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Spring loading is Leading the Existence of Dark Pool Markets

// Posted by on 04/06/2014 (6:15 PM)

When looking at the world around us today we use patterns and formulas for most of our activities. From knowing the exact process at a fast food restaurant to checking the weather these formulas have been created and implemented to… Read more

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When looking at the world around us today we use patterns and formulas for most of our activities. From knowing the exact process at a fast food restaurant to checking the weather these formulas have been created and implemented to make our lives efficient and more useful. The question that is posed in Rushkoff’s blog Present Shock is, are all these processes and mechanization always right? Isn’t it possible that the algorithms could fail and that we cause more harm than good with the way we have relied on them to such an intense extreme. In Present Shock Rushkoff details an example of this.

“A stock market  driven by algorithms is all fine and well until the market inexplicably loses 1,000 points in a minute thanks to what is now called a flash crash.”

This was exemplifying by using High Frequency Trading and the use of algorithms when predicting future share prices. While HFT trading is a huge source of revenue for companies such as BAT, when it fails it could also cripple the entire industry. These algorithms while they are useful and have predicted a huge number of stock trades many humans could not are still subject to failure and should not be followed blindly. When hearing about HFT stocks in the greater business community, for the most part there are no good things. Even in a clip from CNBC it talks about how HTF ‘s may lead to a misuse of information in a two-lane system of information. NY Attorney General Scheiderman argues that it is not within the law to allow a limited access of information to only those that can afford it. This goes hand in hand with the articles we read a month ago about how technology can only further increase this income gap through the lack of information or lack of access to key technological resources.

http://video.cnbc.com/gallery/?video=3000264583&play=1

Another result of HFT and algothrithm spring loading are traders moving away from tradition stock forums and moving to the dark pools of Geneva or what has also been deemed dark markets. These markets will only cripple the broader market more and are said to be worse than simply high frequency trading. These dark pool markets reduce transparency and most of these venues lack integrity. This could result in a huge problem for the markets and for traditional traders. In an article from CNBC that say that “We have academic data now that suggest that, yes , in fact there is a point beyond which the level of dark trading for particular securities an really erode market quality.”

http://www.cnbc.com/id/101558398

    Rushkoff states they have resort to a main strategy of avoiding spring loading situations altogether. This cause traders to lose the advantages of HFT’s trades but regain their sense of control over the market and apply their real world knowledge. However as Rushkoff states this as a solution I am also left without many answers and with many more questions. While it is all well and good to suggest avoiding HFT trades and apply your real knowledge what happens when this is unavoidable. It is certainly unavoidable to trade today without the presence of algorithms and future projections. How does Rushcoff legitimately suggest we avoid HFT’s trading short of entering dark markets, which are even more detrimental, then the existence of high frequency trading. These new forms of trading which have become more and more known are only going to strength with the passage of time and the increase in technology. Should we simply accept these forms or should we fight against them, which seems to be what a majority of the business world is doing today. Will we eventually succumb to these methods and accept them? If that happens we still have to be aware of always present risk that they might fail and that human intervention still needs to be at the forefront of our thinking. We cannot simply hand over our markets to these future algorithms and high frequency trading systems.


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