When robots take over trading

The Opening Print

Today I am going to try to give you a view from a guy who was part of the ’87 crash and the 2010 flash crash. While MrTopStep has been talking about the algorithms and computers taking over the futures markets for a long time, the robots and algorithms have gone well beyond the markets, all the way to job growth. Computerization is all around us and not all of it is good.

Robots and unemployment

While today’s Opening Print may not be long, it does intend on sending a message. That message is that we need to do as much reading and studying as we can about how the computers are taking over. Let’s start with last Sunday night’s “60 Minutes” story,“Are robots hurting job growth?” This is a 13-minute, must-see video. http://www.cbsnews.com/video/watch/?id=50154583n

The algorithms we trade with—and against

It’s getting harder to gain a long-term perspective of the markets. I believe that the speed of change in the futures markets is so rapid that not even the CFTC can keep up. What causes crude oil futures to drop $3.00 in one day and rally a full $1.50, traveling a $4.50 range when nothing is really going on in the markets?DOM ladder

I’ll tell you. The computers have figured out when everyone gets too long. The programs feel out the market depth by reading the very same futures ladder that you and I trade off of all day. Once these algos lock on the sell stops it becomes a foregone conclusion.

Bloomberg this week had a story, “Regulators Ask Humans How to Deal With Robot Traders.” It’s filled with great information about the new regulations and how the government plans to deal with algorithmic trading.

While both stories may differ in their theme, the bottom line is that computers are taking over. Almost everything we do from going to a cash station to calling tech support includes computers and algorithms directing traffic. The pros say that everything is safe, but the more computers we use the higher the risk of a system breakdown or a cyber-attack.

Uncertainty through the end of the week

The Asian markets closed mostly lower and Europe is trading trading down across the board. Today’s economic releases include jobless claims, import-export prices, natural gas numbers and a 30-year bond auction.

The ESU futures have been up 6 out of the last 7 trading days for a total of 44.4 handles and are now approaching 1700. The ESU is only 16 handles off its 1705 contract high. It’s a stark turnaround after all the selling around Fed taper talk and the Syrian crisis we saw just 10 days ago. Remember that?

 

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