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3/16/2011

Trading madness or irresponsibility?

Matthew Lynn, a Bloomberg News columnist, wrote an article in the Today paper about high speed trading to the fine tune of picoseconds, just to take advantage of the next guy who does not have technology as an aid. Now what is a picosecond? This is Matthew’s definition, ‘a picosecond is one trillionth of a second, or …a picosecond is to one second what one second is to 31,700 years.’ This is the direction the stock market trading is heading to. Hey, wait a minute, what is a stock market, a jackpot machine, a casino or a game of chance? ‘A stock market has two core functions. It exists for companies to raise capital needed to invest in their business. And it should help ordinary people to make a decent return on their savings by investing in those enterprises.’ I quote Matthew. And this is nothing new. Why are the regulators allowing themselves to be led by the nose by the big funds to change the nature of stock trading from investment to one of pure gambling, by odds and speed? Mathew added that ‘at a certain point, you have to step back and ask whether this is a road we really want to go down, and whether it performs any useful function.’ He concluded by saying that ‘The stock exchanges should call a halt – and tell the traders that if they only want to hold their investments for a picoseconds, they might be better off going somewhere else. Like a racetrack.’ I would like to add that it is highly irresponsible for stock exchanges to allow this to happen as it not only gives the hedge fund an unfair advantage over other traders, which is a fundamental principle it must uphold, such trading methodology will eventually lead to the destruction of the stock market itself. High speed trading and many other variable methodologies are undermining all the cardinal principles of stock markets, eg churning, creating a false market, uneven playing field, buying and selling without change of ownership etc etc. The rot has started and its natural ending is the demise of the stockbroking industry if this deceptive trend is not stopped.

16 comments:

Matilah_Singapura said...

Having the technology and participating in a market are honourifics: i.e. the world doesn't owe you a living nor is it "obliged" to wait for you to "catch up". You want to be in a game - it is your choice and if you need "resources" it is up to you to go get them. It is not egalitarian: it is a meritocracy. i.e. if you have what it takes, good for you. If you don't too damn bad. (or good -- you won't lose your money)

The fastest speed possible is the speed of light. It is impossible for machines to work at this speed because the mechanisms in the machine - even if working at light speed - will cumultatively manifest as a whole at slower than light speed.

However, one pico second is mind-bogglingly short. It is about as short as Lee Kuan Yew's tolerance for people who disagree with his opinion.

The advances in quantum computing will ensure that even faster speeds are possible for trading.

I bring back the point again about no one owing anyone a living -- that includes stockbrokers. They have no grounds to bicker and moan for it was their industry who paid gazzillion dollars for top mathematicians, physicists and computing professionals to develop extremely efficient Program Trading Software, the infrastructure and platforms.

I think the hoo-haa and panic are unwarranted. In the market there are winners and losers -- regardless of how fast or slow you trade. You might argue that using pico-second trading will wipe out the little guy and earn you billions. You could also lose your shirt in one pico second. win or lose -- it just happens faster, thats all.

Chua Chin Leng aka redbean said...

Totally disagree with you on this. Can you bring your computer or machine into a casino? No. Can the casino use machine to take advantage of the gamblers, NO.

There is an element of fair play even in gambling. The stock exchanges cannot allow any player to take advantage of other players by using their machines, pluck into the system. The big funds can have their machines and softwares to work our their strategies and tactics, and the best brains. There is no issue on this. May the best man wins, fairly, not by cheating.

But NO. They must not be allowed to plug into the stock exchange system to be a little faster than another trader or to know how many are buying and selling and at what price. That is unfair and not acceptable. It is CHEATING.

A stock exchange cannot operate a system that is more lawless than a casino. It is CRIMINAL!

Matilah_Singapura said...

No matter what you or I might think, there are people who will treat the bourses as if they were a big, global gambling table. You can't stop that -- like I said, participating in a market (or a casino) is an honourific -- no one forces you to do it, but if you are going to do it, you take the risk, you also reap the reward. If you cannot stand to lose, you cannot hope to gain.

> It is CRIMINAL!

No, it isn't. It might be "unfair" or "unequal" but that is just a reflection of the reality of life.

Anonymous said...

After losing tens of thousands(chicken feed me must say) which was all i have, i have no but stop buying stocks about fews years back.
Though i lost all i have, me never blame the stock exchange on how they operate. Me gambled and due to stupidity or bad luck, savings just gone with it.

Had i not gambled(invested), i would have tens of thousands left to spend nor matter how little that is. So, like what Matilah said 'no one is forced to gamble, very agreeable.

patriot

Anonymous said...

'i have no but stop buying stocks about fews years back'.

Oops, pardon me for the silly mistake in the above, it should read 'i have stopped buying stocks about few years back'.

patriot

Chua Chin Leng aka redbean said...

Ignorance is bliss.

If a gambler went to the backlane to gamble and lose, he can say, well I gambled and I lost. No sweat. Would he say the same thing if he found out that the dice was loaded without him knowing?

The casino is a place for gamblers, and everyone, including the operator, will want to cheat if given the chance. It is all about gambling and winning. Nothing else matter.

But the authority is there to enforce discipline, fair play, ethics and proper conduct on both the gamblers and the operators. It is not a place for the pious or upright, but it is a fair place and a fair game, with odds known.

The Americans have turned the stock market, meant to be a decent financial institution for at lease decent people, into a wild wild west casino where the big operators are permitted to cheat and take advantage of technology that the small traders did not have. The result, the big operators clean out the small traders. The issue of ethics and fair play and proper conduct, have all been dumped into the shit hole by respectable people who are placed to regulate the exchange.

It is now a place for rogues in suits and ties pretending to be decent people. In fact worst than all the crooks in the casino.

There is a role reversal and an exchange of good and bad practices, ethics and morals between the two institutions.

Anonymous said...

A casino is a bad place made better by regulations. A stock exchange is a good place made bad by deregulations.

Matilah_Singapura said...

I favour complete hands-off, GOVT regulation of the market.

The reason: once you have regulation by govt, you get all the "special interests" get cosy with the govt so as to "pakat" with the govt to screw anyone who is not "in the gang".

Wall St is a great example: they are heavily regulated. So much so they "pakat" with the govt so that Wall St can do all sorts of dangerous and dishonest things knowingly full well that the US Govt will protect them and if necessary bail them out.

With govt bail out you get
free money: even if your business is fucked, your fat cat bonuses are well protected.

Ask yourself this:

Do you REALLY BELIEVE that PAP cadre regulating the market is a good idea?!???

You must be crazy if you do.

Anonymous said...

I stand to be corrected.

Me am always of the understanding that the so-called AUTHORITY, the BOURSE, the LISTED COMPANIES and other GOVERNMENT APPROVED ORGANIZATIONS/STATE ENTERPRISES, the REGULATORS are all working hand in hand, to benefit each others by making the biggest profits possible LEGALLY; especially if the GOVERNMENT is the LARGEST INVESTOR. Where will the profits come from if the investors too make gains and profits????? The money(profit) has to come from somewhere and me believes it has to come from investors.

Am i wrong in my understanding?

patriot

Chua Chin Leng aka redbean said...

You are wrong. You can be sued for that. Bourses, like casinos in a way, are to provide a fair system, level playing field, no cheating, no cornering of markets, no manipulations, no churning, no buying and selling without change of ownership, no creation of a false market, no insider trading etc etc so that all players can trade fairly.

Bourses that do not enforce such rulings are committing an offence against the rules and regulations of trading and can be sued in court.

Bourses make money by levelling a fee for listing and clearing fees. Unlike the casinos, who are playing against the gamblers, in a stock market, it is investors versus investors, big investors versus small investors. The bourses can participate in this game and are supposed to be neutral and fair.

Matilah_Singapura said...

patriot: you are on the right track.

redbean: he's deliberately taking the opposite view.

In S'pore, the market cap is predominantly made up of GLC's. To have the govt regulate is utter bullshit -- is like they will control the casino in total.

Regulation must be kept private, and redundant (have more than one). The best people to regulate would be PRIVATE shareholders themselves i.e. many private companies are formed by shareholders and these companies' role is to monitor the bourse and whistle blow when necessary.

Wall Str should have failed, gone bust and reformed a long time ago. It is very heavily regulated.

However when the regulators failed, and Wall St "biggies" went bust -- the fucking US govt bailed these fuckers out. People lost their money, Wall St execs got bonuses.

Wall St hasn't changed. These fuckers need to go bankrupt and die and new people come in and rebuild it from ground up.

Anonymous said...

Say what you may, the stock market and in fact all businesses big or small in US are undeniably controlled by big time scoundrels and crooks who work in tight collusion with their counter parts in the US government . There is no difference between the crooks who work as CEOs or directors in the big business world of financial markets,the banking industry, the pharmaceutical industries, stock market, real estate, insurance and the heavy industries, and the bureaucrats,Congress men, the senators , the president or vice-presidentin the US government. They are all one and the same. In fact these crooks and scoundrels are part and parcel of the big US or Western mafia, the Illuminati whose aim is to eventually control the whole world in every aspect of human life and activities. It is only regretable that fools and buffoons in many or most governments in Asia, Africa and South America have taken the bite of these wicked scoundrels in the Illuminati and allow their countries to be manipulated by them. The top echelon politicians in US and Europe, the president, the vice-president, the senators, congressmen. the generals, admirals and directors in CIA and the Pentagon are all part and parcel of the Illuminati. The function of the Illuminati is to contol the wealth and riches of all countries in the world and to bring down countries which post a threat or obstacle to their aim and ambition. Therefore you notice how they brought down the Japanese economy in the 1980s and how they now try to bring down China with all vile means and tactics . The Illuminati now has a stranglehold on all Westeern or the world's pharmaceutical industries and thereby controll all medicines, all hospitals and clinics - private or government owned, and thereby control all doctors and surgeons. To break their control people must stop taking most western medicines but resort to taking traditional medicines.

Matilah_Singapura said...

"The Illuminati"? WTF.

Man, must be some good drugs you have there bro' ;-)

Enjoy...before the aliens or the lizard people rape your ass...hahaha

Anonymous said...

Wow! me had cold sweat before reading Matilah's response, though me was/am very sure.

If businesses are being turn into games of chance which is gambling so to say and they are obviously known to the investors to be so and yet they(investors) still want to be in there, hell, they have to take their chances and blame no one whence they are made broke.

And if no one invest in the stocks, let see how the stock exchanges make money.

patriot

Anonymous said...

But, then the stock brokers and remisiers will run out of businesses and jobs.

patriot

Chua Chin Leng aka redbean said...

Don't worry, I am retiring soon. Maybe joining Wally in Lijiang.