The Spotlight on High Frequency Trading

Michael Lewis, had a segment on 60 minutes(watch the link, seriously) to discuss the topic of his new book, "Flash Boys: A Wall Street Revolt". Lewis was a bond salesman in the '80s and '90s, which was the subject of one of his first notable works, "Liar's Poker". He's also written "Moneyball" and "The Big Short", among other works. The first line in his 60 minute segment was;

"Stock Market's rigged." BAM!

It's not this line that's exciting, it's that there's someone who has decided to do something about it. Brad Katsuyama started IEX, an exchange that's actually focusing on creating a fair marketplace, which is extremely refreshing to see from an intermediary.

The 60 minute spot scratches the surface, but in short, HFT(High Frequency Traders) in the market receive market order data from investors before it's reflected on the exchange, then act on those orders, again before it's reflected on the exchange. This happens SO FAST that the ordinary investor's order isn't completely filled with traditional routing, effectively frontrunning the investor. The biggest players in the game have price data before the exchanges do. The solution Brad Katsuyama and company came up with is clever; staggering their routing, so that the order is sent to the furthest exchange first, and the closest exchange last. All these orders come to their destination exchanges within one or two milliseconds of each other, cutting out the frontrunner.

Here's a clip from CNBC with William O'Brien(President of Global Markets at BATS), Michael Lewis, and Brad Katsuyama hashing it out.


O'Brien is shocked that anyone would vilify ANYTHING about the industry. Haven't we seen this card played before? Yes, because the financial industry has repeatedly shown itself to be the pinnacle of virtue and ethics! Yes, of course! How dare ANYONE claim there's frontrunning! ...with empirical data... and testable ideas... that any trader can verify for themselves...

Doesn't this emotional outburst show your cards more than it hides them? You claim to be upset because you think Lewis and Katsuyama are scaring people away from the market and attempting to gain traction for IEX, but I see no crashes... I see record highs... An ordinary investor is ATTRACTED to the market when whistle blowers like this come to light. This kind of unveiling takes power from those that have no divine right to it. This is EXACTLY what the market needs to restore investor confidence.

Turns out O'Brien was lying anyway.

I have yet to read the book, but I've ordered it.

"You're not really providing liquidity if you're not taking market risk." - Lewis

Bitcoin Crash and the Alternatives...

After hitting a great high of $1242 back in November on the Mt Gox exchange, Bitcoin has recently taken a plunge down to $220. The majority of this huge loss occurred just recently in early February. The price steadily dropped from $900 to the $220 price point in just 16 days!
Click on the image below to see a screenshot, or better yet just visit the widget yourself here(use the scroll wheel of your mouse to zoom in and out, time frame options can be found in the bottom left.)
The Mt Gox exchange, formally one of the largest Bitcoin exchanges in the world, has even halted withdrawals. Ironically this recent run on their exchange seems to be stemming from failed USD withdrawals. Users wait weeks after requesting their money, only to see the transaction fail. Some users report that even a repeat attempt fails. This problem of inconsistent payouts coupled with vague "we're working on it" responses from Mt Gox could be eroding the very trust they need for the exchange to function. The exchange seems to constantly be tackling some giant issue, from delayed account creation, to DDOS attacks, to a 30% payout success rate.

If you're at all interested, this coinwatch blog has some more detailed info on the crash.
It's sad to see such low volume being pumped through the exchange nowadays, and it's not uncommon to see a $20 spread. Hopefully the exchange can regain some traction and finally make a noticeable dent in their technical issues(of which they've been having for a suspiciously long time). The bigger concern seems to be the lack of feedback from Mt Gox. There's just no sense of damage control coming from them, as if this is completely normal.
Granted, this is a completely unregulated, extremely volatile market based on a currency that doesn't tangibly exist...
When you've swallowed that, bitstamp is showing a price of double that of Mt Gox, currently sitting at $615 while Mt Gox at $300. Since this currency is meant for easy transfer, what's to stop a purchase on Mt Gox, a transfer to Bitstamp, then a sell off? AKA arbitrage. What stops most arbitrage is simply that some exchanges do not accept deposits or withdrawals in USD.
In the meantime there are plenty of Litecoin derivative cryptocurrencies that have popped up and become reasonably profitable as a form of triangular arbitrage. For instance dogecoin, has absolutely no mining limit. This is a currency that can be created at will, has a mining difficulty just like bitcoin, but absolutely no limit on the amount that can be mined. This is a completely intangible currency that can be converted to USD, without limit on creation. It'll be interesting to see if/when the doge market becomes extremely saturated. Would this force the value down? What's currently keeping the value up?
Fascinating stuff!

Bitcoin Trading and API Setup

So I'm sure you've heard about bitcoins, and how valuable they've become since their inception. The value of a single bitcoin was as high as $266 on April 9th, 2013, and is currently fluctuating around $115(according to the MtGox exchange). I assume you understand what a bitcoin is, if you have absolutely no clue, check out the FAQ on the bitcoin wiki.

There are different exchanges around the world that will take my USD or whatever currency, and let me invest in bitcoins. I can always mine bitcoins, but the focus of this post is on trading bitcoins. There's currently no licensing required to trade bitcoins, and no minimum deposit for a trading account. An exchange is just an organized market for trading. The most prominent exchange with the highest trading volume is MtGox which seems to be based out of Japan. Recently they've been caught in some trouble, causing the US Federal Gov't to get involved. There are other exchanges like campbx, but the price of a bitcoin between exchanges vary (arbitrage anyone?!). The price of a bitcoin at campbx may be a couple dollars off MtGox at any given time, and MtGox could trade at values that campbx never reaches just because there are more people trading on MtGox to move the price.

Before going any further it's important to note how much information I can see about the orders. Ideally I would want to see not only the highest bid and offer (seeing only the top bid and offer is the 'top of the orderbook'), but the second highest bid, and the third, and so on (seeing all orders would be full book rather than top of book). It also makes a huge difference to see the volume of the order. If someone puts an order in to buy bitcoins, I want to know how many bitcoins they're looking to buy or sell. There are 3 different levels of order insight in tradable markets, Level I, Level II, and Level III. They're described fairly well here at investopedia.

Ideally I would want Level III. I want to be able to see all the orders, the size of those orders, who's ordering, and I want to be able to put an order in at any time to execute a trade at the press of a keystroke. Unfortunately once I set up an account on any bitcoin exchange, the options given by the site UI are barely giving me Level I access, and it's all with the mouse(ugh). So trading is tedious and is meant to be for long term holding. I can only input one buy or sell order at a time, and it's extremely time consuming to flip through different pages of the exchange's site, trying to modify, cancel, or add more orders.

Luckily there's hope! All I have to do is write my own program, that connects to the exchange's API through a full-duplex websocket connection. A nice challenge would be to make an program that will make it easy to trade on multiple exchanges, all with a simple keystroke, such as with popular trading platforms for stock trading. There's a nice charting and Level II type resource for bitcoin that's publically available, and that's bitcoin.clarkmoody.com. If you want to dedicate a screen just to the chart, just go to http://bitcoin.clarkmoody.com/widget/chart/. As you can see the service only reflects prices on MtGox. It's nice just because the clarkmoody site uses the charts from RTBTC, and RTBTC is currently in private beta, so there's no real other way of getting these charts short of creating your own or begging RTBTC.

Resetting Your Address Bar Search Engine (Firefox)

Remember those sneaky AVG and Ask toolbars that are hidden in certain software installation wizards? There's others, but I've noticed AVG is extra invasive as it changes your default homepage and the default search engine for your address bar. The most recent time I contracted the AVG toolbar bologna there was no question. It was either my installation goes through with the AVG bar, or not at all.

These sneaky installations really benefits AVG, since they hijack your search engine option, every query sent through them gives them some money from yahoo or whichever engine they're routing to. It's funny but this is how firefox originally got most of its funding. The homepage for firefox is a google search bar, but every query sent through the firefox version gives mozilla a little coin. I recently found this nifty add on for firefox that puts all these sneaky settings back to default.
It's called SearchReset, https://addons.mozilla.org/en-US/firefox/addon/searchreset/

All this temporary add on does is change some settings in about:config

Mining an Asteroid

The idea of mining an asteroid is astonishing. Let's explore this idea a bit more.

Here's a video showing us that there have been more than 500,000 asteroids discovered orbiting our sun between Mars and Jupiter. The 'Asteroid Belt'.

Elon Musk, the same man who started Paypal and Tesla motors also started Space X. Space X seems to be focusing on commercial space flight. But there's also a company called Planetary Exploration, which is planning to send drones to mine asteroids. Strangely the founder of Planetary Exploration said the goal is not to mine minerals and bring them back to Earth, but to refine them where they are found, creating usable resources for a space adventure.

Here's a nice TED talk about how we would divert an asteroid too big to blow up that was headed straight for Earth. We could change its trajectory, and have it orbit our planet, or our moon, then mine it!


To see companies ALREADY hopping on this idea is mind blowing! Many of the asteroids in the asteroid belt are rich with all kinds of rare earth minerals and even water. Water can be broken down into hydrogen and oxygen on site to create rocket fuel. So imagine a space mission that will rely on fuel that's sitting on an asteroid, which we've pulled into orbit around our moon or mars. And the fuel has been mined and refined by drones sent there months earlier. It's like some sort of science fiction, and yet there are already billion dollar private companies turning these ideas into reality. Asteroid space stations here we come :O

Cat 5 Cabling Tips

Here's a nice video describing the wiring difference between 568A and 568B RJ45 modular plugs.



here's also a nice video showing how to properly punch down a cat5 into a 66 block.



I like the BlOG acronym for remembing the Blue, Orange, Green, Brown wire order. Always remember the white primary color; white blue is first, then blue, same for orange, and so on.

Here's a useful diagram:


It's also useful to note that PCs send information on pins 1 and 2, and receive information on pins 3 and 6. So you would need a 'cross over' cable if you wanted a PC to talk directly with another PC. 

PC to PC = cross over cable. Some machines are smart enough that such a cable isn't needed, but that can be our secret.

Straight through cables are for plugging to a jack, meaning both sides of the RJ45 cord are 568A or 568B. This is why you've probably had trouble connecting two PCs directly. With the straight through cable both PCs are sending on pins 1 and 2, and both receiving on 3 and 6. This doesn't work! PC 1 needs to receive on the send pins of PC 2! Thus the cross over cable is born! This means the cable is 568A on one side, and 568B on the other! Look at the above diagram again... notice how the Orange White and Orange wires from 568A on pins 3 and 6(receiving pins) are pins 1 and 2(sending pins) on 568B. It makes sense now right?

You also need a cross over cable between switches and hubs. PC to switch just needs a straight through cable. A mod plug adapter is used to turn a connection from 568 A to 568 B, or vice versa. Cheers!

My Dvorak Keyboard Experience

At the age of 16 I typed at about 65 wpm(words per minute) using Qwerty. I felt limited, so I decided to give the Dvorak keyboard layout a try. The supposed benefits are a doubling of typing speed, and less finger 'walking', so less stress on your hands and fingers. It's part of an ergonomic environment! Here's an illustration of the typical Dvorak keyboard layout:



This is the layout I use, and I absolutely love it. Using this layout I can feel just how much less my hands have to move to type, and it's made a significant impact on my hand stress levels. The layout comes conveniently included in all operating systems. On a windows machine all I have to do is bring up the run dialogue(Windows key + R) and type in intl.cpl like so:

 < I hit enter and the Region and Language settings come up. From the Region and Language window click on a tab that says something along the lines of 'keyboards and languages'. There you can 'change keyboards', and add whichever layout you prefer. Even on a machine I've never touched before, I'll be able to switch the keyboard within 30 seconds, and hotkey it to switch between Dvorak and Qwerty(In case someone has to jump in and type something on it). When I'm done I need another 30 seconds to disable it so no one hits the keyboard switch hotkey by mistake and freaks out. Or if I'm coming back to the machine later I'll set a custom hotkey that is nearly impossible to hit by mistake. Since I've memorized the layout to memory, I don't need to pop out keys or carry around my own keyboard.

A little Dvorak history:

Qwerty(the layout that comes printed on the keyboard you're using) was developed in the 1870s, and was made for a typewriter. You had to hit the keys hard, and one at a time, otherwise you'd end up with a jam as shown to the left here.

The interesting thing to note here is that the Qwerty layout is designed to make sure you don't type too fast, because if you do type too fast your typewriter jams! Qwerty is made to have your fingers 'walk' or move more to reach the desired key, to help prevent jams.

Silly fact: You can type the word 'typewriter' by using just the top line of the Qwerty keyboard layout. This made it easier for salesmen to pitch their products since they didn't have to learn how to type, and they could show off the speed and efficiency.

We've moved beyond the limitations of a typewriter, but unfortunately the Qwerty layout has stuck around, and most people don't think twice about a more efficient layout. 

August Dvorak developed the Dvorak layout in the 1930s, studying specifically which letters were used more frequently, and placing them closer to the home row. In the 40s he also developed a left hand layout and a right hand layout, for the one armed typist, or I guess for someone that wanted to type on two keyboards at once.

My experience with Dvorak:
I thought it'd be silly to buy a keyboard with the Dvorak layout. There's also keyboard covers that you can slip over your current keys to see the layout. I felt like I didn't have to spend the money since I could just pop the keys out of my keyboard, switch the layout on the computer, and place the keys back in according to Dvorak. So I did! I was a decent Qwerty typist at this time, probably about 65 wpm.

The first couple days were dreadful. Sometimes I would search for a letter on the keyboard for MINUTES at a time, getting frustrated. I didn't switch back to Qwerty unless it was absolutely a matter of life or death. I was at 1 wpm on a good day.

After about a week I started remembering some of the letter's positions, but still had to look down to find most of them. I probably had 5 or so key positions memorized. My wpm was still terribly slow, below 20.

After a month I would still look down for about 50% of the keys, but the positioning came to me the second I looked, whether I saw the letter or not. That split second of focus on the layout was all I needed to remember. I was probably at 35 wpm.

I finally surpassed my Qwerty typing speed by month three, and by the end of month four I had memorized the layout. Typing speed was about 80 wpm during month four.

After six months I switched the physical keys back to Qwerty style on my keyboard, for the sake of my friends. They'd come over and trip out trying to type, 'whoa...' was the usual reaction. So now my keyboard looked like Qwerty, but I could switch the layout with a hotkey, and type happily in Dvorak since I didn't need to look down at the keys anymore. Just for fun I would do typing exercises to see how fast I could be, and here I got to 105 wpm, almost double my initial Qwerty speed. I'm sure I could get it faster, but I didn't have a job that demanded it, so I figured why do the exercises so religiously.

Conclusion:

Funny enough it felt like my Qwerty speed had gotten worse, but it didn't, still at 65 wpm. It was just slower relative to Dvorak. It's been at least 5 years since I learned Dvorak and I still use it as my default, and change to it any chance I get. The difference between the two layouts is hard to describe, just imagine every key being in a more ideal spot. Your fingers leave the keys less often; when you see me typing with the Dvorak layout, it almost looks like I'm not typing at all. Look at the home row on Dvorak, AOEU HTNS. Not having to move my fingers at all for these common letters is such a nice feeling. Since I haven't been doing essay after essay, my speed has slumped to a casual 80-85 wpm. With a little practice or just a typist occupation I'm sure that would go back up. Who knows maybe this blog does it. Either way it's made typing more enjoyable. My thoughts shoot onto the paper, and all the while my fingers are strained much much less, it's extremely noticeable. I used to feel as though I was limited by Qwerty, I felt frustrated, wondering why I couldn't type any faster. Turns out that's all by design!

For anyone interested in learning the Dvorak layout I say DO IT TO IT! It's an awesome learning experience, a fun trick, easier on your fingers/hands, and it increases your typing speed! The slip on covers are a good idea. That or taping little pieces of paper to your keys, next to the letters printed on the keys. Or you could take the barbaric approach I did and just pop them all out. (Funny, I just realized Mac keyboards have the printed letter centered on the key, where as other manufacturers have pushed the letter to the top left of the key, to give room for additions such as foreign language letters like so:
 
)

Anyway overall I'm glad I learned Dvorak, it's saved me tons of stress. If you choose to take the journey, enjoy your new typing super power and party trick!