The Bot Future?
 

Recently reading about trading the stock markets. In Europe, it is estimated that between a third and a half of all share trading, and more than two-thirds in the USA, are performed by high frequency trading bots!

These bots can adapt and learn with little human input. Trouble is, the way I see it, is the neurals and algorithms that power these babies are trying to predict and outsmart human behaviour BUT if humans are being replaced by bots, then in the end the bots will be looking at themselves in the mirror and waiting for the first one to move. This has and still can cause horrific consequences to economies, which affects humankind. Will a time come when governments ban them altogether?

Similarly the proliferation of bots in the Racing industry is already having an impact, especially in the UK. The dynamics of how Betfair, the number one betting exchange, operates is irrevocably impacted. It's virtually bots all with the same likeminded triggers, facing off each other, on the first few faves. Traders are now moving to Betdaq, hoping for greener pastures, but how long will that last? A time might (if not already) come, where bots are considered a menace in Racing too?

Hi RCP,

Working in the finance industry I can provide some additional detail to the bots type thing for financial markets. It has got to the point where the firms who run these high frequency trading bots have actually re-located their hardware closer and closer to the stock exchange to gain any mili-second of an advantage as possible. They have also got to the point where some firms essentially run two bots, one of them is their usual 'money making' type bot whilst the other trades in smaller parcels and is created to essentially try and 'fool' the other bots and/or regular traders out there so the money making bot can skim even more profits.

The most infuriating thing about these bots is the MASSIVE advantage they have over the regular day trader and/or mum and dad investors. The bots have the ability to trade 2-10 shares at a time worth maybe $10-$100 per trade and simply pay a monthly brokerage amount for the privilege based on their total level of trade not per trade.

The other concern with bots is what occurred in the US a few years ago. One guy accidentally added an extra zero to the end of a trade he was doing and sold a reasonably large parcel of a stock. The bots went haywire picking up on this sell and all tried to dump stock at an alarming rate as well and caused a massive drop in one day which from memory meant the market had to be closed an a lot of trades reversed etc.

How will this affect betfair etc is an unknown to me, some may say its a positive because it might mean greater turnover but I can't see how it will really assist those who don't use bots. I'm starting to have a growing belief that if I used a bot to trade on my top rated horse to green up each race I'd probably be making a steady profit. The way in running odds can jump around I seriously believe the opportunity is there you just need the bot in place to do it.

Unfortunately you'll come up against the next problem, they're all complaining about: Your position in the queue!!

I've tried it manually, and even with 'one click' order placement from here in Australia, by the time the signal reaches the exchange, the opportunity is gone or you get a part fill. Scary with a race about to start. The programmers of these bots are aware of the issue and compensate, then counter compensate etc and the prices are gyrating, rankings are moving in the blink of an eye blah, blah.

If you back off from the first 2 faves, you're up against an ever increasing spread. So you have to overcome that, then commission then turnover tax. What's left, is hard work IMHO. Not saying you can't profit, but you'd want to be good at your craft. There are still traders complaining about Premium charges, but I suspect it's more to do with the thought of IF they make the squillions, that trading promises, how to get round it or minimise it. Sadly for most of them, they won't ever have to worry.

Does The House Always Win?
 

If you've got 40 mins to spare, this makes interesting listening, courtesy BBC4

http://www.bbc.co.uk/programmes/b05r3w43

A very interesting expos'e of the 2 Trillion dollar a year betting industry. Not only are you up against those on course traders with a 6 sec advantage over most punters, whereby a syndicate can allegedly make $400,000 pa from one track alone, to courtsiders in tennis, match fixing in cricket and soccer.

It was amazing how often the country 'Australia' was mentioned!

Haven't been able to watch the link yet but not sure how many recall the more recent big betting profit during the big bash league. A guy at the game with his phone/laptop 1 ball left in the game I believe and team needs a 6 to win. Zampa for SA hits a six and the guy gets the bet on as the ball is in mid air when they are paying some $400+ I believe to win and cashes in big time.

There is no way someone at home watching the cricket via TV can compete with that.

When too many bots are competition they eventually lose their edge and other bots replace them.

They are good for turnover. Which for betfair increases their revenue. Betdaq will have the exact same problem. (I had access to their API and its just as easy to write a bot for them as betfair).

In regards to the share market, yes it can cause issues. And yes I agree with evajb that they have an unfair advantage with the way they pay brokerage. Make them pay the same brokerage as mum and dad investors (or the other way round) and a lot of that advantage disappears. Bots generally compete at a timeframe most investors are not playing at though (micro seconds) but can put some volatility into the higher timeframes.

I'll watch that link later today or tomorrow and comment again.