Robot Traders Leaving Behind Bizarre "Crop Circles" In Market Data

Following the May 6 “flash crash” in which the market plunged 1,000 points in just a few minutes, a data firm started looking at the trades being made by the high-frequency computerized trading bots that have come to loom over over the stock market. By zooming into the trades being placed by the millisecond the firm spotted several strange algorithmic patterns. Plotted on a chart, they look like the freakin’ the stock market equivalent of crop circles.

Of the above charts, The Atlantic said: 1. “Here we see a “flag repeater” being executed on the BATS Exchange, the third-largest equity market after the NYSE and NASDAQ. 15,000 quote requests were made in 11 seconds in a repeating pattern. Each iteration upped the quote a penny until $9.36, and then the algorithm went down the same way, a penny at a time.”

2. “This is an extreme closeup of just one second of trading of the stock SHG, the Shinhan Financial Group. This is 760 quotes from a total of 10,000 made in 12 seconds.”

3. “This chart shows a different kind of strategy. It represents 56,000 quotes in one second all at the same price (the top chart) but with the size of the order increasing by one (i.e. 100 shares) all the way up to 40,000.”

It’s not certain why these trades, most of which never have a hope of getting made, are getting requested. A way of injecting noise into the system? Somehow take advantage of just a few milliseconds, which can mean the difference between millions in this highly competitive industry where even having your computers physically closer to the exchange is an advantage? Someone just testing out their system? Quote-stuffing market manipulation?

Whatever the answer is, you can be pretty sure the porn-hoovering fools at the SEC don’t know it.

Reminds me of the movie PI: “12:45. Restate my assumptions:

1. Mathematics is the language of nature.
2. Everything around us can be represented and understood through numbers.
3. If you graph the numbers of any system, patterns emerge.

Therefore, there are patterns everywhere in nature. Evidence: the cycling of disease epidemics, the wax and wane of caribou populations, sunspot cycles, the rise and fall of the Nile.

So what about the stock market?”

ZeroHedge has more graphs and conspiracy theories.

Market Data Firm Spots the Tracks of Bizarre Robot Traders [The Atlantic]