NANEX: Nightmare on Elm Street for HFT Traders

A thoughtful headline and a very good article about the small firm NANEX in this week’s Bloomberg piece:

Staring at four computer monitors, Eric Scott Hunsader, the founder of market-data provider Nanex LLC, looks for hints of illicit trading hidden in psychedelic images of triangles dancing with dots that represent quotes to buy and sell U.S. stocks broken down by the millisecond.

Charts of trading produced by Hunsader’s eight-person firm have captivated everyone from regulators to art gallery owners. One stunt involved a computerized piano piece mimicking quotes for an exchange-traded fund. He infuriates some traders, who say Nanex draws unwarranted conclusions and spreads conspiracy theories.

To Hunsader, the images created from market feeds are evidence of high-frequency trading firms exploiting market rules to turn a profit in a lawless environment. Though others in the industry see his reports and charts as propaganda, Nanex’s interpretations are helping to drive the public debate about the fundamental fairness of the modern stock market.

I’ve blogged about the importance of NANEX’s post on the blog in the past, particularly this excellent post titled “Einstein and The Great Fed Robbery.”

Why care about NANEX is doing? Because:

To illustrate computerized trading to the general public, Nanex has turned trading data into animated videos, with triangles and dots representing tens of thousands of orders dashing between exchanges. One video he posted on YouTube showed a 50-millisecond period in which quotes for Nokia Oyj dashed around the market at a rate of 22,000 per second. The video, published on Oct. 9, has been viewed more than 6,400 times.

He programmed a computer to play piano notes corresponding to different bids and offers for a popular exchange-traded fund, resulting in a manic staccato composition even when slowed down. It was meant to highlight what Hunsader says is the absurdity of modern computerized trading.

Worth reading the entire piece here.

PSA: This Blog Now Has a Tip Jar

At the suggestion of an anonymous reader of this blog, I’ve added a tip jar page. If you’re willing and able to contribute, I appreciate your support. I certainly don’t foresee making rent-generating income from the donations, but hopefully it would pay for a few coffees to help me get up earlier in the mornings and make a few interesting posts. Thanks for your support in advance!

Tip Jar

Felix Salmon: “Everybody Is a Curator”

An interesting post by Felix Salmon on “promiscuous media.” He thinks that because of the proliferation of blogs and various social media services, everyone is a curator (I don’t disagree):

Everybody is a curator, these days: publishers design platforms for certain types of content, editors shape publications by deciding what to leave out; journalists try to make sure that the stuff they’re doing is expressed to its best possible effect on the best possible platform. The result is a more fluid media ecosystem than we’ve been used to, but also a more effective one. Let content live where it works best; that way, the publishers of that content will be able to present something with maximal coherence and a minimum of feeling that they’re trying to do something they’re not particularly good at. The publishers who win are going to be the ones with addictive, compelling, distinctive content. Rather than the ones who are constantly flailing around, trying to copy everything that’s good somewhere else.

I don’t think blogging is dead. It’s just evolved.

What are your go-to sites for blogging? I’ve been on the fence about Tumblr: I like its ease of publishing, but what do I blog about?

The Golden Age for the Individual Investor

Tadas Viskanta, founder and editor of financial blog Abnormal Returns, writes that there has never been a better time to be an individual investor. Citing the advent of low-fee ETFs, blossoming of options markets, and most importantly the rise of technology and social tools, Tadas explains his argument:

  1. Easier:  Investors today can with a brokerage account and a computer is now only a few mouse clicks away from a globally diversified portfolio of ETFs that in terms of expenses rivals what institutions paid a decade ago.  For all intents and purposes the expense ratio on the big ETFs is closer to 0.0% that 1.0%.  Many brokers now allow online trading of individual bonds and overseas securities.
  2. Cheaper:  Brokerage commissions continue to get driven towards $0 over time.  In fact, many brokers today provide commission-free trading of a range of ETFs.  Options strategies that would have been cost-prohibitive a few years ago are now viable strategies today.  Do you remember when you used to have to pay extra for real-time quotes?  Today real-time quotes are a commodity.
  3. Richer:  The range of asset classes, sectors and strategies available via ETFs is truly dizzying.  It is even for interested parties hard to keep up.  Will most of these more exotic strategies fail?  Probably.  But sometimes a strategy, like low volatility investing, that is based in deep academic research, becomes available to investors.
  4. More social:  Blogging and microblogging (StockTwits & Twitter) has opened up the world of idea generation to the masses.  Anyone with a computer these days can put his or her ideas out there for the world to see.  The blogosphere and Twittersphere is a meritocracy, albeit imperfect, where the smartest and most generous contributors rise to the top.  The social model is pushing into things like earnings estimates with Estimize and institutional-grade services like SumZero.  Many bloggers these days make fun of the raft of ‘free’ webinars that go on these days.  But if you think about it the software and Internet speeds were not there to make mass online seminars possible not all that long ago.
  5. Smarter:  The raw material for investment analysis and trading is of course data.  Financial and price data is for the purposes of most individual investors is free these days.  Many firms are using data in interesting ways.  In the area of fundamental data some firms likeTrefis and YCharts are making fundamental analysis easier.  A firm like AlphaClone allows you to track the moves of (and invest) like the big hedge funds.  When it comes to portfolio level data firms like Wikinvest are aggregating account data making analysis easier for investors.
I’ve been following Tadas’ blog for about six months now, and his daily links are superb. Indeed, Abnormal Returns (and its Twitter feed) is a blog I peruse daily.

Andrew Sullivan on Blogging

I’ve just stumbled upon Andrew Sullivan’s essay “Why I Blog,” and it is brilliant. The prolific blogger that he is (previously at The Atlanticnow with The Daily Beast), this was a joy to read:

The blog remained a superficial medium, of course. By superficial, I mean simply that blogging rewards brevity and immediacy. No one wants to read a 9,000-word treatise online. On the Web, one-sentence links are as legitimate as thousand-word diatribes—in fact, they are often valued more. And, as Matt Drudge told me when I sought advice from the master in 2001, the key to understanding a blog is to realize that it’s a broadcast, not a publication. If it stops moving, it dies. If it stops paddling, it sinks.

Furthermore, Sullivan explains how blogging is participatory:

To blog is therefore to let go of your writing in a way, to hold it at arm’s length, open it to scrutiny, allow it to float in the ether for a while, and to let others, as Montaigne did, pivot you toward relative truth. A blogger will notice this almost immediately upon starting. Some e-mailers, unsurprisingly, know more about a subject than the blogger does. They will send links, stories, and facts, challenging the blogger’s view of the world, sometimes outright refuting it, but more frequently adding context and nuance and complexity to an idea. The role of a blogger is not to defend against this but to embrace it. He is similar in this way to the host of a dinner party. He can provoke discussion or take a position, even passionately, but he also must create an atmosphere in which others want to participate.

Perhaps my favorite one liner from Sullivan’s piece is this: “A good blog is your own private Wikipedia.” What I post here, for example, I want others to know/learn as well. On at least a half dozen occasions, I have searched through my archives (or via the search box on the right) to find something I linked to that was worth mentioning in a dinner conversation or a friendly dispute with a coworker.

Finally, Andrew’s metaphor for a blogger is spot-on:

There are times, in fact, when a blogger feels less like a writer than an online disc jockey, mixing samples of tunes and generating new melodies through mashups while also making his own music. He is both artist and producer—and the beat always goes on.

The whole piece is a must-read.

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(via Alexis Madrigal)

How To Be a Better Blogger

Dan Frommer’s post on how to blog better is one of the most helpful blog posts I’ve read this year. Here are some of Dan’s ten tips to be a better blogger:

  1. Above all else, factual accuracy and attention to detail. That’s the easiest and best way to build and maintain trust over the long-term. If a fact is wrong, fix it and don’t be shy about it. If an opinion or prediction is wrong, learn from it and consider explaining how you got it wrong.
  2. Write the site that you want to read. That covers story selection, length, frequency, style, vocabulary, attitude, humor, level of sensationalism, and more. Don’t publish anything you’re not proud of. Be yourself.
  3. Be more skeptical. Companies and people have no interest in telling any side of the story but their own. Often, that side is flawed, invalid, or incorrect. Let someone else be the gullible one who looks silly later: Always question everything. (But don’t let it turn you into too much of a conspiracy theorist.)
  4. Try new things, all the time. Especially those that are a little outside your comfort zone. This is the Internet — don’t act like you’re writing for Time Magazine in the 80s. Stories can be pictures, charts, lengthy essays, numbered lists, or 140 characters. Measure how your experiments do, and take the results into account for the future.

However, I think the most important lesson for me is regarding attribution. I make it very clear when I quote or paraphrase, but what I have to get better at is referring you, the reader, to click over to the original piece I link to. Writes Dan:

Aim to become as big of a traffic referrer as you possibly can — not only is that good policy, but it’s a great business asset.

Amen. With that in mind, you should read Dan’s post to see his other tips for better blogging.

Blogging Borders

While not an independent blog at The New York Times, Borderlines (authored/moderated by Frank Jacobs) offers a fascinating look at countries and the border lines that divide them. Why are some borders so strange? The series attempts to answer questions per specific case studies. And though the series began in October of this year, its few posts have already been thoroughly enlightening.

For example, there is this about Libya:

[T]hrough all the millions of words published in the last nine months about Libya, you’ve never heard of UNASOG, the United Nations Aouzou Strip Observation Group. Stuck along the Libyan-Chadian border, the 1994 peacekeeping mission has neither suffered casualties nor inflicted any, but it does have one particular claim to fame: at a duration of only one month, with a mere nine observers and a $64,000 price tag, it is reputed to have been the United Nations’s shortest, smallest and cheapest peacekeeping mission ever.

My favorite border story so far is the one about the (incorrectly-posited) straight border between United States and Canada:

Consider: What is the longest straight-line international boundary? Why, that has to be the American-Canadian border between Lake of the Woods (Minnesota/Manitoba) and Boundary Bay (Washington State/British Columbia), which runs for 1,260 miles along the 49th parallel north. Right?

Nope. It may look that way on a world map. But zoom in close enough and it turns out that the straight line running along the 49th parallel north is not really on the 49th parallel north. And it isn’t straight. Like, at all. Marked by a 20-foot strip of clear-cut forest, the border may seem straight as a ruler. But as it zigzags from the first to the last of the 912 boundary monuments erected by the original surveyors, it deviates from the 49th parallel by up to several hundred feet.

Borderlines is definitely worth checking out when you have a chance.