tag:blogger.com,1999:blog-7366878066073177705.post1103299438216272598..comments2024-02-09T18:16:45.614+00:00Comments on The Psy-Fi Blog: Knight, Knight, Automated Trading Dreamstimarrhttp://www.blogger.com/profile/06254802085744425067noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-7366878066073177705.post-49600987803749190852012-10-31T05:46:04.823+00:002012-10-31T05:46:04.823+00:00<a href="http://investmentcapitalsystems.c...<a href="http://investmentcapitalsystems.com/>Automated trading systems</a> has never been easy in this era, try Investment capital Systems software and see the difference.investmentcapitalsystemshttp://investmentcapitalsystems.comnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-27267671072574645112012-08-09T15:03:41.381+01:002012-08-09T15:03:41.381+01:00"none of this seems to contribute to the tota..."none of this seems to contribute to the total sum of human happiness"<br /><br />Not sure about this. How much does the ability of brokers to offer a cheap, effective service depend on their ability to very rapidly hedge against individual investors?<br /><br />If I, as a broker, end up exposed, rather than stopping my customers from doing what they want it's much better for all parties if I can hedge. Obviously, if I got a thousand customers, I'm placing and cancelling orders very rapidly, all the time as my book swings one way and the other.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-9032896951038815572012-08-08T09:13:00.376+01:002012-08-08T09:13:00.376+01:00As a more conventional fund manager we welcome dum...As a more conventional fund manager we welcome dumb, fast or automated money in the market. It offers an opportunity for our investors to pick up stock at prices that woudl otherwise be unavailable. <br /><br />The last thing any fund manager wants is a market that is 100% rational and perfectly priced.Robnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-59433417753847329782012-08-08T08:30:05.257+01:002012-08-08T08:30:05.257+01:00Sounds highly likely, I've seen multiple examp...Sounds highly likely, I've seen multiple examples of test software and scripts being accidentally deployed into live environments. It's usually a mess. Still, as you say, it really still comes back to process: and, as you say, most process is developed one error at a time. <br /><br />However, I think there is a difference with electronic trading: if a Navy fighter crashes then that's usually an isolated incident and can be learned from. If an automated trading system goes haywire then you might have the equivalent of planes falling out of the sky all around us - it's more like the automated aircraft identification system going wrong than an individual and localised error. It's (sort of) OK to learn the lessons one aircraft at a time I'm not sure we can afford to learn the lessons of this one airforce at time :-/timarrhttps://www.blogger.com/profile/06254802085744425067noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-75339221711987898972012-08-08T06:24:16.263+01:002012-08-08T06:24:16.263+01:00Good theory, truly. I really like your ideas here...Good theory, truly. I really like your ideas here. However, in this case, it appears to have been random chance that the rogue order injector ("tester" in nanex parlance) was stopped before depleting some multiple of Knight's capital. The excess loss (above it's own total capital) would have been absorbed by some other entity in the system, not just the offender's employees and shareholders. The tester theory of what happened is quite interesting, especially the difficulty of detecting what was going on by those who were unaware that the program had been launched. Consider the irony: the RLP aspects of the Knight trading system were in all likelihood extremely well tested and robust, and suitable for release into the marketplace. Tested by the tester, which created arbitrary patterns of possible order flow against the RLP software in the lab. But inadvertently launching the tester to spew liquidity-taking orders into the real market (not the lab) caused the hidden mayhem. They were literally losing the spread (and influencing it to grow) 100 times a second, in about 150 stocks. That's all it takes to lose 440M in 30 minutes. The tester itself probably worked flawlessly, it's a simple program. One error, if this is all true, is that they should never have allowed the tester to spew legally formed order messages. But then again, that would not have tested the RLP program against the actual bit streams it was going to see in production.<br /><br />I have a friend, a former Naval pilot who flew radar prop planes off aircraft carriers in the Mediterranean during the Vietnam war (relatively good gig at the time). The Navy has a manual, NATOPS, the operational manual for all Naval pilots. He used to tell me, it was written in blood. It was basically a compendium of all the fatal mistakes that had been made flying off aircraft carriers and the operational procedures that prevented the mistakes. So it will be with the electronic trading environment, one fatal error at a time. But the Navy kept flying planes, and similarly, we will continue to trade electronically. There's nothing that unusual about the evolution of the electronic trading infrastructure.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-22919296338130662532012-08-07T12:54:37.771+01:002012-08-07T12:54:37.771+01:00A big part of automated trading is just automated ...A big part of automated trading is just automated market making, which does benefit regular market users: look at what the spreads and commissions were like in 1960. It's hard to remove the zero-sum overlay without losing the market's core function as well. You could slow it down a bit I guess.<br /><br />The software is hard thing may be a bit overdone in this case. Unlike a flight control system, in trading you can just pull the plug when some really simple metrics go funny, which is not that hard to do in a fail safe way. Some people just can't be bothered, and that's fine, as long as the system itself has its own circuit breakers. It seems to have worked well here: an incompetent operator was taken out of the game, at the expense of risk-taking shareholders who should have known they were exposed to incompetence, without much adverse effect for outsiders. It probably even had a positive systemic effect by reminding other dilettante operators to check their systems. Perhaps regulators should not mandate audits -- that careless people work around anyway -- but organise a flash crash every six months to check everyone is still awake.cighttp://commentisglee.wordpress.com/noreply@blogger.com