Hackers Find New Way To Cheat On Wall Street 271
GMGruman writes "The high-speed trading exchanges that conduct the business of buying and selling stocks and mutual funds are so fast that hackers can introduce delays of a few microseconds completely unnoticed by today's network monitoring technology — and manipulate prices in the process to reap millions of dollars to the detriment of everyone else, InfoWorld's Bill Snyder reports. This kind of activity creates new reason to distrust Wall Street and shows how the computer networks we all rely on for conducting business and moving information are ripe for undetectable hacking."
Hacking? (Score:5, Insightful)
Only millions? (Score:5, Insightful)
That's chump change on Wall St. Compared to the kind of stuff Goldman Sachs pulls on a regular basis, I'm not too worried about high-frequency traders getting scammed. What's very clear is that none of it has much of anything to do with actual sound investing.
Re:I doubt it (Score:5, Insightful)
I work in this business as well, this article is pure nonsense. I honestly don't know what the fuck this guy is talking about. Artificial delays would be picked up on immediately, no matter how brief. And it's not like this shit is trading over the internet, all endpoints are known, there is no anonymity, if someone tried this shit they'd be in jail by the end of the day.
Distrust (Score:2, Insightful)
This kind of activity creates new reason to distrust Wall Street
Aw, c'mon! What's wrong with all the old reasons?!?
Good grief... (Score:5, Insightful)
That's not a news article, it's an advertisement.
High-frequency trading networks, which complete stock market transactions in microseconds, are vulnerable to manipulation by hackers who can inject tiny amounts of latency into them. By doing so, they can subtly change the course of trading and pocket profits of millions of dollars in just a few seconds, says Rony Kay, a former IBM research fellow and founder of a cPacket Networks, a Silicon Valley firm that develops chips and technologies for network monitoring and traffic analysis.
(emphasis mine)
A man who claims companies are losing millions due to network latency sells tools to monitor network latency? A reliable source, I'm sure.
Liuqidity! Liquidity! Liquidity! (Score:5, Insightful)
That's what we hear, anyway, whenever anyone proposes that maybe ever-higher-speed trading isn't such a great idea.
It's a load of crap, of course. Yes, liquidity is good. No, restricting trades to, say, one per second -- which is still faster than any trading ever took place during the centuries of stock trading before computer trading became common -- would not bring our economy to a screeching halt. In fact, it would probably encourage economic growth by encouraging actual investing instead of the giant casino that the stock market has become.
Of course, in a casino, the house always wins, and since in the case the house also owns the House and the Senate too, this is never going to happen. Sigh.
Re:I doubt it (Score:5, Insightful)
While not directly for Wall Street, I've been at a couple of related industries (super five 9 HA hardware maker and a free stock website) and I'll wholeheartedly agree; the end results will get noticed faster than you can login to Ameritrade. And what is up with the completely false term "undetectable hacking?" That's got to be the stupidest term I've heard this century. There is no such thing as undetectable hacking. Shame on the coiner's lack of knowledge in computer security and forensics. FAIL.
Re:I doubt it (Score:5, Insightful)
That might let you attack investment banks and hedge funds who are communicating with their brokers over the Internet or VPNs like BT Radianz, but in that situation, it's nothing more than a regular Internet DOS attack. It won't affect real HF traders. If you're HF, your gear is colocated with the broker or exchange, and you use point-to-point links to control it from your office. Attacks would be noticed and attackers identified, as it would have to be an inside job.
Re:Move to quantified data (Score:4, Insightful)
Don't confuse good government regulations with bad. No regulations are completely voluntary, if they were, we would not need to even mention them. No, the reason we have them is precisely because not everyone does the right thing voluntarily. All effective regulations come with consequences for breaking them. There is no fundamental difference between a law and a regulation. Breaking a law amounts to the initiation of force against the parties that enacted the law. Responding to a threat with force is not immoral. The idea that all government regulations are bad is simply an argument put forth by those who do not want to be held responsible for the consequences of their actions.
Re:Move to quantified data (Score:0, Insightful)
AGH! You'll ruin the foundation of capitalism! Down with your regulations, you dirty commie!
Oh noes, not the day traders! People who make lots of money while producing no useful product might get ripped off. Quick, somebody call the whaaambulance!
Re:I doubt it (Score:2, Insightful)
Amen. You're in minority here. With me. I do what you do, and the debate in the public sphere is unbelievably uninformed.
BTW, it's not just option hedging that requires HFT. There's loads of different things to do, and some of them look silly from the outside. I've seen quite a variety of algos, all trying to do different things, on different timescales, on different markets. Of course the media tend to focus on what they've heard of, stocks.
Re:Liuqidity! Liquidity! Liquidity! (Score:5, Insightful)
If the hackers are netting themselves a bunch of money by out-trading the other high-frequency-traders... good for them. It's not my money they're taking...
That's what I thought, too -- until Fall '08 hit, and I found out that if one of the big players lose to these guys, the government bails them out (at which point it *is* my money they're taking), revealing as a sham this whole idea that the big guys nobly make risky bets. No, if you're going to be bailed out on the downside, you weren't taking a risk to begin with -- ever.
In theory, you're right -- but let's bring back the concept of "failing when you're wrong" to Wall Street before blithely dismissing the harm these guys can cause.
And seriously -- is the tiny bit of extra liquidity REALLY worth the billions these guys sink into HFT?
Re:Move to quantified data (Score:5, Insightful)
Imagine you were cashing out your 401k during the 'accidental' crash last year. One second stuff is at 1000, the next it's at 300.
I could be mis-reading your comment...but if you are worried about Joe Average selling off his shares in stock FOO while they are at 1000 a share, and the trade executing moments later when it drops to 300 a share..that's impossible unless Joe Average is very foolish.
When you execute any trade involving significant cash, you use limit orders to protect yourself against exactly that. If stock FOO is $5.50 a share and I want to sell 1000 shares, I place a limit order to sell at $5.50. This means if there is a bid for 7 shares at $5.55, $5.53 or anything $5.50 or greater I will sell at *that* price. But no shares will be sold below $5.50, that portion of my order will remain 'unfulfilled'.
If I mis-read what you meant in your comment...my apologies ahead of time. Otherwise I hope that sheds some light on how trading happens between the orders being placed and the securities changing hands.
Re:Super Computer market dies... (Score:4, Insightful)