Archive for May, 2010

Intentional Automated Trading Warfare

Thursday, May 27th, 2010
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There currently exist many automated trading programs on WallStreet designed to squeeze fractions of pennies out of trading inefficiencies. Over tens of thousands of trades worth billions of dollars, this adds up significantly.

To my knowledge, there do not (yet) exist algorithms designed to intentionally prey on automated traders. One can envision a machine that makes suboptimal trades at a low volume designed to send a false signal, essentially “trick” the other automated trading machines. Then you pull the old switch-a-roo, and trade at a high volume on the opposing strategy to your trap.

I would not feel bad at all about screwing over other automated traders, and its unlikely such a signal could be detected (and acted upon) by non-automated trading.

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