A well made documentary of automated trading at the institutional level.

[JohnnyRy]

The video is dated 2013 but still very relevant and very interesting:

 

[JohnnyRy]

For a US SEC regulatory update (about 10 years later), see the proposed amended SEC rule at: https://www.sec.gov/files/rules/proposed/2022/34-96493.pdf (Disclosure of Order Execution Information).

[skyreach]

WHY THE FINANCIAL SYSTEM FAIL?

A great factual video.

Winners and losers do NOT JUST HAPPEN.

The financial industry has all types of methods they have worked out over decades, the time periods in all time frames and their effects, how long traders are willing keep open losing positions, and on betting against the private traders. Everything is looked at and put into the software as various conditions.

Geeks do not on their own create these mathematical systems until paid to do so.

This is (trading) a zero-sum game. So many will lose and some win. The big players take advantage of data of level II and other data, against others. So algorithms will work for a while until someone produces new patterns to crack the plays - it can be never ending system of manipulations.

This means big heavy muscle power has the advantage, on short term plays, over the average trader. Most are made to lose due to false information or miss-guiding the average public to get in at the wrong points. This has little to do with algorithms but snaring money in.

High frequency trading can cause huge stresses in the system and even close the system for a short time because of it. Hence technology can be miss-used due to greed and poor ethical rules, as with any type of game.

For example, Football is a game. It has to follow the good rules strictly and GET PENALISED, if flaunting the rules. The key operating principle is: WHAT RULES EXIST, and ARE THEY GOOD ENOUGH TO PREVENT MALPRACTICES. Otherwise one is playing in an loaded dice game. One with an unfair advantages to the big cats, or sharks (depends on how you look at them).

FACTS TO BEAR IN MIND:

Investing is supposed to be (keep that in mind) about investing your money or the financial institutes money to help finance them so they grow organically as businesses. We have to keep track of the Business fundamentals and how good the management is in running the business - are good or bad?

Ideally we get a return on good running companies. But huge betting , Professionals scalpers with huge bets (in seconds and minutes), CFDs, derivatives to Options are ALL NOT INVESTING AT ALL. This is where the big problems begin.

Derivatives has a natural use for future trading for businesses only, e.g. farmers to fix a price to sell future products, or merchants to buy them at a fixed price in the future.

Other uses of derivatives is abusing the financial system, but allowed - - greed knows NO BOUNDS. So trading is betting, while investing is helping to grow a viable business. Some Bankers helped to create.

This is the basic understanding one needs. Financial industry greed and abuse has helped create the rules and guidelines in law and the investing world.

Financial industry using algorithms are ending up fighting each other to make money, or to gain an advantage over others, etc... They all fail to realise THEY ACTING AGAINST THEIR BASIC PURPOSE OF MAKING FINACE AVAILABLE TO THE INVESTING MARKET FOR VIABLE BUSINESSES. They instead use it in making money out of betting. The latter isn't real capitalism. It is a cancer that also reduces their power in the longer term. So they ARE THIR OWN WORST ENEMY and unfortunately, BRING THE REST OF THE FINANCIAL SYSTEM DOWN, TIME TO TIME.

This is WHY INVESTORS LOSE TOO, at BIG TURNS, and why big crashes occur.

One of the video speaker says it all!!!! SEC IS SLOW TO ACT. One wonders why the SEC  cannot understand it all even though they are educated and smart? Wonder if influences, and misinformation prevents them from acting fast. Wall St. only want to keep their world secret. This NOT NEW. Lot of Ex-Wall St. professionals have revealed the dirty world of Wall St practices.

A crash begins because a mega-huge-seller sells off. Then others in the know follow. An avalanche begins.  Really, it is a no brainer. But people being complicated make us  believe that it is complicated so they will not be found out. And ofcourse the average person will find it naturally complicated as they have NO KNOWLEDGE OF THE SUBJECT, AND THE REAL WORKINGS OF THE REAL PROCESSES SET UP BY WALL St.

Something to think about.

 

 

[skyreach]

For factual data on above article:

See https://business.time.com/2009/05/12/gillian-tett-tells-how-jp-morgan-made-credit-derivatives-big-then-backed-off-before-they-blew-up/

And other brilliant utube documentaries by the Financial Times in the past. Nowadays I find they poor at such fact investigations. A pity really. I wonder who now owns the FT?

SEE ALSO:  

 

Good, true education is vital to the understanding of what's going in the markets.

Have a good trading day!!!

 

[JohnnyRy]

Haim Bodek is still at it... providing trading regulatory consulting including expert witness testimony: https://haimbodek.com/