most important machines that man in the economy
The Russian-born American Aleynikov Sergei, computer programdor bank Goldman Sachs. He was convicted of stealing an algorithm. You can go to prison for 10 annos. An algorithm is "an ordered set, finite operations able to find a solution to a problem." A method and notation in different ways to calculate. "Unknown algorithm details stolen. But for Bank Investment bankers Goldman Sachs. Hen egg Les Golden earns lots of money.
received an offer of $ 1.15 million gross (875,000 euros) to take a job at Teza Technologies in Chicago. Aleynikov accepted and decided to take the algorithm with it, transferring it to a server in Germany. Goldman Sachs was discovered. And ended up in jail.
'HTF' ('High Frequency Trading'). It is a type of operation in financial markets based on the use of computers and software bought and sold in milliseconds literally all types of financial assets. It is a practically unknown to the public but ever-present transactions.
Man is every day in the system in which we live less necessary.
the vast majority of financial transactions of the world, computers are programmed and stored in buildings like the new data center worth EUR 76 million Atlantic Metro Communications is building near Wall Street, primarily to accommodate computers, technicians and programmers .
Each of these machines continuously tracks the market, analyzing the different trading platforms-whether stock, bond markets or commodities, at nearly the speed of light. His goal is to find trends in the evolution of asset prices, or abnormalities in the market.
Operating at 0.0025 seconds
For example, one share of a company can contribute for a few seconds a cent more expensive in Frankfurt than in London. In that case, the computer purchase those shares in London and sold in Frankfurt. Or may be blowing constantly buying and selling orders, looking infinitesimal price differences with which to benefit. In the background is the classic "buy low and sell high ', but with margins of decimal places and times that do not exceed 0.0025 seconds.
The margins are tiny. But the volume of operations, immense, as evidenced by the rents of the building Western Union at 60 Hudson Street, the communications center closest to Wall Street, have soared.
HTF
But with the uncertainties have also grown. One must not forget that the market is thus in the hands of machines. According to Institutional Investor magazine, nothing more and nothing less than between 50% and 70% of all transactions in all U.S. stock exchanges are made by 'high frequency trading ", although this technique only started to become popular since 2004.
In the currency market they are still higher: arrived in 2007 and now accounts for 25% of the market 'spot' (spot) according to this study by the Bank of International Settlements (BIS, according to its acronym in English). That means that 283,000 million euros in coins change hands every day through this system.
Experts say the numbers are smaller. "The HTF uses very little capital. If, for example, say a bank invests a million dollars' high frequency trading," may actually be a computer you bought and sold 20 shares times $ 50,000, "he Irene Aldridge explained ELMUNDO.es, author of 'High Frequency Trading' and member of the Able-Alpha Trading, a consultancy specializing in these operations.
This explains apparent paradoxes and that, according to British consultancy TABB, the 'high frequency trading "accounted for 60% of the securities exchanges in the U.S. and 40% in the United Kingdom in 2009, but only reached a turnover of 16,000 million euros . Most of the operations of this type are of shares, or equity-made with no customers, by banks and funds.
Advantages The advantages of trading are obvious. With the 'fundamental analysis', based on examining the financial statements of a company, "you can achieve a return of 5%, but it takes two weeks," says Aldridge, because we have to analyze the information and give orders purchase. With the HFT, the margin is 0.1%, but repeated many times throughout the day. Additionally, this segment of the market, costs are falling steadily. The computer was worth 2 million euros in 1984 now costs 1,000, but that does not include programming, something that is much more expensive.
The HFT, is turning up and down the operation of financial markets. Its consequences are four
The transformation of the brokers in endangered species. "Banks are replacing all those intermediaries that cost millions of dollars a year on computers," said Aldridge. A computer as used in HFT costs no more than 1,000 euros. In turn, program does not go for less than 225,000 euros, although typically the real figure is much higher. In any case, these amounts are lower than those of a broker who charges easily 2 or 3 million euros each year
destruction technical analysis, ie examination of the 'charts' and graphics bag. In fact, the HTF has only accelerated a trend triggered by the arrival of 'quants', ie, often expert physicists, astronomers and mathematicians, able to develop models for analyzing the increasingly sophisticated securities. The 'high frequency trading' can not survive without this type of system, so that demand is becoming greater. Thus, the hedge fund Renaissance Technologies, probably the most profitable in the world, has 300 employees, and not a single economist. Its founder, Jim Simons, was one of the most prestigious mathematical U.S., with an extensive career in academia and in the defense, until the age of 40 decided it was right to investigate and that they would use their mathematical knowledge to look for trends in the market and subtle differences in prices. The result: a fortune of 6,500 million euros, according to 'Forbes',
The creation of a new generation of institutions financial, unknown to the general public, but are among the most profitable in the world and, moreover, often do not have their headquarters in New York or London. Renaissance, which is close to the Hamptons, a tourist area 200 kilometers from New York, is just one of them. Other highlights include getc-in-Tradebot Chicago and Kansas City-, the 'number one' and 'two' of the sector, respectively, with a highest daily trading volume in each one thousand million shares. In total, between 200 and 400 banks, brokers and funds perform 'high frequency trading "on a regular basis in the U.S., although assets which are operating as normal: Citigroup, Bank of America, General Electric and Intel have been the five most traded securities these traders between April 2008 and April 2010, according to consultancy Woodbine Associates;
The explosion market. As recently as three or four years, most foreign exchange transactions, for example, were made by telephone. Now, increasingly used more computers and HTF. The result, according to the BIS, is that the volume of foreign exchange market has grown 20% in three years, to almost 4 billion dollars a day (3 billion euros) despite the financial crisis from 2007 to 2009 and of recent turbulence in the European sovereign bond market. "
However, the 'high frequency trading" is also controversial. As noted by the Delaware senator Ted Hauffman "we have all these gorillas, and you know what? get into the zoo with people who have neither the authority nor the information to handle. "
And is that the 'high frequency trading" has many enemies. For several reasons. The most obvious, as pointed Hauffman, it is not regulated. To complicate matters, these operations are often conducted in so-called 'dark pools', ie markets in which the buyer and seller are not identified, so that the opacity of the operation is total. Thirdly, the 'high-frequency traders' often operate with very little liquidity, which "can fall like dominoes if an unexpected event forces them to maintain positions in which recorded losses for little more than a few seconds" as Nicholas explained Paisner and Edward Hadas in the newsletter 'online' Breakingviews.
is also the fact that the algorithms do not take into account the quality of the management of a company or the political situation in a country that has just completed a bond: They are only interested in price and market development . For computers, the bonds of Portugal, Spain, Greece, France and Belgium are not debt countries with governments, unions and various political situations, but only financial assets to buy and sell. In this context, computers dramatically reinforce market trends. So
aberrations can occur as happened during the "flash crash", ie, the famous collapse of Wall Street on May 6, when New York lost 998 points parquet in five minutes and fifteen others recovered. At that time, the high frequency carrier Tradervox eventually sold in a clear example of how computers can react in an environment of chaos, shares of consulting giant Accenture for a penny, despite that the company was trading at forty dollars before the market literally went mad.
But that is only the negative part of the HTF. Proponents of this system almost the same arguments used to extol its advantages. Argue, first, that the algorithms "do not see television or hear the radio, so they are not prone to panic or speculative euphoria", as stated Aldridge. Ie stabilize the market. At the same time, its operational increases, at least in theory, the liquidity of the market.
The truth is that while the debate continues, the high frequency trading continues to grow. The efforts of the U.S. Senate Democrats are to regulate virtually paralyzed after the elections of November 2 Republicans who are opposed to any control plane, will achieve a blocking minority large enough to prevent any reform. And, after all, must take into an account that, however much they blame the computers, programmers are always human beings. In fact, the "flash crash" on May 6 did not start with any computer, but supplemented by an operator who gave an order for sale of Accenture so monstrously high that he just knocked the market.
This can be good or bad. As stated in his memoir "My Life As a Quant? Emanuel Derman, a South African who was physical one of the pioneers of quantitative methods in Wall Street, and now teaches at Columbia University, "a potential to cause tremendous destruction with your models is a source of great responsibility." For now, however, who have brought more destruction algorithms 'high frequency trading' is Sergei Aleynikov.
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