{"id":24537,"date":"2017-07-30T16:57:13","date_gmt":"2017-07-30T21:57:13","guid":{"rendered":"http:\/\/olduvai.ca\/?p=24537"},"modified":"2017-07-30T16:58:36","modified_gmt":"2017-07-30T21:58:36","slug":"our-brave-new-markets","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=24537","title":{"rendered":"Our Brave New ”’Markets”’"},"content":{"rendered":"
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Our Brave New ”’Markets”’<\/a><\/span><\/h3>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
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How HFT algorithims risk a massive sudden sell-off<\/strong><\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
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One thing is clear: These aren\u2019t your daddy\u2019s markets anymore<\/em>.<\/p>\n

Why?\u00a0 Because about 10 years ago the Rise of the Machines<\/a>\u00a0(aka high frequency trading algorithms) completely altered the terrain of what we call the \u2018capital markets.\u2019<\/p>\n

Let\u2019s look at this as a before and after story.<\/p>\n

Before the machines, markets were a place that humans with roughly equal information and reflexes set the prices of financial assets by buying and selling.\u00a0 Fundamentals mattered.<\/p>\n

After the machines took over, markets became dominated — in terms of volume, liquidity and pricing — by machines that operate in time frames of a millionth of a second. The machines and their algorithms use remorseless routines and trickery — quote stuffing, spoofing, price manipulations — to \u2018get their way.\u2019<\/p>\n

Fundamentals no longer matter; only endless central bank-supplied liquidity does. Because such machines and their coders are very expensive and require a lot of funding.<\/p>\n

The various financial markets are so distorted that I first resorted to putting that word in quotes \u2013 \u201cmarkets\u201d \u2013 to signify that they are not at all the same as in the past.\u00a0 In recent years I\u2019ve taken to putting double quote marks \u2013 \u201c\u201dmarkets\u201d\u201d \u2013 in attempt to drive home their gross distortion. \u00a0Not only are todays \u201c\u201dmarkets\u201d\u201d something the human traders of a generation ago would fail to recognize, they’re no longer a place where human actions of any sort have much of a remaining role.<\/p>\n

Why care about this? Two big reasons:<\/p>\n

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  1. Such \u201c\u201dmarkets\u201d\u201d are easily manipulated by central banks and other state actors by virtue of their automated responses to liquidity injections. <\/strong>Are the markets going down when you don\u2019t want them to?\u00a0 Just use any one of several highly leveraged means of signaling to the computers that it\u2019s time to buy instead of sell.\u00a0 Common leverage points include the Japanese Yen-to-USD price level, selling VIX to lower volatility, and buying massive quantities of index futures \u2018all at once.\u2019<\/li>\n<\/ol>\n

    …click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

    Our Brave New ”’Markets”’ How HFT algorithims risk a massive sudden sell-off One thing is clear: These aren\u2019t your daddy\u2019s markets anymore. Why?\u00a0 Because about 10 years ago the Rise of the Machines\u00a0(aka high frequency trading algorithms) completely altered the terrain of what we call the \u2018capital markets.\u2019 Let\u2019s look at this as a before […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[13556,1597,14155,15573,400,401,506,15574,2218],"class_list":["post-24537","post","type-post","status-publish","format-standard","hentry","category-economics","tag-algorithmic-trading","tag-algorithms","tag-algos","tag-chris","tag-hft","tag-high-frequency-trading","tag-markets","tag-martenson","tag-peak-prosperity"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/24537","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=24537"}],"version-history":[{"count":3,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/24537\/revisions"}],"predecessor-version":[{"id":24540,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/24537\/revisions\/24540"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=24537"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=24537"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=24537"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}