Monday, August 6, 2012

Singularity Watch (addendum)

Via Kevin Drum, here is an animated graph from Nanex of high-speed trading volume in the US stock markets (all 14 of them! no, I didn't know either), from January 2007 to January 2012. (You'll have to click it to make it work.)
You can watch the configurations develop from an apparently quiet hum at the beginning (and yet the crash of 1987 was caused by program trading, wasn't it, and that was 20 years earlier) to a roar around last September when it starts looking like Götterdämmerung.

Drum remarks,
The basic idea behind HFT is that humans are taken out of the trading equation entirely. Instead, computer algorithms trade stocks directly, executing millions of trades per second and occasionally going crazy, as they did during the Flash Crash of 2010 and then again a few days ago, when an HFT bug cost Knight Capital $440 million in 30 minutes. ...The problem with HFT isn't that we know it's dangerous, it's that we don't know anything at all. It's become flatly too complex for even its creators to understand what their creations are doing.
But what I was thinking, in the perspective of last Friday's post about the possibility of a Singularity among the corporate entities, is that these graphs could be perfectly intelligible if they were the representations of a language, to those who knew the language. Tagalog sounds like a series of random bird chirps to those of us that don't know it, but to the Tagalog speaker there's nothing random about it at all; what seems to the non-speaker like randomness is precisely what carries information.

Think about it: trading isn't you and Chuck any more, or the rich guy next door who stays home to work in his pajamas, it's mostly these machines (on behalf of our pension funds, should we have any): 84% of trading is HFT. As far as we know, they're autonomous, and as far as the market goes the Singularity in the ordinary sense has already taken place, but a very simple one, in which the newly conscious machine is only conscious in a single dimension, driven by the need to squeeze the profits out of the spreads.

But to generate each graph takes more than one machine, a host of them, and independent of one another. It's in the array of them that a higher consciousness might arise, using those one-dimensional consciousnesses as its neural networks, and communicating among themselves that way...
Lyonel Feininger. From Laura Gilbert's Art Unwashed

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