High Frequency Trading-Predators in the new Machine Ecology

Spannende Studie der Uni Miami, die sogenannte Ultrafast Extreme Events (UEEs) in Aktienmärkten untersucht haben. Das sind, verkürzt formuliert, Mili-Crashes und -Spikes in Kursverläufen, die durch die Interaktion verschiedener Algorithmen während High Frequency Tradings zustande kommen. Die Wissenschaftler sprechen in der Studie von einer „Maschinen-Ökologie“ mit Raubtier- und Beute-Algorithmen, deren Verhalten superkurzzeitige Kursschwankungen sind, in die der Mensch unmöglich eingreifen kann. Faszinierend, wenn es wirklich eine Singularität geben wird, dann dürften die ersten Ausläufer ungefähr so aussehen.

“Even though each trading algorithm/robot is out to gain a profit at the expense of any other, and hence act as a predator, any algorithm which is trading has a market impact and hence can become noticeable to other algorithms,” said Neil Johnson, a professor of physics at the College of Arts and Sciences at the University of Miami (UM) and lead author of the new study. “So although they are all predators, some can then become the prey of other algorithms depending on the conditions. Just like animal predators can also fall prey to each other.” […]

Now, while we’ve known about high-frequency stock trading for years now, what’s less known is the frequency of ultrafast extreme events (UEEs). In the context of stock trading, a UEE (sometimes referred to as a flash freeze) manifests as a crash or spike. That is, an event in which a stock price ticks down or up at least ten consecutive times before changing direction, and the price change exceeds 0.8% of the initial price.

According to Johnson’s research, there were a jaw-dropping 18,520 crashes and spikes with durations less than 1,500 ms between January 2006 and February 2011. And disturbingly, as the duration of these UEEs fell below human response times, the number of crashes and spikes increased dramatically. What’s more, these crashes could not be attributed to other factors.

io9: A new digital ecology is evolving, and humans are being left behind
Nature: Abrupt rise of new machine ecology beyond human response time