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Nainder Sarao sits in jail because he cannot raise the £5M bail that is required for his release. He has apparently made millions while living in his parents' basement, but doesn't have access to the money because his accounts have been frozen. What is claimed by US authorities is that "... Mr Sarao placed "spoof" trades in E-Mini S&P derivatives in a bid to push the market in his favour. The orders would be placed and withdrawn in rapid succession using a customised computer programme, they allege", which sounds a lot like high-frequency trading. Perhaps his real crime was to copy the techniques of wealthy high-speed traders?
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UK Citizen in Jail for Causing "Flash-Crash", or Just High-Frequency Trading?
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First study the enemy. Seek weakness.
-- Romulan Commander, "Balance of Terror", stardate 1709.2
(Score: 2) by Justin Case on Sunday May 24 2015, @06:57PM
Maybe this is it. You buy 1000 shares at $100 (investment $100,000). Then you announce to the world that you are going to buy a billion shares at $99, through a limit order you intend to cancel. Everybody goes "OMFG he must know something" so they stampede to copycat and bid it up to $105. You sell your 1000 shares (cash out $105,000, pocket $5000 gain).
First, this looks like it qualifies as taking advantage of stupid people, to which I say, well done, you earned your $5000 and more. Do it again until the idiots go broke and exit the market*, or wise up. You will have provided an educational service worth far more than your payoff.
* Protip: for this to work correctly, the taxpayers must not bail out the idiots.
Second, you put $100,000 at risk. You could have lost some or all of that. Will the gains outweigh the losses if you repeat this daily?
Third, what if the market actually did drop to $99? Then you've entered a contract to buy a billion shares. You can't, of course, so for you it is game over as you go bankrupt and get sued to oblivion. So you can't play this trick very often.
Again, I'm not seeing a long term winning strategy here. So how does it really work? Anybody know? Or are we just hating it because we don't understand it? I mean, I'm willing to get on board and throw some rotten eggs too. I just want to understand why we're doing so.
(Score: 2) by turgid on Sunday May 24 2015, @08:06PM
Someone I know does a lot of "investing" on the side (it's not his day job) frequently gambling thousands of dollars and generally making a profit. He told me he has some very sophisticated spread sheets that he did for modelling companies. He can tell when a company is a good buy.
Apparently there is this thing called "leverage" where you can borrow money to buy an investment and it works something like this: Suppose you think there's a great opportunity to buy some stock on the cheap and that it's likely to go up significantly (5-10%) in value, but you've only got, say $1000 to invest. You do a deal where someone will lend you, say $10000 to buy the stock. You then sell them at a profit, and pay a bit of interest on the "leverage." You've effectively made 10 times the profit you'd otherwise have made.
If a disaster happens and the price falls instead of rising, you're only liable for your $1000 i.e. the institution that lent you the leverage picks up the bill for the rest.
I refuse to engage in a battle of wits with an unarmed opponent [wikipedia.org].
(Score: 0) by Anonymous Coward on Sunday May 24 2015, @09:35PM
Generally when leverage is mentioned it is referring to a simple loan from whatever company you are trading through. In your example, if the $11,000 stocks went down to $6,000 you have lost $5,000 and have a $10,000 debt to pay back at a high interest rate. You effectively are borrowing money from a guy outside a casino because you believe a certain machine will be paying out for you in the very near future.
There are ways to reduce risk trading stocks, but leverage is not one of them.
(Score: 0) by Anonymous Coward on Monday May 25 2015, @04:40PM
"Then you announce to the world that you are going to buy a billion shares at $99, through a limit order you intend to cancel."
Well, obviously this may not be how you want to do it because something like this would be much more noticeable and harder to get away with. But what people probably do on a much smaller scale is they choose very small stocks to play with, one where much less money can have a relatively larger impact on prices. Such stocks are much easier to play with and it would be much more difficult to get noticed. For a multi-billion dollar corporation one may need billions of dollars to really affect the price and some average Joe Blow with no money isn't going to be able to make such a pending purchase in the first place yet alone be able to go unnoticed if they attempt to use billions of dollars they don't have to try and manipulate stock prices. But, yeah, you have the general idea.