"finance" entries

Wall Street’s robots are not out to get you

Putting high-frequency trading into perspective.

ABOVE by Lyfetime, on FlickrTechnology is critical to today’s financial markets. It’s also surprisingly controversial. In most industries, increasing technological involvement is progress, not a problem. And yet, people who believe that computers should drive cars suddenly become Luddites when they talk about computers in trading.

There’s widespread public sentiment that technology in finance just screws the “little guy.” Some of that sentiment is due to concern about a few extremely high-profile errors. A lot of it is rooted in generalized mistrust of the entire financial industry. Part of the problem is that media coverage on the issue is depressingly simplistic. Hyperbolic articles about the “rogue robots of Wall Street” insinuate that high-frequency trading (HFT) is evil without saying much else. Very few of those articles explain that HFT is a catchall term that describes a host of different strategies, some of which are extremely beneficial to the public market.

I spent about six years as a trader, using automated systems to make markets and execute arbitrage strategies. From 2004-2011, as our algorithms and technology became more sophisticated, it was increasingly rare for a trader to have to enter a manual order. Even in 2004, “manual” meant instructing an assistant to type the order into a terminal; it was still routed to the exchange by a computer. Automating orders reduced the frequency of human “fat finger” errors. It meant that we could adjust our bids and offers in a stock immediately if the broader market moved, which enabled us to post tighter markets. It allowed us to manage risk more efficiently. More subtly, algorithms also reduced the impact of human biases — especially useful when liquidating a position that had turned out badly. Technology made trading firms like us more profitable, but it also benefited the people on the other sides of those trades. They got tighter spreads and deeper liquidity.

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Some sideways thinking about cyberwarfare

Cyberwarfare needs to be framed far more broadly.

When we hear the term “cyberwarfare” we think of government-backed hackers stealing data, or releasing viruses or other software exploits to disrupt another country’s capabilities, communications, or operations. We imagine terrorists or foreign hackers planning to destroy America’s power grid, financial systems, or communications networks, or stealing our secrets.

I’ve been thinking, though, that it may be useful to frame the notion of cyberwarfare far more broadly.  What if we thought of JP Morgan’s recent trading losses not simply as a “bad bet” but as the outcome of a cyberwar between JP Morgan and hedge funds?  More importantly, what if we thought of the Euro’s current troubles in part as the result of a cyberwar between the financial industry and the EU?

When two nations with differing goals attack each other, we call it warfare.  But when financial firms attack each other, or the financial industry attacks the economy of nations, we tell ourselves that it’s “the efficient market” at work.  In fact the Eurozone crisis is  a tooth-and-claw battle between central bankers and firms seeking  profit for themselves despite damage to the livelihoods of millions.

When I see headlines like “Merkel says Euro Rescue Funds Needed Against Speculators” or “Speculators Attacking the Euro” or “Banksters Take Us to the Brink” it’s pretty clear to me that we need to stop thinking of the self-interested choices made by financial firms as “just how it is,” and to think of them instead as hostile activities.  And these activities are largely carried out by software trading bots, making them, essentially, a cyberwar between profiteers and national economies (i.e. the rest of us).
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Comments: 13
Four short links: 12 June 2012

Four short links: 12 June 2012

Amazon Royalties Suck, Learn Electronics, Microtasks, and Finance Considered Harmful

  1. Amazon’s Insanely Crap Royalties (Andrew Hyde) — Amazon offers high royalty rate to you, but that’s before a grim hidden “delivery fee”. Check out Andrew’s graph of the different pay rates to the author from each medium.
  2. SparkFun Education — learn electronics from the good folks at SparkFun.
  3. TaskRabbitconnects you with friendly, reliable people right in your neighborhood who can help you get the items on your To-Do list done. Lots of people and projects sniffing around this space of outsourced small tasks, distributed to people via a web site.
  4. Henry Ford on Bootstrapping (Amy Hoy) — Amy has unearthed a fascinating rant by Henry Ford against speculative investment and finance. I determined absolutely that never would I join a company in which finance came before the work or in which bankers or financiers had a part. And further that, if there were no way to get started in the kind of business that I thought could be managed in the interest of the public, then I simply would not get started at all. For my own short experience, together with what I saw going on around me, was quite enough proof that business as a mere money-making game was not worth giving much thought to and was distinctly no place for a man who wanted to accomplish anything. Also it did not seem to me to be the way to make money. I have yet to have it demonstrated that it is the way. For the only foundation of real business is service.

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Visualization of the Week: 30 years of tech IPOs

How Facebook stacks up against other tech IPOs.

This week's visualization comes from The New York Times and compares the last 30 years of tech IPOs (hint: watch for the big blue dot).

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Four short links: 21 May 2012

Four short links: 21 May 2012

Objectivist C, Robotrading, Meme Culture, and Mobile-controlled Peripherals

  1. Objectivist C — very clever. In Objectivist-C, each program is free to acquire as many resources as it can, without interference from the operating system. (via Tim O’Reilly)
  2. Zynga and Facebook Stock Oddities (The Atlantic) — signs of robotrading, a reminder that we’re surrounded by algorithms and only notice them when they go awry.
  3. The Final ROFLcon and Mobile’s Impact on Internet Culture (Andy Baio) — These days, memes spread faster and wider than ever, with social networks acting as the fuel for mass distribution. But it’s possible we may see less mutation and remixing in the near future. As Internet usage shifts from desktops and laptops to mobile devices and tablets, the ability to mutate memes in a meaningful way becomes harder.
  4. Oh Mi Bod — I was impressed to learn that one can buy vibrators that can be controlled from an iPhone. Insert iBone joke here. (via Cary Gibson)
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Four short links: 13 April 2012

Four short links: 13 April 2012

Being Contrary, Microsoft Tools, JOBS Doom Warnings, and Fibre ROI

  1. Change the Game (Video) — Amy Hoy’s talk from Webstock ’12, on being contrary and being successful. Was one of the standout talks for me.
  2. Rise4Funsoftware engineering tools from Microsoft Research. (via Hacker News)
  3. Why Obama’s JOBS Act Couldn’t Suck Worse (Rolling Stone) — get ready for an avalanche of shareholder suits ten years from now, since post-factum civil litigation will be the only real regulation of the startup market.
  4. Socio-economic Return Of FTTH Investment in Sweden (PDF) — This preliminary study analyses the socio-economic impacts of the investment in FTTH. The goal of the study was: Is it possible to calculate how much a krona (SEK) invested in fibre will give back to society? The conclusion is that a more comprehensive statistical data and more calculations are needed to give an exact estimate. The study, however, provides an indication that 1 SEK invested over four years brings back a minimum of 1.5 SEK in five years time. The study estimates the need for investment to achieve 100% fibre penetration, identifies and quantifies a number of significant effects of fibre deployment, and then calculates the return on investment. (via Donald Clark)
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Four short links: 12 April 2012

Four short links: 12 April 2012

Financial Data, 21C Learning for Parents, IQ Battles, and Etsy Hacker Grants

  1. Big Data in Finance (PDF, 9M) — Algo trading systems have begun to resemble an arms race. Competition, data, and the race for real-time.
  2. A Parent’s Guide to 21st Century Learning (Edutopia, free registration required to download) — What should collaboration, creativity, communication, and critical thinking look like in a modern classroom? How can parents help educators accomplish their goals? We hope this guide helps bring more parents into the conversation about improving education. (via Derek Wenmoth)
  3. Chess Intelligence and Winning — survey of IQ gaps between contestants needed to win competitions. We could view cops and killers as being involved in a grim contest. In the USA around 65% of all murders are solved. That converts to an average “murder” ELO rating difference between police and murderers of 108 ELO points. It is also known that the mean IQs of murderers and policemen are 87 and 102, respectively. So successfully solving murders is a puzzle then the “a” coefficient is 0.041, and each IQ point difference is worth 7.2 ELO points. I suspect this is masturbatory math extrapolation rather than anything significant or predictive, but the cops-vs-robbers IQ contest was an interesting angle. (via Dr Data’s Blog)
  4. Etsy Hacker Grants: Supporting Women in TechnologyToday, in conjunction with Hacker School, Etsy is announcing a new scholarship and sponsorship program for women in technology: we’ll be hosting the summer 2012 session of Hacker School in the Etsy headquarters, and we’re providing ten Etsy Hacker Grants of $5,000 each — a total of $50,000 — to women who want to join but need financial support to do so. Our goal is to bring 20 women to New York to participate, and we hope this will be the first of many steps to encourage more women into engineering at Etsy and across the industry.
Comment: 1

Data for the public good

From healthcare to finance to emergency response, data holds immense potential to help citizens and government.

The explosion of big data, open data and social data offers new opportunities to address humanity's biggest challenges. The open question is no longer if data can be used for the public good, but how.

Comments: 8

Strata Week: The Megaupload seizure and user data

Megaupload's demise raises data questions and Bloomberg opens up its market data interface.

In this week's data news, Megaupload users face data deletion, Bloomberg opens its market data interface and Pentaho changes its licensing for Kettle.

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Visualization of the Week: The big chart of money

Randall Munroe's new visualization puts money (almost all of it) in perspective.

In an audacious new visualization, Randall Munroe of xkcd takes on money — where it comes from, where it goes and what it buys.

Comments: 2