“Technological Arms Race” Has Captured Global Finance: “Trading Once Took Minutes, Now Handled in Mere Nanoseconds by Computers”

by | Jan 26, 2015 | Commodities, Headline News | 31 comments

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    As it becomes increasingly clear that fewer and fewer hands control the wealth of the planet, the manipulation of the market seems obvious enough.

    No doubt, technology is playing an important role, but few have any real idea about the extent to which the notion of day trading from the floor of some market is completely obsolete, and how completely orchestrated things really are.

    Today, high frequency trading is conducted by computer algorithms that predict market behavior and make rapid investment decisions mere mortals could never keep up with.

    In 2012, Zero Hedge reported that a whopping 84% of ALL stock trades are conducted by high frequency trading computer systems. 84%!!

    A new study of related technology patents confirms that this is taking place on a larger scale that anyone even realized:

    The way financial assets are traded, and the nature of the markets themselves, has dramatically changed over the last two decades, says study co-author Dr Ivan Diaz-Rainey of the University’s Department of Accountancy and Finance.

    “Trading a share-once a hands-on transaction taking around two minutes-is now handled in mere nanoseconds by computers in many markets around the world,” he says.

    “A ‘technology arms race’ is well underway as firms vie to shave even more time off trading and maintain their competitive edge. But it’s not just about trading speed. We’re seeing technology used more when firms are first issuing securities and even the use of neural networks in portfolio selection.”

    Yes, neural networks. As if the Federal Reserve era of finance wasn’t skewed enough already, for some time now there have been computers actively learning how to better game the system (and you).

    And they have taken over almost everything.

    A paper titled Portfolio Selection with Predicted Returns Using Neural Networks:

    The Markowitz’s Portfolio Selection Model defines the return and risk variables as first-order statistical measurements, which have made this model to be known as mean-variance model. We carried out investment simulations using real data with the Markowitz’s model and our model. These simulations shown that the prediction-quadratic deviation model can achieve a return 12.39% higher than the mean-variance model.

    Our experiments show that … the prediction-quadratic deviation model selects higher proportions of stocks with predicted returns higher than the mean returns used in the original model, and also because it can pick solutions on regions of the return-risk space that are unknown for the classical model.

    Keep in mind that these formulas for computer-based investments are literally getting better all the time, as they are learning as they go. Moreover, they are starting with awareness of many market factors the average person knows nothing about, and even insiders can’t realistically factor into human-only trading.

    Automated trading strategies are drawing from a wealth of data about market performance and consumer trends to making investment decisions in a fraction of a second.

    In a paper titled, “Making markets: infrastructures, engineers and the moral technologies of finance,” sociologists from the London School of Economics argue that:

    The electronic order book grounded the single most important qualitative revolution in recent finance: its adoption displaced trading from the floors of stock exchanges onto global electronic trading networks, changing the spatial scope and interactional character of the marketplace. Its adoption also transformed the speed and politics of financial markets, as illustrated by the rise of automated trading strategies that exploit the affordances of computers and communication networks to generate profits in fractions of a second.

    Between 2000 and 2009, the aggregate value of trading in global stock markets grew by 61%; the number of trades, however, grew by 700%. Trades today are smaller than what they were ten years ago, and they take place at higher speeds — turnover velocity 1 in most mature markets is generally above 80% (the NYSE Euronex and NASDAQ are notable examples: their turnover velocities are 138.5% and 300% respectively).

    This means that those firms using this and other emerging technologies, which has only come to light through an investigation into the development of industry-related patents, have a definite edge on the market.

    Financial trading expert and critic Max Keiser called the entire system a hologram, capable of masking deflation and inflation through the feedback loop of these computer algorithms, programmed behind the scenes to manipulate for human interests:

    In place of reliable price signals (based on the supply and demand of buying and selling) we have price signals that are generated by computer algorithms; i.e., computers executing program trading, high frequency trading and algorithmic trading — that account for up to 70% of the trading activity on the NYSE (or 100%, if you consider any shares traded — not involved in program trading — can’t buck the pricing monopoly of the computers).

    Program traders have a virtually infinite line of credit, pay virtually zero commissions, and are backed by banks on Wall St. with strong political connections who are ready to bail out any losing bets these computers make.

    Plus, the computers are able to do something normal buyers and sellers can’t do. They can pick a price they want a security to trade at and then fill in all the necessary trading volume needed to get the price of the security to that point. In other words, you can program computers to rig markets.

    In this new rigged market capitalist model, the corrupt bank picks the price it wants a security to trade at and the computers buy and sell with each other until that price is reached; thus providing an audit trail of trades that looks on the surface like actual price discovery.

    And each price manufactured by computers generates a reaction price in every other security and commodity as the rigged market price signal ripples throughout the interconnected securities market around the world.

    The average investor just doesn’t stand a chance, unless they are part of the system that is rapidly buying up and developing these investment technologies.

    The researchers have equated this to a technological arms race that is empowering the already dominant ‘incumbent’ firms on Wall Street and London, and also making way for influence by emerging tech-trading firms:

    New Zealand researchers said Monday they have traced the origins of a “technological arms race” that gives Wall Street an advantage in the international markets.

    The University of Otago researchers scanned the United States Patent and Trademark Office database for market infrastructure (MI) patents for software or hardware using in trading filed between January 1976 and December 2013.

    […]

    “Established economic theory tells us that new firms will play a leading role in transforming an industry. However, traditional finance firms are powerful and commercially astute so it is reasonable to assume at least some will have responded aggressively by patenting new MI technologies themselves,” said Diaz-Rainey.

    “We identified software companies and smaller brokerage firms that have invested heavily in technology internally and through market acquisitions, right alongside major incumbent firms like the Chicago Mercantile Exchange and Goldman Sachs.

    The study revealed that the leading MI patentee was not an established firm, but a private software firm, Trading Technologies International.

    […]

    “At a basic level, all markets are increasingly integrated — if Wall Street sneezes, New Zealand is likely to catch a financial cold. So I guess a question is do we want to move towards this?” said Diaz-Rainey.

    By the way, Trading Technologies International lead by CEO Rick Lane, who worked for Google after making significant developments in the high frequency trading field, before rejoining Trading Technologies. He has extensive experience in the very areas he is in the midst of transforming:

    Rick worked for a proprietary trading firm, where he developed trading algorithms for the Chicago futures markets. Before entering the financial sector, he worked at consulting firm Booz Allen Hamilton, where he developed defense-analysis software for the U.S. Department of Defense and other government agencies.

    The question is, with a market this sophisticated and so … tilted, err… rigged for the establishment players and their cronies, how long will it be until the next crisis hits, and takes everything from the little people?

    Or will this system ever be recognized as inherently corrupt, flawed and dismantled in time to save the economies of the globe?

    Because this technology has everything to do with the looming and completely disastrous derivatives weight that could come crashing down with absolute force at any time. Based on little more than a complex illusion. Ponder the thought.

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      31 Comments

      1. eppe

        Dedicated fiber optics make it happen, that and a whole bunch of other stuff…

        • OutWest

          Rage against the machine, Mo Fo’s.

          • sixpack

            …and just think, the NSA and CIA get it all in real time…

        • Kulafarmer

          Was listening to a piece on NPR about that, these big firms had actually been building their own FO trunks so they can straighten out their run to the exchange. So the exchange to make it fair set up a whole section dedicated to servers with exactly the same length cables so that everyone is on the same plane for trades, was interesting, crazy and wayyyy out of my league and world but still interesting

          • eppe

            Kula; think of it like this. Info is digitized, 1 & 0’s, or light and dark, on and off. These are sent down the Fiber at the speed of light. If one were closer than the others, they would be nanoseconds faster, and the order would be filled before the others, an advantage…
            Question for all:
            What is the upper top bandwidth of glass fiber optics?

            • John Q. Public

              Current technology, a bit (pun intended) more than 100 Gigabits/sec is possible, but 10-50 Gigabits/sec is typical.

            • eppe

              For everyone that was guessing, here is an article that will answer that question…

              ht tp://www.highspeedexperts.com/fun-fiber-facts/

              How about a joke?
              A network engineer was telling his office mate, “I just bought a new hearing aid. It cost me four thousand dollars, but it’s state of the art.”

              “Really,” answered the co-worker. “What kind is it?”

              “Twelve thirty.”

              • eppe

                Could fiber optics be from above???

                ht tps://www.youtube.com/watch?v=Qb_6cz7A71Y

                Ancient Aliens on crashed UFO’s reverse engineered F.O.

                I know it is out there, but it is only a 5 minute spin….

              • The Old Coach

                This stock exchange mainframe – it wouldn’t be called Hal, would it?

                • MXLord327

                  What are you doing, Dave?

            • Paranoid

              Better question: Who cares? I used to trade a little. Look around find a co that had good products people used and would be using more and bought them. Made some good money, now that the crooks are in charge; why in the world would I bother? Shortly there will be no one in the market except these guys and it’s all over.

      2. WIprepped

        Obviously the rich will be the only ones who have this technology. This just accelerates the flow of money from someone who has the technology and the ones that don’t. If these systems can learn as they grow, they should never lose their masters money. And for them to make money someone has to lose on the other end.

        We can only hope when the shtf, the programs will short circuit from info overload and take the whole market out.
        molon labe

      3. Kfilly

        Most people are too ignorant, apathetic, lazy, or just too dumb to get it. I am done trying to wake up sheeple. I am not going to risk myself or my career to item to inform people who don’t even care. These sheep deserve everything coming their way.

      4. sd mule

        The JEWS are relentless when it comes to money. They always have been and always will be. Why wouldn’t they be, they are the “Chosen People”, right? You say something that questions their actions, you are labeled “Anti-Semitic”. So you don’t forget, there will be plenty of Holocaust movies, Hitler references in the MSM, threats to Israel from various “Almost Nuclear” middle Eastern countries. Guilt, always pushing the guilt, constantly in your face with the guilt while their hands are reaching for your wallet. Ah, the programmed masses.

        • femaregion1

          The only thing the sheeple SHOULD feel guilty of is contributing to their own destruction. Or should I say OUR destruction, because even thought alot of us are wide away, we are not the majority. If we were, oh man where do I begin? Every single one of these corporate rats would be put on trail, found guilty, and hung for the traitors they are. The problem is the weak majority don’t want to give up their toys. The day they wake up and stop buying movies, music, and everything else the hollywood scum push on us, THEN you’ll see a REAL revolution.

        • The Old Coach

          If the Jews are all that powerful, why ain’t you pushing up daises?

          • sd mule

            Old Coach,
            They need you alive in order to rob your productive value.

      5. just me

        modern technology. The faster the better. right?

      6. Tricia

        Just a tiny, tiny percentage made off of each transaction adds up fast when those trades are done at the rate of thousands per second.

        Ever wonder where all that money comes from when things go up and where it goes when they go down? It’s all just become a sort of money pump, a legal money laundering scheme.

      7. Stolz Vorfahren

        Mili seconds, Nano seconds doesn’t make a difference to me since I am not part of the Zebra Owned Casino. Plus I want to see the reckoning of this system.

        But as a SW Engineer I like the speed /design.

        • OneOfMany

          Happy holocaust remembrance day Stolz! Lest we forget.

      8. Woogie

        Well then it will cause loss of jobs, and the mille-second speed will crash the market faster in a downturn. Whoopie

        • Stolz Vorfahren

          Woogie, That’s how they control us. That’s how they destroy us. I still want their reckoning.

      9. jaxx

        The more articles like this that I see, the stronger the urge becomes to look at real estate ads in the Rocky Mountains for places with some acres off the grid.

        When I was a kid my favorite TV show was Grizzly Adams. I spent several years in grade school wanting to be a “mountain man”. I grew out of that; now it seems like I’m growing back into it. My sister–my only sibling–died a few years ago…my folks are getting pretty elderly and both of them are starting to have health problems. When the time comes and I’ve buried both of them too, it may be time to just try to “lose the madness over the mountains and begin again”. Whether or not my wife wants to join me.

        • Tricia

          Most mountains in the west should be avoided.

          Fires in general and flash floods at the lower extremes.

          Look for wetter areas away from flood zones.

      10. Ass hat

        Said multiculturalism destroys the white race it make me sick race traitors a lot of white women are pigs these girls are always left with no man to provide because most black men can’t keep a job the white girls like the bad boy thug types. My momma told me that I should not go with black women because it will confuse my kids racial identity my mother is not racist but she did grow up in Kentucky. I fully understand why she told me this. I know a lot of good black folks. I’m not against them they are Americans and gods people that’s good enough for me. But we are different for very good reasons god made it that way. The Jews want this race melting stuff the agenda is to put us all on the same playing field this takes attention off them. If you have ever noticed Jewish men will not go with a non Jewish woman. I’ve never seen it myself. Jews are always the middleman always in the middle. If you invented something that would make you rich beyond your dreams you will be approached by Jews they want in on your $. They have ownership of the most successful company’s coca cola timberland and others so if your invention became that successful you will comply with the Jews.

      11. Mr Smith

        These computers will get into a loop sooner or later and bring down the whole system which is good because the zionist bankers are all getting far too rich at our expence.

        I think the game is coming to an end because trading does not create real wealth and just digits and if everyone who has these digits tried to buy goods with them then the price of a loaf of bread would go up to $99.00

        Gold/Silver is the money I like to keep because it keeps wealth away from the banksters and that on its own makes me feel nice.

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