Saturday, December 5, 2009

Long live the Cyborgs

This is a wonderfully pithy comment about what's going on these days:

The market is currently driven on a daily basis by algos that are doing essentially that; notice a tick, drive into it, stir up the other algos and draw in a few retail traders, calculate the asymptotic peak, sell early into the peak, dump on the down side as any humans jump in with late bids. Then tie up the lose ends, update a database table with another row of winnings, reset, resume search.

The entire process probably typically takes about 180 seconds, and with multiple threads running across the cloud then you could have -- Hell I don't know -- say a hundred of these events running concurrently, each generating -- let's see -- say $100-1000 profit on exchanges per event depending on who jumps on and how dumb they are. Representing maybe $10K cleared profit every 3 minutes across the whole cloud.

And on a good day with plenty of random volatility you could double that.

It's just like printing money. But it is a type of theft born of our lust for speculation over real investment.

And while the same technology could be used as you suggest, to notice unfair ramps, why would anyone use it that way when instead they could clear $10K a minute?

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