Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

[The Sicatoka]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

There are machines that can actually make trades faster than the market can react. They'll jump in line to skim a penny of millions of shares at a time. I haven't kept up on the legalities of this kind of high-frequency trading, but I'm guessing there are now limits in place to prevent that.

It's why I don't play day-trader unless I know something is awry.

I'd like to see a "you must hold anything you buy for 24 hours" rule in place. The high-freq stuff would be gone.

 

[FlagDUDE08]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

I'd like to see a "you must hold anything you buy for 24 hours" rule in place. The high-freq stuff would be gone.

Still easily manipulatable. Just like the uptick rule.

 

[Kepler]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

Still easily manipulatable. Just like the uptick rule.

Harder as you make the interval longer, though. How about a month? Or a year? Wring the gamblers out of the market.

 

[Kepler]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

I'd like to see a "you must hold anything you buy for 24 hours" rule in place. The high-freq stuff would be gone.

Tobin tax.

 

[dxmnkd316]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

Harder as you make the interval longer, though. How about a month? Or a year? Wring the gamblers out of the market.

I'm not even sure what the impact would be if you required a month-long holding period. Would traders just move their money? I can't imagine Wall Street just picking up and leaving the US.

 

[Kepler]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

I'm not even sure what the impact would be if you required a month-long holding period. Would traders just move their money? I can't imagine Wall Street just picking up and leaving the US.

How much of trading activity is < 30-day churn? If they're really doing that to their clients they must eat the entire investment for themselves on fees. I know the rich taken as a whole aren't unusually smart, but they're not unusually dumb, either. Who would stand for that?

 

[dxmnkd316]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

How much of trading activity is < 30-day churn? If they're really doing that to their clients they must eat the entire investment for themselves on fees. I know the rich taken as a whole aren't unusually smart, but they're not unusually dumb, either. Who would stand for that?

50% of all trades are considered HFT according to Bloomberg. (Great article: https://www.investopedia.com/articles/investing/091615/world-high-frequency-algorithmic-trading.asp)

I'm guessing that it's more than 50% when using 30 days.

ETA: 48% of HFT traders are proprietary firms according to the article. 46% were brokerages. 6% were hedge funds. So I'm not entirely sure the rich are using HFT so much as the brilliant are getting rich using HFT. COuld be wrong though.

 

[St. Clown]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

How much of trading activity is < 30-day churn? If they're really doing that to their clients they must eat the entire investment for themselves on fees. I know the rich taken as a whole aren't unusually smart, but they're not unusually dumb, either. Who would stand for that?

Brokerage houses have two sets of books, or accounts, if you will. They have one set of accounts which are entirely setup for their clients. Those trade based upon agreements with the clients - either directed by an account/investment manager, or only triggered by instructions put forth by the client. Even those trades directed by an agent of the brokerage can have limits set by account contract to keep them from being churned to death, ergo fees eating all the clients' profits. The other set of books are for accounts strictly held by brokerage firms for their own benefit. When it comes to stocks and bonds, they can (mostly) buy and sell as often as they want. There are limits, but there are easy ways to skirt most of the those limits, too.

With regards to limiting the purchases/sales of assets, mutual funds have 30-day limits in place as under-educated investors were churning their own 401k accounts. Now it's setup so that if you purchase on Day X, and sell prior to X+30, then the mutual fund company can place a purchase-block on your account, keeping you from moving your money into that specific investment again for a set period of time (I forget the period).

 

[Kepler]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

Brokerage houses have two sets of books, or accounts, if you will. They have one set of accounts which are entirely setup for their clients. Those trade based upon agreements with the clients - either directed by an account/investment manager, or only triggered by instructions put forth by the client. Even those trades directed by an agent of the brokerage can have limits set by account contract to keep them from being churned to death, ergo fees eating all the clients' profits. The other set of books are for accounts strictly held by brokerage firms for their own benefit. When it comes to stocks and bonds, they can (mostly) buy and sell as often as they want. There are limits, but there are easy ways to skirt most of the those limits, too.

With regards to limiting the purchases/sales of assets, mutual funds have 30-day limits in place as under-educated investors were churning their own 401k accounts. Now it's setup so that if you purchase on Day X, and sell prior to X+30, then the mutual fund company can place a purchase-block on your account, keeping you from moving your money into that specific investment again for a set period of time (I forget the period).

Thank you, this is all great info.

 

[ticapnews]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

RIP my IRA.

 

[dxmnkd316]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

If you want to make your eyeballs bleed, there is some real craziness going on in the volatility markets. A lot of it is over my head, but a lot of people lost an assload of money on XIV ETFs today. All because of a temporary spike in the VIX.

 

[unh_hockey]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

This isn't a flash crash. The flash crash was caused by a fat fingered or manipulative trade. I tuned to CNBC and MSNBC and they've called the NYSE and other exchanges and they have absolutely no evidence of this being a fat-fingered trade.

ETA: This is likely a result of the automated trading age we're in. WHen you cross markers like the 50-day SMA, you start to trigger the first large wave of computer-generated trades selling. Every step you take generates more. Eventually this snowballs until an actual human grabs the controls again, takes off autopilot, and that's why you saw the bounceback. People saw the stock market pulling a Menards 11% rebate on everything sale and they cashed in.

It might be - algorithmic trading often fails fantastically if there are significant regime changes. you can train and test all the data you want to, but regime changes are very unpredictable and cannot be fully captured sufficiently to train any algo for every conceivable situation. It doesn't really matter what type of model you use on the data, it would be a linear regression model, or even a feed forward neural network - you can train it with all the previous data you want, but a structural change is a structural change.

That said, its hard to tell how much they can move the markets. How much margin debt are these funds employing? On aggregate, I understand margin debt is quite high in general. Maybe stops are hit that cause panic selling for sure. Margin calls and that sort of thing usually start problems, and than people panicking usually make things worse.

Here is something that could add to the situation - short volatility etn (xiv) and etf (svxy) just blew up after hours. the vix shot up recently which caused short volatility vehicles to drop something like 15% today. However after hours they are down 80-90% since 4pm. in the case of xiv, it might liquidate tomorrow per the prospectus which states as much after an 80% drop. I really don't understand the workings of the funds except that they essentially maintain short exposure to "volatility" by simultaneously covering near month futures and shorting the next. Whats worse is that they likely employ some sort of margin to do this. I found out that they have approximately 2.5 billion dollars worth assets under management. The first order problem is simple - the people who decided to short volatility by purchasing these instruments might get wiped out. I am more concerned with the second order impact aka more forced liquidation. These are the types of triggers that can percolate to the broader markets and cause larger selloffs.

I've never liked 50 and 200, though.

I've used 30 week MA this year and have done OK using it. More of my focus is on fundamentals, but I don't like to buy a company whose price is on the decline. The trend is my friend.

 

[unh_hockey]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

If you want to make your eyeballs bleed, there is some real craziness going on in the volatility markets. A lot of it is over my head, but a lot of people lost an assload of money on XIV ETFs today. All because of a temporary spike in the VIX.

Yup. It was a crowded trade, and people were short volatility with the vix trending at 10. Insane. A lot of people got wiped out from this. up until today, the sharpe ratio for this trade was at something like 5 which is very high. Those vix sites who were selling subscriptions were annoying with their cherry picking and touting their strategies. Good riddance.

 

[alfablue]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

I'm not even sure what the impact would be if you required a month-long holding period. Would traders just move their money? I can't imagine Wall Street just picking up and leaving the US.

Where? Where in the world can one make that kind of money? People use that same excuse when suggestions to put capitol gains taxes as normal income. The trillions of dollars in New York trump the rest of the world.

 

[alfablue]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

RIP my IRA.

Are you selling low?

 

[dxmnkd316]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

It might be - algorithmic trading often fails fantastically if there are significant regime changes. you can train and test all the data you want to, but regime changes are very unpredictable and cannot be fully captured sufficiently to train any algo for every conceivable situation. It doesn't really matter what type of model you use on the data, it would be a linear regression model, or even a feed forward neural network - you can train it with all the previous data you want, but a structural change is a structural change.

That said, its hard to tell how much they can move the markets. How much margin debt are these funds employing? On aggregate, I understand margin debt is quite high in general. Maybe stops are hit that cause panic selling for sure. Margin calls and that sort of thing usually start problems, and than people panicking usually make things worse.

Here is something that could add to the situation - short volatility etn (xiv) and etf (svxy) just blew up after hours. the vix shot up recently which caused short volatility vehicles to drop something like 15% today. However after hours they are down 80-90% since 4pm. in the case of xiv, it might liquidate tomorrow per the prospectus which states as much after an 80% drop. I really don't understand the workings of the funds except that they essentially maintain short exposure to "volatility" by simultaneously covering near month futures and shorting the next. Whats worse is that they likely employ some sort of margin to do this. I found out that they have approximately 2.5 billion dollars worth assets under management. The first order problem is simple - the people who decided to short volatility by purchasing these instruments might get wiped out. I am more concerned with the second order impact aka more forced liquidation. These are the types of triggers that can percolate to the broader markets and cause larger selloffs.

I've never liked 50 and 200, though.

I've used 30 week MA this year and have done OK using it. More of my focus is on fundamentals, but I don't like to buy a company whose price is on the decline. The trend is my friend.

Yeah, I'm not entirely sure what's going to happen with the XIV investors or what the mechanism of liquidation is. All I know is there were a lot of people who didn't know what they were doing and lost their GD pants today. Best I can tell, this liquidation was not only warned about in 2014, but **** near predicted back in October. The super shady part of this was it all happened after hours and in minutes. It's like the whales lined up to get theirs first and left the retail standing there to hold the bag, like usual.

It's why I don't trade in ETFs/ETNs I don't understand. Especially when we're talking about these kinds of complex synthetic derivatives. I don't know if retail investors should even have access to these things, despite the fact that's why they were created. But that's might just be part of the problem. These kinds of securities are setup by the banks just to create sales and carve out fees. If the fund goes **** up, they're likely protected. Though I see Credit Suisse is down significantly after hours.

 

[dxmnkd316]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

Yup. It was a crowded trade, and people were short volatility with the vix trending at 10. Insane.

I'm wondering if those were people betting on this being a flash crash that would immediately corrected by the market. Problem is, that's a suckers bet. Mainly because a lot of the people who are playing volatility markets don't really understand the underlying product.

I understand the idea behind shorting it despite the spike. The economy hasn't shown any signs of weakness. Not until Friday and today. And those are just the markets, not the economy. So today's market movements didn't make sense in a lot of ways. VIX has a habit of overreacting (at a lack of a better word). What I mean is that VIX doesn't move... until it does and when it does it tends to be fairly dramatic and short-lived. If there was no reason for VIX to spike, get in and short it with the expectation you'll see it come back to earth in a short amount of time.

I'm reading this post back to myself and I'm realizing it's kind of all over the place. Long story short, trying to outsmart the market, even when you are smart is a risky move. Know what you're getting into bed with and don't think you can outsmart the whales. They're really sharks.

 

[dxmnkd316]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

Where? Where in the world can one make that kind of money? People use that same excuse when suggestions to put capitol gains taxes as normal income. The trillions of dollars in New York trump the rest of the world.

I think you should read my post again. I said I can't imagine it happening.

But we're seeing all sorts of full and partial inversions with corporations. It's only a matter of time before the banks find a way to invert their investing.

 

[unh_hockey]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

Yeah, I'm not entirely sure what's going to happen with the XIV investors or what the mechanism of liquidation is. All I know is there were a lot of people who didn't know what they were doing and lost their GD pants today. Best I can tell, this liquidation was not only warned about in 2014, but **** near predicted back in October. The super shady part of this was it all happened after hours and in minutes. It's like the whales lined up to get theirs first and left the retail standing there to hold the bag, like usual.

It's why I don't trade in ETFs/ETNs I don't understand. Especially when we're talking about these kinds of complex synthetic derivatives. I don't know if retail investors should even have access to these things, despite the fact that's why they were created. But that's might just be part of the problem. These kinds of securities are setup by the banks just to create sales and carve out fees. If the fund goes **** up, they're likely protected. Though I see Credit Suisse is down significantly after hours.

Right, thats what got my attention as well. I don't know if the funds are covering, or getting margin calls or what. All I know is that the NAV of those funds is still significantly lower than what they are trading for, so people looking to get in tomorrow on a bargain could instead be welcomed with a product intrinsically worth nothing.

Most ETFs are okay - especially if their prospectus is easy to understand. For example something like XLE is a good investment if you like the energy markets, and isn't going to rip our face off if something bad happens. The same cannot be said for leveraged ETFS, which even I hardly understand. The offenders I have in mind are UWT and DWT which are triple leveraged crude etfs. Of course they charge fees over 1.2%, and lose value based on the future term structure. Even if you went long on one and short on another, you'd lose. Proof that its less than a zero sum game and the underwriters of this crap are the ones making money.

 

[dxmnkd316]

Re: Business, Economics & Tax Policy 6.0: Nope, it only found woven strands

Right, thats what got my attention as well. I don't know if the funds are covering, or getting margin calls or what. All I know is that the NAV of those funds is still significantly lower than what they are trading for, so people looking to get in tomorrow on a bargain could instead be welcomed with a product intrinsically worth nothing.

Most ETFs are okay - especially if their prospectus is easy to understand. For example something like XLE is a good investment if you like the energy markets, and isn't going to rip our face off if something bad happens. The same cannot be said for leveraged ETFS, which even I hardly understand. The offenders I have in mind are UWT and DWT which are triple leveraged crude etfs. Of course they charge fees over 1.2%, and lose value based on the future term structure. Even if you went long on one and short on another, you'd lose. Proof that its less than a zero sum game and the underwriters of this crap are the ones making money.

Yeah, I guess I don't have a problem with all ETFs, but these inverse 3x ETNs just scream "Late 2000s CDO". They are like playing tag with nuclear weapons. When you win, you win big. But if you lose even by a little bit, you could lose everything. They are far too complex for even advanced traders and should require the bank give you special permission just to access them.

My dad got permission from his bank to play around in margin options markets. He ended up quite a bit but I'm not sure he would do that again. He's lucky one of his shorts hit big. I can't even imagine farting around in 3x leveraged funds, though, I totally understand why they're there.