6 replies to this topic

[Rogerdodger]

James Quillian laments computer generated program trading.
This article suggests historically low volatility is only one effect:

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While computerised trading cannot be blamed for all the froth in the markets at the moment, it is certainly a factor.
When trading volumes are low across the market the capacity for the trading programs to mis-read the market is exaggerated. Many of the systems at use are not programmed to take account of the lower trading volumes.
If the algorithms being used to place big chunks of shares begin to get things wrong, that in turn causes other electronic funds to make mistakes.

The volume of trading by black-box systems in the UK market has tripled since the middle of 2005, according to Goldman Sachs. The effect has been remarkable. With the computer systems disguising all the big trades in all the big stocks, the volatility of shares in the FTSE has tumbled to historic lows.

"We've not quite got to the stage where the computer programs are starting rumours," says one trader. "But some of the systems out there will pick up on any increase in trading volumes that come about as a result of a half-baked rumour.

If those programs start buying, then other programs that follow prices might start to flag it up. If you're not careful, you can find that the computer programs have been trading against each other."


Dresdner Kleinwort is trialling a system called Stealth, which it believes can buy or sell shares in small, illiquid companies without anyone noticing. Credit Suisse has a similar system called Guerilla. Goldman Sachs has a system called Sonar, which finds spikes in trading volumes to smuggle through trades.

"Sniffer" software is being used to find other software at work in the market in the hope that it will pick up trading opportunities. Getting the best price in the market has become a technology war.

"Algorithms are certainly helping to increase trading volumes overall," says Eli Lederman, the head of electronic trading at Morgan Stanley. " Algorithms have changed the market structure - now you need to use algorithms to negotiate the new marketplace.

Spreads have narrowed, commissions have come down and high frequency market dynamics have taken over. Trading desks would have to be staffed at outrageous levels to deal as much and as quickly as one has to now."

[GOOSE2]

All I trade is SP futures and you see it (computer programs) everyday. I'll actually say out loud "WTF was that? darn programs!!!" LOL

[Rogerdodger]

The volume of trading by black-box systems in the UK market has tripled since the middle of 2005

That's TRIPLE in less than 2 years!
You just get the feeling that this will end badly.

[SemiBizz]

Another catastrophic system failure setup... Once it starts going to be hard to stop it, computer generated program selling will eventually trigger program curbs now set to kick in at near disaster levels... that will come just in time for the human participants to continue the selling as they are scared out of their wits.

[Rogerdodger]

And all the perma bears will say: "See." Pull up a 5 minute chart of INTC or SMH as well as several others. I have been observing a big volume spike almost every day at the close. I guess that's the computers.

[Jnavin]

I don't think this about trading at all. This is about hiring the most elite students from the most elite schools and assigning them tasks. PhD's in statistics vs. PhD's in statistics is a draw, a wash, a non-event.

[...]

The entire article is a joke. Big deal, computers auto-trading versus people auto-trading. Less emotion equals less volatility, but markets are markets. They'll go where they're going regardless of minor jigs and jogs caused by whatever or whomever. And, guess what? The programs were written by people, so you can be guaranteed that half of them will be wrong.