Outside Edge: Robo-rage at the trading frontier
First published the Financial Times, 25 September 2010
Day One: Everybody is talking about this “robo-trading” business. It sounds like money for old rope. You plug a fast computer into the stock exchange and buy and sell huge numbers of shares using an automatic trading program. How hard can it be? Get the computer, get the software, go for three-pint lunch.
Day Two: My phrase of the day is “quote-stuffing”. This apparently refers to the practice of sending hundreds of millions of little offers per second to a trading platform in an effort to get its computers to seize up, meanwhile exploiting that fact to make big trading gains elsewhere. You know, it may be time to upgrade my ageing Dell and get rid of Windows Vista.
Day Five: New laptop has arrived and it rocks. Meanwhile I have been learning about the “Boston Zapper”. It’s a pattern that sometimes appears in share trading data, if you view it at the microsecond level of detail. It might be an automated trading program trying to manipulate the market. Or it might be the product of two or more bots interacting. Or it might be a programming error. The great thing is that no one seems to know. This market is obviously full of amateurs. It will be like shooting robofish in an electronic barrel!
Day Six: Note to self: switch off the screen-saver before attempting to quote-stuff the Nasdaq. My screen suddenly filled up with animated goldfish. Before I could retype the password, I’d lost $100m.
Day 11: My attempt to unleash a “Bandsaw” trading pattern has been repeatedly foiled by the Windows auto-update. Damn you, Bill Gates! I’m going to get a Mac.
Day 20: Change of tack. I am standing outside the London Stock Exchange with an iPhone 4 trying to figure out whether there’s an App to execute the “Flag Repeater” strategy. Why do I keep losing signal?
Day 21: Steve Jobs says I AM HOLDING THE PHONE WRONG? Seriously?
Day 24: The iTunes “Genius” has categorised all my automated trading strategies according to album and year of release and is now suggesting an algorithm that provides the rhythm to a hilarious treadmill routine featuring Lady Gaga. I feel like Steve Jobs is camping out in my brain.
Day 30: I am back with Windows. The Mac was vanity. I’m not in the robo-trading business to look good, but to make money. Nothing can now go wrong.
Day 31: I was hoping that when the screen went blue, that was my auto-trader doing something clever. Apparently not. Reboot.
Day 41: Wall Street has just experienced a “flash crash”. The Dow has nothing on my computer, which has its own private flash crash every time I start up Internet Explorer.
Day 52: Mary Schapiro of the Securities and Exchange Commission says she’s going to regulate the high-frequency trading industry. Apparently it’s bad for the little guy. Tell me about it.
The writer has just given up on his first iPad