You probably heard that a fake Tweet (claiming that something happened in Washington DC) caused the market to have a mini flash crash this past week. Within minutes of that Tweet on Tuesday, more than $130 billion disappeared from the value of US stocks trading on Wall Street.
Who is to blame … hackers, Twitter, or perhaps algorithmic traders? I don't think so.
After looking at the data, here is a different perspective on what happened … and what I think it means for the future.
Let's assume that a trading algorithm was able
to identify a potential risk (or opportunity) and make a trade based on that information. Once that trade becomes visible to other traders through the open-market system, it's going to trigger a series of causes and effects.
This is no different than when a local on the floor of an exchange places in order during slow market periods to clean out the stops. A spike down beneath people's risk tolerance creates a desire to sell. However, if there is no further selling pressure, the market will rise as traders suspect a 'bargain'. Does that constitute is a micro flash crash also?
The point is that markets are becoming faster and more volatile. It doesn't make sense to complain every time something like this happens. It's going to happen with increasing frequency.
This is now part of the market; consequently, it is time to figure out what to do with it. Some traders will move to faster and more responsive algorithms. Other traders will increase the time-frame that they focus on in order to filter out the "noise" and small variations like this constitute.
Whining about it and calling for increased regulation may be missing the point as well. Why? Because there is a financial incentive for algorithmic traders to become better at correcting these errors themselves. Frankly, it's too expensive to be wrong for long (especially when your trading large-size). As a result, the algorithms are going to get better at the 'two steps forward, one step back' testing and evaluation process. It's inevitable.
Trading isn't about predicting the future. It's about calculating the probabilities better. By doing this you can know faster and act
faster. This will likely result in smaller errors – and (if you care) the markets will seem more orderly. Nevertheless, what it really means is more ways to win for people who can spot the opportunities quick enough to take advantage of them.
Whether it is time to lose weight or gain some new skill or capability … stop telling yourself you will 'try'. Here are your options (according to Yoda).
Here are some of the posts that caught my eye. Hope you find something interesting.
The Internet currency, Bitcoin, has seen an uptick recently as more people look to the virtual currency as a way to get rich or avoid the problems of fiat currency.
Bitcoin was created in 2009 by "Satoshi Nakamoto" — almost certainly a
false name — in order to be anonymous currency, easy to use,
self-regulating, and free from any central authority.
People are starting to realize they can now put their money in the cloud and access it anywhere, from any computer. As a result, the value of bitcoins is rsing.
Two months ago, one bitcoin hovered in the $10 to $15 range, and a $30 peak was considered ludicrously high. What about now?
The surging valuation suggests that people are starting to see ways to use it to create and protect value.
Bitpay, a company that facilitates bitcoin transactions, logged over $5 million worth
of transactions in March alone, as people traded bitcoins for tangible
items, mostly high-end electronics and precious metals.
Expect to hear a lot more about this in the media.
Not the article you haven't gotten around to writing, the trip to the gym that will pay off in the long run, the planning for your upcoming birthday party, dinner with your parents (who would love to see you), ten minutes to sit quietly, saying thank you to a friend for no real reason… no, we do the urgent first.
The problem, of course, is that the queue of urgent never ends, it merely changes its volume as it gets longer.
Yes, we've heard it said that it's the important, not the urgent, that deserves attention. But it understates just how much we've been manipulated by those that would make their important into our urgent.
It's been three months since New Year's Eve, and most New Year's Resolutions have been forgotten.
As you prepare to face the rest of 2013, ask yourself these powerful questions from Greg Bustin:
What do I want?
What’s holding me back?
What’s the impact of not getting what I say I want?
Now get going. It's not just the first day of a new Quarter … it's the first day of the rest of your life.
