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October 10, 2010 3:30 PM

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Robot Traders of the NYSE

By: Overtime Staff
Topics: Overtime Original

In Steve Kroft's "60 Minutes" report on high-frequency trading, you heard how most stock trades in the U.S. are no longer made by humans, but by computers capable of buying and selling stocks at warp speed.

High-frequency trading played a supporting role in the mini market crash last spring that saw the Dow Jones industrial average plunge 600 points in 15 minutes, and yet most people know very little about this type of high-speed automated trading.

Watch Steve Kroft's full report.

In this episode, "60 Minutes Overtime" takes you to the new "nerve center" of the New York Stock Exchange to see how high-frequency trading works. Tour the new $250 million NYSE data center in Mahwah, N.J. with Steve Kroft and his team of producers.

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by what-is-money January 4, 2011 1:25 PM EST: If money is truly a medium of exchange, how does money gleaned from a process that adds nothing to CompanyX compare to money made by someone that manufactures a product or provides a service? It seems like found money, but its as green as the money made by everyone else, or in this case, -not- made by everyone else. Does the fabulous wealth made by such shenanigans inspire us all to work hard and produce, or to be jealous of the folks that last year begged for bail-out, and this year hide expensive holiday parties? It may not be illegal, but its far from a paragon of virtue.; Reply to this comment


by htrends October 14, 2010 7:35 PM EDT: HFT sounds like they have legalized the practice of "front running." These HFT programs do nothing positive for the market. Retail investors are leaving in droves $57B from May 6 thru August. The markets have a real crisis of confidence and HFT is at least partially responsible.; Reply to this comment


by rosenski2 October 14, 2010 4:47 PM EDT: I greatly appreciate this CBS 60 minute video about the HFT facilities and the general comments. I do not watch very much TV but this COMPUTER presentation inspires me to start watching the Sunday 60 minute program because apparantly CBS is making good, instructive information available to the public.; Reply to this comment


by lalinda4 October 11, 2010 3:16 PM EDT: With all this speedy trading, we don't really need real money on hand. Evidently, somebody's lying and government should have investigated this long before now. The issue should be discussed before the upcoming election.
LaVern Isely, Overtaxed Middle Class Taxpayer & Public Citizen Member; Reply to this comment

by davelerch October 11, 2010 1:39 PM EDT

My but there are some very sophisticated commentaries from people holed up in dark rooms banging away at their computers. Fact is we have out grown the "stock market" as it operates. As we have many of our tired institutions. Computers are here and are taking over more and more of communications, weather predictions, manufacturing, and just about every part of our lives. Computerized machinery and offshore cheap labor are 70% of the decent jobs. The stock market is just another name for lending money to business. Instead of a passbook and established rate of return, stockholders roll the dice that they will at least get their money back and maybe over a long time some low double digit profit. Like a loan the corporation agrees to payback the loan at any time at whatever its worth is at that time. Except dynamics that have nothing to do with your corporations operations, be they profitable or not. And now with the advent of HFT, a further unfair disturbance has affected the force. It's either massive pension funds moving the dow up and down by their shear weight or super computers trading at light speed based strictly on minute fluctuations. It is time we get back to basics and invest money in bank savings, our own businesses, charities, gold, oil, green production of energy, the stuff that makes us human and come and go each day. Sound far fetched, wait, the market has some monster fluctuations coming and the 25-30% of regular people trades disappear completely. Remember the height of day traders. Remember the days of financial anialation without Federal bailouts. Make work government infrastructures are what brought us back from the edge nearly 100 years ago. No reason they shouldn't work now save for the greed and corrupt ways of business and the self centered greed we have all come to accept.

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by alphaa10000 October 12, 2010 3:42 AM EDT: COMPUTER-DRIVEN MARKET ABUSE NEEDS REGULATION.........................................................................................................Every computerized "gaming" of the digital stock market from private sector operators, heedless of the rest of society (the public interest), must be addressed by reform legislation............................................ That describes the history of most regulatory legislation-- the abusers invited it, but say they hate it and pound their pulpits about "government tyranny". Yet, the public loves appropriate regulation because it protects them...............................................
Until more comprehensive Wall Street regulatory reform arrives, however, The Usual Suspects will continue to do their worst. So, please note a heavy proportion of the Wall Street mafia believes GOP DEregulation-- the same regime that let them bring us recession and ruin-- is their own ticket to wealth. They contribute to the GOP.

by chrisotis47 October 11, 2010 11:33 AM EDT

Do they pay for each trade? If not, charge them like you and me. That may slow it down

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by akrystal October 14, 2010 10:50 PM EDT: They do pay for the trades that they execute, but often, the HFTs often get paid to trade. When a large market participant provides liquidity, depending on the exchange, the exchange will pay them an amount of money for providing that liquidity. It would not be uncommon for the majority of a trade's profitability to be made not from the profit of "buy low, sell high", but rather "buy at X, sell at X" and as long as the trade does not "take" liquidity, it will be pade as a liquidity provider. An example of someone providing liquidity is:

The market for security ABC is willing to buy shares at $10.00 and willing to sell shares at $10.02. If an HFT (or any other trader) puts in an order to buy at $10.01, they have just "provided liquidity" and if their someone decides to sell at $10.01, the liquidity provider (depending on the exchange) may pay for the liquidity provided. The person `taking` liquidity will be charged. However, when the retail invesotr is paying a flat rate of, say $7.95/trade, they will never actually see the fraction of a cent fee that they are paying for taking liquidity. A portion of that fee will often go to the liquidity provider.

by cciarpelli October 11, 2010 4:03 AM EDT

Nothing better then reading comments from a group of people who literally know nothing about high frequency trading. Keep up the misinformation everyone! HFT does not cause inflation. It does not take money out of the market. The algorithms trade strategies developed by humans, to trade the same strategy that a person would trade, but much much faster, and with higher accuracy. HFT DOES provide tremendous liquidity. It helps keeps costs down, allowing retail investors access to low commission rates.

The post below me is hilarious. Hilarious because the author doesn't have a clue. Stocks always trade at the price the market thinks is correct. Anytime you buy a stock, you're making a gamble. In that regard, HFT is no different from buy and hold. The only difference is that these trade algorithms usually seek returns on the basis that they have calculated the stocks price to be slightly above or below (and by this I mean a fraction of a penny away) from where it should be. We set the price based on what we're willing to pay, this holds true for all trading - financials are only part of the equation. HFT does not in any way devalue a security.

I think most people would be stunned as to how simple many algorithms are. The real science behind trading, these days, is putting orders through without other firms being able to see your transactions in order flow.

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by usmc3049 October 11, 2010 10:00 AM EDT: yeah it's a way to divert honest traders looking to take advantage of tools that will help make smart trades in an efficient and profitable way. cciarplli how would I get involved in this HFT myself. Do I have to own or be a part of a firm or can I set this up at home?


by RickCaird October 11, 2010 10:08 AM EDT: The whole idea we had a market wide "flash crash" and one in PGN give the lie to your sniveling. In fact, after this disaster PGN traded as low as $4. LQD saw an equivalent "flash crash". None of the three flash crashes would have happened without HFT. The market circuit breakers cannot break in fast enough to stop the HFT. Manual traders have no chance against these algorithms that demand the machines be co-located with exchange machines to reduce the delay induced by the speed of light.

The idea that HFT provides liquidity is offered, but really, when we get flash crashes, do we nee liquidity? No. Liquidity is not our problem.

What cciarpelli does not tell you is these HFT algorithm work by creating false bids to attempt to find a market price. These bids last for milleseconds and are then withdrawn followed by another bid in a penny increment.

The whole idea of HFT is to give the Goldman Saks of the world an advantage over the other traders. It is an advantage purchased with expensive hardware and space for that hardware at the exchanges.

If the SEC had not been captured by the bankers, HFT would be banned. The minor increase in liquidity is not balanced by any increase in fairness, equality, or safety. cciarpelli is wrong and he is knowingly wrong. There is a special word for that.


by Common_Tator October 11, 2010 2:28 AM EDT: The idea behind high frequency trading is to take money out of the market without regard to long-term effects. This is the same greed driven ethos that drove the financial markets to collapse, only to be saved by the American taxpayer. The original concept of the stock market was to provide a vehicle to give large numbers of people access to company ownership on a fractional basis, and to provide an efficient mechanism for companies to raise the necessary capital for development or expansion. Investors provided capital and were rewarded when a company prospered. With high frequency trading there is no long-term capital investment to grow a company; or expand, improve, or broaden a product line. High frequency trading is simply using statistical models to pull profit from a stock at a frequency that does not allow for the use of the investment to develop true value. Similar to many complex derivatives, high frequency trading is gambling that a stock will go up or down irrespective of the performance of the company. Where publicly traded companies have always been handicapped to one degree or another by the short-term view of the quarterly bottom line, the entire system is being jeopardized by those who want to remove value where none has been created.; Reply to this comment


by ShockExchange October 10, 2010 10:21 PM EDT: This phenomenon was covered months ago and is one of five reasons why the Market could crash ----> http://clicky.me/FiveReasons; Reply to this comment

by chrispindar October 10, 2010 10:09 PM EDT

There is a lot of poison in the mud of Wall Street. When the truth worms itself out (which it cannot help but do) the courts will be clogged for decades , but then again Justice is blind - BLIND to the covert criminal natures of people disguised as well to do and socially responsible yet felons nevertheless.

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by fianalystgov October 16, 2010 9:59 PM EDT: Justice is not only blind, but federal regulation and enforcement agencies aren't sophisticated enough to know how the markets are being manipulated. Feds need to quit allowing insider traders to manipulate the market and profit from it!

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