I am beyond fascinated by the interactions between competing intelligences that exist in the stock market. It is a bizarre mishmash of humans, AIs, and both (cyborgpeople?).
One recent strategy that exploits this interaction is ‘spoofing‘. The description from the link:
- You place an order to sell a million widgets at $104.
- You immediately place an order to buy 10 widgets at $101.
- Everyone sees the million-widget order and is like, “Wow, lotta supply, the market is going down, better dump my widgets!”
- So someone is happy to sell you 10 widgets for $101 each.
- Then you immediately cancel your million-widget order, leaving you with 10 widgets for which you paid $1,010.
- Then you place an order to buy a million widgets for $101, and another order to sell 10 widgets at $104.
- Everyone sees the new million-widget order, and since no one has any attention span at all, they are like, “Wow, lotta demand, the market is going up, better buy some widgets!”
- So someone is happy to buy 10 widgets from you for $104 each.
- Then you immediately cancel your million-widget order, leaving you with no widgets, no orders and $30 in sweet sweet profits.
Amusingly enough, you don’t even need a fancy computer program for it – you can just hire a bunch of people who are really good at fast video games and they can click click click those keys fast enough for you.
Now some day trader living in his parent’s basement is accused of using this technique and causing the flash crash of 2010 (it possibly wasn’t him directly, but he could have caused some cascade that led to it).
I’m sitting here with popcorn, waiting to see how the ecosystem of varied intelligences evolves in competition with each other. Sounds like Wall Street needs to take some crash courses in ecology.