Bitcoins Are An Expression of Property Violation

[MindMover]

I don't want to spend too much time on HFT here, particularly since Michael Lewis has brought so much warranted attention at, I assume, far greater detail and entertainment. I do, however, think there is an aspect of this modern "evolution" that highlights a growing disparity and the retracement toward soft type of what can only be described as feudalism. Maybe there is inevitability in the transformation of technology, particularly as it relates to "markets" and information, but that should not necessarily constitute an entirely new order.

There has existed a practice going back to Chicago pit trading, as my colleague Doug Terry was intimately familiar, called zero plus scalping. It was a market maker's intention to limit the downside of any order position. Market makers provide liquidity through their order books, requiring them at times to take positions. That creates risk for both the trader and the firm.


In seeking to mitigate such basic risk, traders attempted to take advantage of their speed and their place in the queue to anticipate any negative "tic." A tic is a movement of one increment in either direction. So if your order is suddenly "elected", that is, you execute a trade, on the buyside you want to avoid a down tic (where you would lose money being long). If you know you can move to the front of the line in the order book and realize a huge increase in trading and speed of analysis, that risk can be fully, or nearly so, eliminated.

Zero plus scalping means that upon "election" you survey the order flow at a far faster pace than anyone else and determine the next tic, at least to a reasonable tolerance. If that tic is anticipated to move against you, your front place in the order book assures that you can offload your position to the next order in line before any trades move the price (or even the NBBO in these HFT times). In other words, you trade in and out before anyone else knows there is a move.

http://www.realclearmarkets.com/articles/2014/04/11/bitcoins_are_an_expression_of_property_violation_101000.html

[aquart]

1. I'm not required to believe a word he says, am I?

Especially when he admits that the case he quotes was thoroughly overturned.

Seems to me he's just mad because Bitcoin's transcendent purpose of tax evasion is being stymied.

Poor fella.