This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Rise of the Stock Market Machines: Human Intervention Impossible

By Hal M. Bundrick

NEW YORK ( MainStreet) -- It's an invisible stock market lorded over by a new machine ecology executing trades at a speed undetectable by human beings. Researchers say this subsecond market activity shows "an intriguing correlation with the onset of the system-wide financial collapse in 2008" and generates a hidden universe of competitive machines so advanced "humans lose the ability to intervene in real time."

And this nano-market mastered by aggressive, high frequency trading bots crashed over 18,000 times from 2006 to 2011.

Led by Neil Johnson, a University of Miami physics professor, a group of researchers analyzed millisecond-scale stock market data from Nanex and identified large numbers of subsecond "ultrafast extreme events" (UEEs).

"Our findings are consistent with an emerging ecology of competitive machines featuring 'crowds' of predatory algorithms, and highlight the need for a new scientific theory of subsecond financial phenomena," the study says.

Johnson and his fellow researchers say there is a billion-dollar "technological arms race" underway to reduce communication and computational operating times down to several orders of magnitude below human response times -- toward the physical limits of the speed of light.

"For example, a new dedicated transatlantic cable is being built just to shave five milliseconds off transatlantic communication times between U.S. and U.K. traders, while a new purpose-built chip iX-eCute is being launched which prepares trades in 740 nanoseconds," the report states. "In stark contrast, for many areas of human activity, the quickest that someone can notice potential danger and physically react, is approximately one second. Even a chess grandmaster requires approximately 650 ms just to realize that she is in trouble (i.e. her king is in checkmate)."

The team uncovered an explosion of UEEs beginning in 2006, just after new legislation came into force that made high frequency trading more attractive.

"We find 18,520 crashes and spikes with durations less than 1500 ms in our dataset," the researchers say. These flash trades adjust back to the prevailing market price within milliseconds.

Science officer Spock would certainly say that this was all quite "fascinating," but would quite likely add, "A difference that makes no difference is no difference."
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
YHOO $27.05 -3.29%
AAPL $95.01 1.05%
FB $99.75 -4.15%
GOOG $682.74 -0.12%
TSLA $147.99 -8.99%


Chart of I:DJI
DOW 16,027.05 -177.92 -1.10%
S&P 500 1,853.44 -26.61 -1.42%
NASDAQ 4,283.7530 -79.3910 -1.82%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs