Algorithmic Empire-Wall Street, the first domino

One day in early 1987, a staff member of the Nasdaq exchange was in the elevator room of the World Trade Center. Let's call him Jones. He found the right elevator and pressed the button. He has come to visit a high-growth customer on a regular basis. Jones knows what people are going to see next, and the people on Wall Street are all the same: white men with Ivy League education and profit-chasing are nothing special.

He crossed the corridor. Come to the office area door, calm down and play the spirit, ready to welcome the inside of the restlessness and excitement. The money-grabbing game shows on the exchange and on TV are the same, a man stuffed into a glass box and a lot of money falling from the sky. Just a little bit different, some of the trades that are flying in the exchange are losing money.

and agile traders can trade at high speed. And quickly identify what is a losing deal. which can make money.

The company reception Jones, then went into the room to invite the host. She brought a short, silver-haired, neatly dressed man.

His name is Thomas Peter Phillips, with a pair of blue eyes. Speak with an accent.

He welcomed the arrival of Jones.

Jones would not have imagined that Peter would later become a millionaire of more than 5 billion, one of the richest men in America.

He was just an upstart on Wall Street.

But his trading volume is rising and profits are expanding.

Jones has been very curious about why people such as Peter and Phoebe can continue to profit from the market.

Did he hire the smartest people? Does he have a strong research department? Is he taking a big risk and doing great luck?

What Jones did not know was that Peter Phillips was not a trader at all. But a computer program ape.

He does not rely on the look of people in the trading hall, to predict how the market movements or economic trends affect stock movements, he relies on writing code. He wrote thousands of lines of code in various computer languages, such as Fortran, C, and Lisp, and built algorithms that made his exchange. Despite its small size, it is already the best on Wall Street. He himself has been a new generation leader on Wall Street.

Peter Phillips took Jones into the trading hall. Jones was puzzled. The more he saw (in fact, not much to see), the more confused he was. He envisioned a commotion of crowds, noisy phone calls, printer sounds, and a flurry of calls from traders who entered trading orders to the Nasdaq trading terminal. But the scene did not appear in front of him now. In fact, he only saw a Nasdaq trading terminal. He knows how much Peter Phoebe's trading volume is, but how is that possible? Who is the man who makes the deal?

"Where are the other trading venues?" Jones asked. "Where's your trader?" ”

"That's it, it's all here." "Peter Phillips points to the only Nasdaq trading terminal in the room next to the IBM computer," said. "All of our trades are finished with it. "There is a connection between the trading terminal and the IBM computer, and the computer has a code indicating the symbol, the trading time and the number of trades." The Nasdaq clerk did not expect that he had just seen the world's first fully-self-active algorithmic trading system. The device of Peter Phillips is not just a hint of a symbol like a trading system in the past, it's not just a simple pop-up of a trading list that needs to be run. The computer snuck into the Nasdaq trading terminal and decided to run the deal. Do not need to be a VIP to participate.

Although its opponent is human. But they were all beaten to the beat.

The trading data from the Nasdaq terminal has been pouring in. Peter Phillips's code can use this data to analyze the market. It is easy to buy and sell orders by the difference between the buyer's bid and the seller's price. This difference in price becomes a trade spread, at which time the Nasdaq market spreads can reach 25 cents per share. Then a pair of 1000 shares of the transaction (for example, at the $19.75 price out of the bill, at the $20.00 price to open a sell-off order), can be risk-free profit of $250.

To Peter Villa Philaylack says he uses machines to run trades with lower risk costs.

When traders frequently open pending orders ^{1, the biggest risk they face is that they will still be able to an armchair the original pending orders after a wave of market turmoil. Most market-making people react to the market just like traders, who have to constantly read new quotes from the computer screen, study quotes, make trading plans again, and undo old orders. Then use the Nasdaq Terminal keyboard to enter a new quote. Traders eat a few more tuna sandwiches or joke with their colleagues. It is possible to be left behind by the trading market.}

Peter Phoebe's computer doesn't have to have lunch. It can tightly bite the volatility of the trading market and greatly reduce the risk, which is something that people cannot do.

_{1 in the electronic trading of securities market, the single word is equal to entrusted. That is, the investor decides to buy and sell shares by telephone, computer, etc. to the trading system issued by the order to buy and sell shares.}

--Editor's note

Peter Phillips's trading body opened a new chapter in Wall Street. From this Computer program apes, project architects and mathematicians started a 20-year offensive on financial markets, using algorithms and self-initiated trading. The algorithm is sometimes incredibly complex and sophisticated, almost intelligent enough to replace people as a decisive force in financial markets.

Jones was stunned with astonishment.

Peter Phelps sees all this as an innovative way of trading. Jones felt that he had cheated on the temporary terminal and violated the trading rules.

"You can't do that." "said Jones.

There are no trading places on Nasdaq. All trades are completed by phone or computer. The computer network receives trading orders from the keyboard on the independent Nasdaq trading terminal. Peter Phillips integrates the data cable that should be connected to the trading terminal, connects it to his program ape and the team of physicists homemade on a board embedded in the IBM PC motherboard. The IBM computer performs the software program that Peter Phelps wrote himself. The computer obtains information via the Nasdaq data line. Use algorithms to analyze the market and make trading decisions quickly. The trade slip is then transmitted back to the inside of the Nasdaq terminal via a cluster of wires. Before that, no one knew that Peter had already invaded Nasdaq.

Nasdaq is not going to let this bizarre static design and the lab of mad scientists be known to the market participants. Would it be comfortable for other traders to know that they were on algorithmic wits with IBM computers, rather than playing games with the market's intuitively betting bettors? Nasdaq doesn't want to know the answer.

"The connection between the trading terminal and the IBM computer must be cut off, and you have to enter the trading instructions one at a point, as other traders do."

"said Jones.

Jones has left.

Peter and Philip stood in the office and thought it might end his career.

Nasdaq gave him a week of correction, and the deal must meet the supervisor's requirements.

The thought of tearing down his trading machine. He was in agony. He has no interest in the idea of hiring a trader to sit in front of a computer all day and enter a trade order. Even if you can recruit young and cheap traders. It took him years to get his trading institutions out of the human-trading gap, and to get rid of the repetition and whim of people.

People will inevitably make mistakes, laziness, desertion. The key is that the input trade order has a delay, so another use of manpower is very difficult to achieve the same as the machine's own proactive trading effect, the efficiency of the trading institutions will be lost overnight. There must be a better way to solve it.

At night he went back to the Upper East side of his home to get ready for bed, and suddenly a solution came to mind. This method is not easy, but it is possible to solve the problem. Peter Phelps thought he could capture information even without a trading terminal. No need to splice the cable, do not embed the circuit board, nothing.

But how to achieve it? He inquired about his project teacher. Whether a device can be made to read information directly from the screen. Just like a camera, and then convert that information into electronic characters. Sent to the IBM computer waiting for instructions. The answer is yes.

But the problem of solving the data source is only a beginning. Because no matter who sits in front of the Nasdaq terminal, how is Peter Phil going to finish the deal? He can't connect a transmission line to the Nasdaq terminal like he did before. No way. Nasdaq clearly stipulates that the trade order must be entered via the keyboard. Peter and Philip, with a flash of mind, had a crazy idea.

Over the next crazy week, Peter Phillips and his best project master were busy welding metal, writing code, welding data lines. They installed a large Fresnel lens in front of the Nasdaq Terminal screen to enlarge the screen font. A camera was installed one foot away from the lens. Pull a data cable from the camera and connect it to a computer next to it. Peter Phelps and his program Ape wrote a set of software in just a few days. Ability to decode visual data from the camera. The data flows from the specific program software to the algorithms that Peter Phillips has already done, which are those that were previously directly connected to the Nasdaq terminal via the data line.

Now the IBM computer has a new cable, not connected to the Nasdaq terminal box, but attached to a pile of metal rods, metal plugs and handles hanging over the terminal keyboard. Assuming that the camera and the reading device are slightly odd, the part of the dangling system that Peter Phillips designed is more bizarre than usual. It reminds us of the intricate mechanical equipment at the beginning of the Industrial Revolution.

This device is a self-starter typewriter that is assembled from zero.

The handle is intermittent banging on the keyboard, running from the computer to trade orders, in less than 30 seconds there are dozens of trade ticket input terminal.

Nasdaq says the trade order must be entered into the terminal. There are no rules for who will finish typing. Peter Phillips's team spent six days creating a semi-robot that entered trades and instructions.

On the face of it, he complied with the law, but actually violated the nature of the law. But Peter and Philip didn't bother.

Isn't Wall Street a place where legal boundaries, workarounds and secret deals are everywhere? And always favor the most creative liars.

Jones, the Nasdaq supervisor, was on his appointment a week later. Petterfy saw him in the elevator room. Take him through the hallway. Came to the trading hall. The door bang when a loud, once a week was a silent trading hall. Now it's a noisy and busy place, and that's what the trading hall looks like. Peter Phillips took Jones through the gate, proudly pointing to his creations. The Nasdaq clerk seemed to be in the narrative of Jules Verne's science fiction.

"What is this?" Jones asked.

Petterfy explains that his trading machine works as the Nasdaq requires-keyboard input. One order at a time.

Just then, the trading market became active and the machines were busy. Peter, the process of trading so fast, the input device is like a full of their own active machine guns keep firing. The trade list is constantly pouring in. The handle crackling on the keyboard, the noise so loud, even drowned the conversation. Every time the machine stops, it seems to be quiet for a while. Who knows the blink of an instant to start again, more aggressive to pop more than the last list. The whole deal was a re-breathtaking detour of the rules by the wise man on Wall Street.

"He doesn't like this machine very much. "Petterfy recalls.

Petterfy thought it was no big deal, and he suggested that a doll model be tapped on the keyboard before the mysterious device. It was a joke, but Peter and Phoebe were willing to do the same. But Jones has been tightening his face.

Jones shook his head, and Peter and Philip made a grimace.

He built the fastest-performing trading machine in the world, and he also anticipated that the trading machine might face a demolition fate.

The Nasdaq clerk pondered for a few minutes and then walked out of Peter's office with a silent word. Peter Phoebe made the worst of his plan. That is, the Nasdaq banned his inventions from trading.

But Jones didn't come back, and the phone that Peter and Philip was worrying about didn't call.

His exchange was perfected without prejudice. Peter Phelps started a few years ago in less than $100,000, earning $50 million in 1987.

In the 1987, Petterfy on Wall Street was just a nobody, but he was one of the leaders of the new generation of traders. These people are good at writing complex code, welding semiconductor chips. And the use of mathematical knowledge to explore the maze-like market structure. What Peter's doing is theoretically easy to understand and cumbersome to manipulate: he draws on the wisdom of the smartest traders and uses a series of algorithms to express their ideas.

Peter's program includes all the factors that a smart trader has to take into account when making a decision.

The difference is that the computer executes algorithms, verifies prices, and executes exchanges with much less time than man-made operations.

People who use software, code, and fast-executing computers to beat the market are not the only ones Peter Phillips. But the invention of Peter Phillips, whether the metal stopper on the keyboard or the transmission line that stole the data, sparked a revolution. Today, 60% of transactions are carried out by computers on their own without real-time supervision or very little supervision. The story of Petterfy on Wall Street is unique. He didn't have the foresight to hire a program ape to expand his reign as a financial tycoon, or a Wall Street player who programmed himself to expect to gain an edge in financial markets. What distinguishes him is that he is a program ape, an excellent program ape.

He was a procedural ape as early as he understood the principle of stock options and understood why the stock of different companies would move in the same direction.

That's it. Using his own programming skills, mathematical knowledge, and the ability to write complex code, Peter has created layered algorithms that subvert a field that is unfamiliar to him: the Wall Street Exchange.

This disruptive hacker paradigm was popular around the world at the end of 20th century and opened in 21st century: First a skilled computer code and algorithm project teacher interested in a new field, training their own skills in the field, and then applied Computer Science, let code fragments imitate the actions of predecessors, and defeated countless companies. Disrupted industry standards and defeated the old forces in the industry, thus subverting the industry. Building algorithms to imitate, surpass and finally replace human beings, is the most important ability in the 21st century. Because people with such abilities soar, work will fade away. Life will change, and every industry will rebuild the rules. This has already happened. Such a trend will continue. This trend is also the same as other historical trends in the pursuit of interest.

That's why it started on Wall Street. To a large extent, this is due to Hungarian immigration.

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Algorithmic Empire-Wall Street, the first domino