same reason that no one is pushing a diversified portfolio of junk bonds anymore; what worked in the past doesn't necessarily work in the future.
Dave, Hacker News has some of the smartest commentary I found on a News site. Questions on here regularly have people answering them where that person has experience, worked in that field professionally and have studied those topics in school and have degrees in them.
I realize this is the internet, expectations are low. People troll. Even if you wanted to help, why not wait a minute before answering to see if someone more informed or more experienced, than a book read 10 years ago will have answer. It's more a courtesy to the person asking as they get a better answer, and it stops you from looking like an idiot. Win-win.
As you might know, daily rebalancing leveraged ETFs (say, 2x or 3x) are basically a bad idea for long-term investments, because they are (simplistically) short vol. So, they might outperform the (non-leveraged) index/ETF if vol is low and total return over the period is high. But typically, with normal or high vol, or over long periods, they underperform non-leveraged.
By analogy, a less-than fully invested ETF/trading strategy that's basically "0.7x" leveraged will beat the (non-leveraged) index/ETF in certain trading regimes (where total return over a period is negative or modestly positive, while vol relatively high).
Maybe neither? As good as this kid might be, hard to believe he did a 30x year! Even with more risk and there was some crazy volaility back then, a 30x year going from half a million pounds to 15 million in 12 months is very high.
Never know of course. He might have done it. theoretically possible with the exotics CDS in that year. But also hard to trust journalists aren't just twisting facts these days.
Another explanation for the rise: He already had several million while working at the firm, but they weren't in his name, not in a public filing anyway until went out on his own and took out the funds.
see e.g. Taleb "fooled by randomness"
there's also a good "winner's game" vs "loser's game" argument, see Ellis - The Loser's Game: http://www.cfapubs.org/doi/pdf/10.2469/faj.v51.n1.1865 (PDF)
Options trading, which he was good at, went haywire on that day. Anybody in a decent position with options made crazy returns. But their timing had to be good. If you bought a short-dated, just out of the money SPY put the day before, and sold it that afternoon, you made a killing as far as percentage return.
The number of people who had that or similar trade probably numbers in the thousands. But the reason you don't hear about them is it was either to hedge a larger position, or a small speculative position, and making $50,000 doesn't make headlines.
Second: the 30x return discussed was back in 2008-2009. The flash crash you are talking about happened in 2010. Also the SPY moved down like -10% during the crash. Bro, come on.
If you had bought out of the money puts with a near term expiration for an index like SPY and it dropped 10%, you could be talking 80-1000 times return depending on how far out of the money and how close to expiration.
Disclaimer: I do not recommend out of the money options trading for anything other than pure gambling on money you couldn't care less about losing.
Just to be clear, we are talking about a 30x return in someone's entire net worth, in 12 months, from trading.
I didn't say you couldn't construct a perfect hypothetical trade that in hindsight would have earned someone a huge 30x or 100x return or whatever. Not sure how that's even relevant though (unless maybe you trade from home and buy those expensive mega-ultimate-dragon options trading online skype courses and still think such trades are even worth talking about).
I didn't even say a 30x return of his net worth was impossible, I said it's "hard to believe" and "very high'.
But apparently a 30x return "is easy" and this guy has done it twice...
OK. Well it's been fun. HAGW everyone
P.S. I appreciate chrisatumd's disclaimer, nice to see, and a good reminder that investing and trading is gambling and you can lose it all, whether you're an amateur or pro.
Re: story, I've casually followed his story. I'm also very dubious of the allegations against him and claims about his performance.
"Easy" means that it's not technically hard to do. For instance, anyone who's lucky enough can win 30 times their money in roulette. It's "easy", but rare - only 2-3% of people do it.
For contrast, "hard" to me would be something like trading gamma-delta option spreads.
Technically, just about any investor do the former (although they'd have to be lucky), while few can do the latter.
Final point - I consider being lucky consistently is damn near impossible (although statistically, I guess it happens to a few of the 8 billion people out there).
I've never traded futures, but I've seen with the amount of leverage that options provide makes the story quite believable (easy was probably not what the prior commenter meant).
It's simple if you have the talent.
E.g. here's a person who deposited $1000 in cash into a trading account and wound up with $100,000 after just 10 months of trading. That's a 100x return.[1]
Think of how rich that person could have been had she decided to continue her trading!
/s
[1] https://en.wikipedia.org/wiki/Hillary_Clinton_cattle_futures...
http://finance.yahoo.com/quote/DB170217P00017000?p=DB170217P...
Here's a PUT option on WMT (Walmart) that moved 35x also this morning:
http://finance.yahoo.com/quote/WMT170217P00062500?p=WMT17021...
Here's an option on CL (Colgate Palmolive) that moved 8 this morning as well.
http://finance.yahoo.com/quote/CL170217C00077500?p=CL170217C...
SOMEBODY made money today on these, and the market hasn't been open for an hour yet.
Before calling my comment "ridiculously incorrect", I would appreciate it if you would show a better understanding of capital markets.
Greed and ego.
If you're making trades frequently, you're probably (as shown by research) throwing that money away.
There are always things that go up, and others that go down, but a well constructed portfolio will do more of the former and less of the latter. Annual rebalancing then buys the cheaper asset (by definition, on a relative basis, the cheaper asset is bought and the expensive asset sold when rebalancing).
And yes, it is actually that simple. The problem is (as someone else on this thread had posted): fear and greed. If you can ignore that, you can do well.
I'm pretty sure that's the first story in https://en.wikipedia.org/wiki/The_Richest_Man_in_Babylon_(bo...
Old, old advice.
I really doubt though that the amount he presumably won (much less than $50M) can be responsible for a significant financial event such as a flash crash at a world's major stock exchange. I suspect high frequency traders regularly affect markets in a much more significant ways (e.g., I think generating large volume via zero-sum trades than withdrawing from trading could cause significant pricing swings).
An aside: I've always found sentences such as 300 years to be absurd (unless they run concurrent). Why not just call it life and be done with it? Or, is the judge trying to make a statement like the judge in Texas that recently set bail at $4 billion for an accused murder (who turned his self in)?
And if the guy was such a frugal person focused on capital preservation/building his bankroll why did he take $ out of his 30x trading account and put them into 11% safe "real investments"? Just all smells pretty off to me (reminds me of the MF "vaporized" moment).
It was a large reason for the crash (though not the only component in my opinion) because these orders amounted to $200 million worth of bets that the market would fall and they were replaced or modified 19,000 times. And of course this is just one person. The market involves multiple people so you can imagine how much money was at stake here.
HFT generates and cancels orders on magnitudes like this all day long, but they have to be allowed to do so because it "creates markets", whatever that means.
No, they are allowed because HFT firms have the intention to (and in fact, will gladly) trade.
Whereas spoofing is placing orders that you don't have any intention of filling. The only point of the orders is to move the market, rather than to actually make trades. And that's the thing that's illegal.
does such a thing even exist anymore?
And he had a separate account that would trade the market distortion.
His big orders weren't the best bid or ask. They were a few orders deep in the market.
Basically people and machines would jump further in front of the big buy or sell order with their own orders, and move the price in a direction. His smaller account would make profits from those trades.
Yes you could affect trillions of dollars of derivatives and the sentiment of the entire market with just a few dozen millions.
It is still a widespread practice and tough to prove. But spoofing was made illegal in the Dodd Frank Act. So if the government can nail some easy cases and create case law, then they could think about going after the banks that do it. Emphasis on think.
People like that guy should be rewarded financially for making it unpredictable.
You don't want to have an economy where only a tiny group of powerful people understand what's happening while 99.99999...% of the population are at in the dark and at their mercy.
A fair system should be simple enough to be understood by everyone or complex enough to be understood by no one - Anything in-between is not a fair system.
Uh, yeah they should. To someone with perfect knowledge, a proper free market should be 100% predictable. It's only unpredictable if other people know things that you don't (and the market itself is the vehicle by which that knowledge is disseminated). Introducing uncertainty into the market without introducing knowledge into the market is a bad thing. And spoofing trades in order to move the market isn't providing any knowledge, and it is in fact making the market less efficient because it no longer matches the knowledge of the participants.
Which is to say, if you have perfect knowledge, you might be able to prevent the spoofer from reaping the benefits of their spoofing, but you won't actually have harmed them, and of course the effect on the market is just as bad as if you let the spoofer spoof in peace.
Also, I would assume spoofers don't typically place orders in illiquid markets, precisely because they risk having someone use their new order as a source of liquidity. I mean, spoofers don't actually want their orders filled. Plus, the whole point of the spoofed order is to trick market makers into moving their positions, and if the market isn't liquid then clearly there's no market makers (because if there were market makers, then the market would be liquid), and if there's no market makers then spoofing isn't going to work to begin with.
I can point out many significant inefficiencies in the system - E.g. Nepotism (allocating employee rank and pay based on social connections instead of skills/results), executive bonus structures which favor short-term gains over long-term gains, monopolies which make companies complacent and employees less productive, other anti-competitive behaviours - These factors allow large, inefficient companies to beat competitors in the market in spite of significant internal inefficiencies.
Anti-competitive behaviour will probably always exist in the markets; it's part of human nature and it's basically universally accepted except in the most extreme cases (E.g. antitrust cases).
Maybe if humans become smarter and more psychopathic (like in the novel 'Atlas Shrugged'), then we could have an efficient market, but right now, I think it's very far from efficient.
Maybe it's efficient on a human psychological level (from the perspective of an average trader/investor) in that there is some sort of universal consensus about the value of everything. The problem is that this consensus is not rooted in reality but on a superficial, socially-constructed representation of it - That means it's not necessarily efficient in terms of maximizing the output of companies and the happiness of their customers.
These two statements don't seem related. And I don't understand the first one anyway. Where does "fairness" come in? It doesn't seem unreasonable to me that one person who has perfect knowledge about a financial market would be able to make money that someone who doesn't have perfect knowledge wouldn't. And it seems quite "fair" to me that this would be so; why should the person with better knowledge not be able to benefit from their better knowledge?
Is there a law that stated/states all trades need to be with real intention to buy?
How can they prove that intention? Even if an indicator is actually having the amount of cash to finance the trades, that could be covered as well.
Lastly, is it not the responsibility of the people receiving the trade orders to not let the new trade information out or do anything with that information themselves which would affect the market until the actual trade takes place?
We're not talking about trades, but rather the illusion of an intent to trade, when really there is no intent, and pushing that illusion onto the world to give the market the impression you will trade that amount, causing other market participants to react accordingly, which causes the market to move in the direction you wanted. Then you cancel your planned trade and profit off the move you manipulated.
That's the gist of it, and yes there are laws against it.
But is it a common sentiment that you can be charged with anything by a district attorney?
Pretty much. If you piss them off enough, or if they are trying to get elected to something else and think you are a good way to do it, then yes, they will charge you with something and keep going at it. (See: Aaron Schwartz).
I think it's safe to assume that this is not a "one daring bet" kind of manipulation, like e.g. badly disguised insider trading could be, it is rather wealth by a thousand papercuts. The pattern is very unlikely to be worthwhile without excessive repetition and there are only so many million times where you can believable claim that you wanted, then you didn't, and than you wanted the opposite, all in carefully timed lockstep.
Genuinely curious of your thoughts!
Posting an order is a statement of intent. If you allow a machine to post those in your name you take responsibility for the claims made by that machine. Discovery of that "one magic trick" by ML reminds me of the way toddlers learn all kinds of mischievous "life hacks" like "I can reach goal X by dropping object Y" before they start to respect more cooperative forms of interaction. I am skeptical of allowing toddlers on the trade floor. And if you did allow then, you would want to have mechanisms to make their parents take responsibility while their children are not yet able to.
If the decision-makers at the exchanges running the show were not so much closer with those trading for trade than with those trading for actual ownership, they would have curbed this abuse very early. Maybe by introducing a sufficiently low upper limit to the volume of offers that can be cancelled (relative to the volume of offers that are followed through), or some form of progressive cancellation fee that would protect the market from this form of abuse. The observation that only external supervision put an end to it (instead of the "house rules" of the exchanges) makes it difficult for me to dismiss as paranoid the claims made in the discussion here that he just lacked the right friends to pull this off.
Obviously they cannot. It's basically subjective, and it looks like Sarao just got too greedy.
The CME does enforce rules about trade executions, that the ratio of orders placed to orders executed does not get too low (like 1/30 or something.) I'm guessing Sarao just placed a small amount of large-size orders to get around this.
The whole thing kind of surprises me as I think it is well known that there are plenty of algos that place orders with the sole intent of enticing/manipulating the market. But as I said, it's not really something you can define objectively.
EDIT: I did a bit of reading, yes, Sarao placed orders for massive size on CME. Big kahoonas for sure.
Reliably determining intent is just about impossible, but it doesn't stop the courts from trying.
Like many things in life, there are complete bullshit situations where some people get a better deal than others simply due to some arcanery. Are doctors in America 4x better than European ones, or are residency spots artificially restricted to keep salaries high?
The world has less and less parasites every day because technology allows us to see them for what they really are. This is just one of the many
If a hedge fund behaved the exact same way, they'd get in trouble for it. That is, if Renaissance Technologies decided to do spoofing on 99.999% of its market action, they'd get in trouble for it. Hedge funds doing high frequency trading, is not the same as spoofing.
https://www.bloomberg.com/view/articles/2015-10-08/why-do-hi...
The reason this gets prosecuted is that it's an easy target for the exchanges to make it look like they care. They are now publicly-traded companies interested in profits first and foremost--not market integrity (which maybe used to be the case--different discussion).
source: 25-year vet of futures markets, the last 10 in HFT; many many millions of orders and executions
what about buy-and-hold investors who don't do anything to deserve that ? Why should they get unnecessary volatility in their portfolios just because some get-rich-quick kids want to treat NYSE like its Mortal Kombat?
> if people are so stupid as to move their orders trivially based on others' actions
Then why show level 2 quotes at all ? Isn't your argument equivalent to "level 2 information is useless"? If not, then people wouldn't be stupid for using it, would they ? Would you trade in a market that only had level 1 quotes ?
Yes, "flash crashes" exist, and normally because of liquidity disappearing. Yes, algos are basically sheep that all bail at the same time. But overall, the net effect is massively beneficial to everyone except lazy traders (which include fund managers who miss the days of getting lots of steak dinners from their favorite brokers).
The "average investor" doesn't need L2, and doesn't care what it says, including flashing "fake" orders.
I thought true HFT (not short-term momo, etc. where the intention is to actually take risk) had essentially died already, Virtu aside
The stock market cannot go to 0. It is literally impossible. If you are invested in the fortune 500.. and the value went to literally 0.. we are in a zombie Apocalypse. Money no longer has value. So yes I lost all my investment, but I also don't have a job, and a gun is my most valuable asset.
Buy and hold = Buy big index funds (i.e. Fortune 500), and then never ever ever ever sell, until you are ready to spend the money (i.e. draw-downs in retirement).
Trying to go "oh the market lost 20% this week, it is going to 0 soon" is a fools investing.
Flash crashes massively hurt people who invest in particular stocks because they do often have exit points which get triggered by those crashes. The advice you're giving doesn't apply to these people, they're not the ones just dumping everything into an index fund.
In a general sense though I agree that the behavior shouldn't be illegal but am fine with exchanges implementing rules about it. For a trade to occur both the buyer and the seller are getting what they want at a price they both deem acceptable. Phantom orders does not inherently change that.
Later, you find out that one of the most aggressive bidders in the auction was actually just a buddy of the seller, trying to increase the price in his/her favor but avoid at all costs actually winning the auction.
You'd probably rightfully think this was unfair, and this is exactly what spoofers are doing in an electronic market. They are generating the illusion of interest to buy or sell, without the intention to actually do so, in order to move the market in their favor.
If we are playing poker, and you cheat, you have stolen my money through fraud.
Certainly if I cheat at a casino, I'm likely going to jail.
Also, perhaps there is a differentiation between working within the mechanics of a system to cheat, and going around a system to cheat. An example from the esports league would be the difference between using a corner case to shoot through a wall, versus hacking into the server and modifying the code.
That isn't the definition of stealing. In fact I would argue, while it is dishonest, it isn't stealing in slightest. Stealing means you took something, without agreement, that rightfully belongs to someone else. The scheme is more accurately described as fraud than stealing.
I'm not going to bid more than the car is worth to me.
It's also interesting the article refers to Sarao as frugal. If he was really frugal it seems like he would have said that X amount of money is enough and stopped risking it all. Scary stuff!
I rent a flat (apartment), I only own jeans, t-shirts and pullovers, don't own a car, own second hand (but good) furniture.
I'm trying to remember the last time I spent over £50 on anything that wasn't a gift for someone else and I really can't, perhaps my weight set about 18mths ago.
I'm just not attracted to stuff or to signalling via it.
Social pressure is often largely self-inflicted.
-By safe, I mean probabilistically possible in a sample of x traders.
just change the weights closer to lower B's and some C
or sprinkle a little leverage on Vanguard's non-junk fund for the same yield
>long before he enlisted a programmer to build a system that authorities say was designed to cheat the market.
What exactly was the system doing to "cheat the market"?
Except that it's scams and assholes all the way down.