Wednesday, January 28, 2009

Are large traders destroying the market ?

Alan farley writes: (Full article here )
Machines. Finally, let's talk about program trading and the ultra ETFs. I'm squarely in the camp that believes these two factors, taken together, are destroying the fabric of the worldwide market structure. Beyond that, they've frightened away huge amounts of public capital that now believes they can no longer compete in the financial markets.

As far as I'm concerned, this is a clear case of manipulative activity that goes against overriding public interest. It's destroyed the auction place by creating synthetic market inefficiency -- i.e., the ability to control price direction through brute force. Sadly, I have little faith that our regulatory officials will ever comprehend the sinister power of these destructive bots.

My Notes: A few months back, with SEBI permission, the NSE allowed large entities to automate their trading process, providing for progam trading. Is this damaging the Indian market ? Most probably, yes.

6 comments:

lokanath said...

Alan Farley is the writer of "The Master Swing Trader". Can I have your opinion about that book?

SWEETY said...

Sudarshan sir, automated machine trade by big traders are blessing in disguise to petty traders like me.. If some one scrutinse intra-day charts of various scrips / index charts carefully for three or four months, we may be able to find out the trendsetting / trend reversing pattern - as a petty trader i will follow that trend and be merry.

I 100% agree with you on your opinion in general; but in reality as a poor petty trader i donot have other choice, but to go with the trend, becas the necessity forces me to close the trade day with surplus cash only.

Regards

DINESH said...

Dear Sir, I am a day trader and having a very tough time. What do you suggest for way forward to trade profitabaly as most of my technical indicators are not producing profits in last one month of so.

pranav.kulkarni said...

Dear sir, request you to throw some more light on pragram trading and how large players are taking undue advantage of the same.

Basudev said...

Dear Sudershanji, I would like to explain as follows. Computers carry out instructions of humans exactly as it is instructed. In that sense it executes a task as per laws deduced by humans. In this case it works in exact accordance with trading rules formulated by humans and programmed into it. This can be for instance execution of a stoploss order in an identical fashion of a human. Its advantage over a human is that it is able to track enormous data which would have been otherwise impossible for any human. The question therefore is one of whether unusually high volume trades are dangerous. This can be discussed later

Basudev said...

Dear Sudershanji, On progr trd I would like to explain as follows. Computers carry out tasks in exact accordance with instruction given by humans i.e. it merely executes instructions given to it.
In this case the instruction could be the trading rules formulated by humans. e.g the programe will direct the machine that as soon as the price = stop loss price fed to the system, the machine will execute the trade.In other words the computer will do what humans want it to do and nothing beyond.Its advantage is that it can track enourmous amount of data which is impossible for humans. The question therefore is whether ability of humans albeit with the help of computers, to track hitherto impossible data and work on it, is dangerous. This can be basis for future comment

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