Jan

18

There was an interesting segment on 60 Minutes on 64 year old Bill Walters who apparently is a very successful professional gambler in Las Vegas who uses statistics and inside information to be a winner.

I never heard of him before. Any thoughts or more information on this gentleman.

William Weaver writes:

Billy Walters…betting the opposite side of a weak line to change the spread and then simultaneously hitting multiple venues for much larger orders before the line is updated.

Not too long ago when the price discovery of metals markets was floor-based, dealers would do the same exact thing, or at least try to, all day long. They would have a couple of different brokers in the pit each bid for a 100 lots of silver knowing that the locals would in turn bid in front of them a half-penny higher. All the while the dealer had a customer on the phone who doesn't have access to the floor and has no idea what is going on other than the prints on his screen. The price goes up and the dealer unloads his physical inventory to the customer, a presumed buyer.

If the customer is a presumed seller, say a producer, the routine is reversed.

It's all perfectly legal, and not remotely unethical as the dealer stuck his neck out by putting large bids or offers out there that could very well have been hit.

Such a seeming advantage is all part of any market's ecology and does not come without a price. There's always some barrier to entry, a hurdle that first must be overcome before exerting that kind of leverage.


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5 Comments so far

  1. Stephen Wood on January 18, 2011 4:38 pm

    Booklist:

    “In 1997, gaming journalist Konik joined the Brain Trust, a sports-gambling operation that took in millions by beating the Vegas bookies at their own game. This fascinating inside look at the gambling biz (perfectly suited, incidentally, to fans of the recent movie Two for the Money) reveals so much information that you would swear the author was breaking some sort of Omerta-like code of silence; in fact, the parallels between organized gambling and organized crime are numerous. The book created plenty of buzz in the publishing community well before its release, so expect a great deal of publicity and high reader interest. The author conceals the identities of the principal players behind fake names, but his fictionalized stand-ins are so compelling (especially the Brain Trust chieftain, Rick “Big Daddy” Matthews) that the book feels like a mixture of true-life expose and high-stakes fiction (fans of Puzo’s Fools Die may see some similarities but only in a good way). A definite must-read for the gambling crowd.” David Pitt

    http://www.amazon.com/Smart-Money-Bettors-Bookies-Millions/dp/0743277147/ref=ntt_at_ep_dpt_1

  2. Brendan Dornan on January 19, 2011 12:56 pm

    This technique was used by the Flipper, or Paul Rotter and otherwise referred to as “quote stuffing.”

    Both are fascinating stories…
    http://www.trading-naked.com/library/paul-rotter-trader-monthly.pdf

  3. Brendan Dornan on January 20, 2011 9:47 am

    Thor Beats High Frequency Traders To A Pulp

    It was only a matter of time before latency arbitrage ran its course, in case you did’t know. According to the article below from The Globe & Mail, Canada’s Royal Bank RBC has revealed a system named aptly enough, Thor, that beats the HFT boys at their own game.

    Kelly Reynolds has found a way to turn the tables on high-frequency traders who have been using their speed advantage to grab profits from slower investors.

    As the head trader at Hillsdale Investment Management in Toronto, she sees a lot of offers to buy or sell stocks that she knows are from high-frequency traders, firms that use ultra-fast computers to trade stocks thousands of times a day to make money from tiny market changes. She also knows that the HFTs are bluffing: their orders are an attempt to get her to reveal what she wants to buy and sell.

    High-frequency traders can then use their faster computers to exploit that information. Once they know Ms. Reynolds or any other investor wants to buy shares of a particular company, they can quickly pull back their offer to sell it to them – only to resubmit it later a fraction of a second later at a less attractive price.

    Such bait-and-switch strategies, often grouped under the fancy term “latency arbitrage,” are believed to generate billions a year in profit for high-frequency traders. Critics say those profits come at the expense of longer-term investors such as mutual funds that don’t have the technology to match the speed of high-speed trading firms, which now account for an estimated 30 per cent of stock trading in Canada, and more than 50 per cent in the U.S.

    Ms. Reynolds, however, is a test user of a new technology that is just being unveiled by the brokerage arm of Royal Bank of Canada that she says has neutralized that strategy. The new system is built as a specific countermeasure to high-frequency traders, and Ms. Reynolds says that she’s now able to grab those bluff orders before the HFTs can withdraw them – every time. The RBC system is “very, very impressive,” she says.

    RBC has applied for a patent on the system, known as Thor. The system has been in development for two years, with RBC adding about 80 people to its electronic trading team as part of the initiative, including some people from the HFT industry.

    The HFT strategy of placing and then cancelling orders to gain an information advantage “just created an un-level playing field,” said Greg Mills, head of RBC’s global equity division. “We sought to build a product to try to solve” the unfair advantage.

    The result, Thor, is a new twist on a stock-market technology called a smart order router.

    In these days of multiple stock markets in every country, brokers such as RBC use smart order routers to blast out orders to all of the trading venues. Want to buy 10,000 shares of XYZ Co. at $10? The router scours the Toronto Stock Exchange, Alpha, Pure and other Canadian markets to find any shares that are on offer at that price. One common type of router, the spray router, then sends out orders for stock on offer on different markets simultaneously.

    However, those orders don’t all get to markets at the same time. Some have longer distances to travel. Others travel down slower wires. As a result, the orders arrive in each market at a different time. The differences are only thousandths of a second, but the technology used by high-frequency traders is so fast that their computers can see orders hitting one market and jump ahead to adjust bids and offers on other markets, in order to buy or sell at a better price.

    “As a trader, there’s a frustration around feeling like you’re being gamed,” and that led to the research that resulted in the Thor system, said Brad Katsuyama, RBC’s head of global electronic sales and trading and one of the developers.

    The Thor system counteracts that gaming by staggering the orders it sends out to ensure they arrive at every market as close to simultaneously as possible. That gives the HFTs no chance to react.

    The system continually monitors the time it takes for an order to get from RBC’s computers to five Canadian markets, as well as 13 U.S. markets, and adjusts the timing of orders to compensate for variances. In Canada, the difference between the fastest and the slowest is as little as 10 one-thousandths of a second. Thor has been able to shrink that to as little as 350 millionths of a second, Mr. Mills said. RBC hopes the technology will allow it to gain market share in the business of trading equities.

    Still, it’s an open question how long it can stay ahead in the technology arms race with the high-frequency traders, who focus on technology first and foremost. The whole HFT business is built around being faster and on continually improving technology, meaning Thor may not be enough to neutralize HFTs for long.

    “It probably won’t be long-lived,” Hillsdale’s Ms. Reynolds said. “Everybody is going to have to get to this point, where their routers are as capable as the high-frequency traders out there [but] they’re going to keep developing better and better technology.”

    Mr. Mills said he recognizes that, but already RBC has managed to get the difference in arrival times at different exchanges down close to a limit that nobody, not even high-frequency traders, has found a way around.

    “It’s rapidly approaching the speed of light,” he said

  4. vic on January 20, 2011 11:12 am

    This sounds great. Total friction . Never has so much been done for so little. Just to get even? My goodness . all that brain power and programming. To what end —- to what end. vic

  5. Anonymous on August 5, 2012 12:36 am

    what a load of shit

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