It's Lunch Time! (But I'm a Computer)

[TheDude 10]

All,

 

When I was on the floor, lunch time was slow. Waste of time being there, no opportunity. Obviously traders need a break too and we'd take a lunch break like everyone else - thus the markets would slow: No paper, and no locals.

 

But now, all we read and hear and talk about is HFT's, the % of volume they account for (futures, options, stocks, FX, cash FI etc... the algo's are there). Even large paper orders are now executed over time by an algo. But a computer doesnt need a lunch break! Yet we still see a lunch time lull in all markets where RTH spans a typical lunch hour.

 

Surely this shows that market moving order flow is still provided by discretionary/human decision order flow. If HFT's were driving the decision process, there would be no lunch time lull? The only other explanation (actually IMO the reason), is that the algo's still have a human to watch over them, so are turned off during lunch. Therefore, it would imply that the algo isn't making a decision on its own accord, but is infact simply a labour saving device. After all, as some of you will know, most algo's actually trade around/arb fair value which limits price discovery/vol, not encourage it.

 

Why then are the regulators introducing so many mandates regarding automated execution in the fear 'the bots' will go ape sh!t/flash crash x10 causing a global economic doomsday?

 

Your opinion please....

 

The Duderado

[HowardMH 10]

Every contract traded over 100 per day should be taxed at least 50%. That would stop the Algo machines dead in their tracks, or it would wipe out the national debt in no time. The problem is Wall Street has bought and paid for all Senators and Congressmen that have anything to do with finance laws on Capital Hill, and the Lemmings are to busy trying to scratch out a living to even know what is going on with Wall Street.

[mcaz99 10]

What are the Algo's doing? Or should I say "Who are the Algo's trading against?". If the Algo's are trading against the average joe and joe is at lunch.. Wouldnt it be safe to assume they(The Informed Insider/Algo Machine) have no one to screw? Therefore the daily lull.

[Elroch 10]

Interesting observation! This apparent discrepancy has never occurred to me before.

 

The explanation is that, like humans, computer trading is largely reactive. i.e. some condition occurs in the markets (be it a break of a level, a spike causing an arbitrage opportunity or whatever). Almost all conditions occur more when the market is more lively, so computers are less active at lunchtime in response to the lower activity from human traders.

 

While this is a plausible explanation of the observation of the original poster, it does show that even if humans are not responsible for the majority of the volume of trades executed in many markets, their actions are still the driver of what happens. This makes sense, as if computer programs are designed solely to take advantage of the actions of other computers, the resulting arms race could provide no net gain to the sum of all computer programs. More sensible to try to do things automated systems are ideal for, such as identify discrepancies in prices very quickly and take small profits from them - a great deal of program trading is arbitrage.

[BlowFish 10]

Every contract traded over 100 per day should be taxed at least 50%. That would stop the Algo machines dead in their tracks, or it would wipe out the national debt in no time. The problem is Wall Street has bought and paid for all Senators and Congressmen that have anything to do with finance laws on Capital Hill, and the Lemmings are to busy trying to scratch out a living to even know what is going on with Wall Street.

 

They would just trade elsewhere, somewhere there is not 50% tax.

 

I trade US and pay no tax there due to a tax treaty with my home country.

[hAApallinuu 10]

It’s hard to espy grovel before people on this theme, but you pronounce like you recall what you’re talking about! Thanks