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High Frequency Trading (HFT) and Agnotology

story © Michael Betancourt | published June 29, 2011 | permalink | TwitThis Digg Facebook StumbleUpon  |  



theory: DIGITAL CAPITALISM

HFT reveals one of the clearest examples of the semiotic procedures of digital capitalism in action. The Nanex analysis of the first "crash" suggests that agnotology can be applied in automated systems as well, simply by using the sequential nature of data processing (i.e. the linearity of computers) to create uncertainty.

The first "flash crash" in the markets happened on May 6, 2010. There have been a number of others since then. It seems reasonable to assume that this will become the norm; to be involved in any market that includes HFT and attempt to trade without the support of this extractive technology is clearly foolish (we all know what "they" say about fools and their money...)

This quote is from the Nanex report:

What benefit could there be to whomever is generating these extremely high quote rates? After thoughtful analysis, we can only think of one. Competition between HFT systems today has reached the point where microseconds matter. Any edge one has to process information faster than a competitor makes all the difference in this game. If you could generate a large number of quotes that your competitors have to process, but you can ignore since you generated them, you gain valuable processing time. This is an extremely disturbing development, because as more HFT systems start doing this, it is only a matter of time before quote-stuffing shuts down the entire market from congestion. We think it played an active role in the final drop on 5/6/2010, and urge everyone involved to take a look at what is going on. Our recommendation for a simple 50ms quote expiration rule would eliminate quote-stuffing and level the playing field without impacting legitimate trading.

The bolded text identifies the agnotological function in operation here: the "congestion" caused by the large number of quotes forces other HTF systems (those not already aware of the quotes because they didn't generate them) to process these requests--thus creating an information gap between one system and all the others. For information processing systems, what we can see with this action is the automation of an agnotism and its application to the HFT computers.






 
 

 
 
  • Nanex report
  • more from theory: DIGITAL CAPITALISM

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