Mysterious Trading Bots Knife the Market

The flash crash of last May, where the DOW dropped 1,000 points in a few minutes, highlighted the increasing power of high frequency trading bots. On Friday a mini flash crash sliced the value of Plantronics, a $1.5 billion electronics firm, by nearly a quarter in less than one minute.

Analysis firm Nanex has spent the last several months digging into the data from May’s flash crash and discovered some strange results. For the completely paranoid version, check Boing Boing today, via The Atlantic,

“The trading bots visualized in the stock charts in this story aren’t doing anything that could be construed to help the market. Unknown entities for unknown reasons are sending thousands of orders a second through the electronic stock exchanges with no intent to actually trade. Often, the buy or sell prices that they are offering are so far from the market price that there’s no way they’d ever be part of a trade.”

Most disturbing to The Atlantic’s technology editor, Alex Madrigal, were the patterns that revealed themselves, like a crop circle, when viewed at the proper height. Below, for example, is the activity of a traderbot over the course of two milliseconds. Nanex software engineer Jeffrey Donovan, who discovered the chilling pattern, christened it “The Knife”.

hft knife

 These high frequency firms compete for any advantage. It’s been widely reported, for example, that they try and move their machines closer to the exchange floor, to capitalize on the minute difference this distance would make for data already travelling at the speed of light.

Unable to explain what “The Knife” or similar trading patterns were about, Donovan speculated that trading bots may simply be executing random trades in order to introduce some digital noise into the system and throw their competitors off track.

It’s that, or the machines really have begun to think for themselves.

Mysterious Trading Bots Knife the Market