Mysterious and possibly nefarious trading algorithms are operating every minute of every day in the nation’s stock exchanges.

. . .

The trading bots visualized in the stock charts in this story aren’t doing anything that could be construed to help the market. Unknown entities for unknown reasons are sending thousands of orders a second through the electronic stock exchanges with no intent to actually trade. Often, the buy or sell prices that they are offering are so far from the market price that there’s no way they’d ever be part of a trade. The bots sketch out odd patterns with their orders, leaving patterns in the data that are largely invisible to market participants.

In fact, it’s hard to figure out exactly what they’re up to or gauge their impact. Are they doing something illicit? If so, what? Or do the patterns emerge spontaneously, a kind of mechanical accident? If so, why? No matter what the answers to these questions turn out to be, we’re witnessing a market phenomenon that is not easily explained. And it’s really bizarre.

It’s thanks to Nanex, the data services firm, that we know what their handiwork looks like at all. In the aftermath of the May 6 “flash crash,” which saw the Dow plunge nearly 1,000 points in just a few minutes, the company spent weeks digging into their market recordings, replaying the day’s trades and trying to understand what happened. Most stock charts show, at best, detail down to the one-minute scale, but Nanex’s data shows much finer slices of time. The company’s software engineer Jeffrey Donovan stared and stared at the data. He began to think that he could see odd patterns emerge from the numbers. He had a hunch that if he plotted the action around a stock sequentially at the millisecond range, he’d find something. When he tried it, he was blown away by the pattern. He called it “The Knife.” This is what he saw:

From Market Data Firm Spots the Tracks of Bizarre Robot Traders at The Atlantic.

What is this? Sinister or benign, signal or noise, shroud of secrecy or Turin Shroud? It’s pretty, whatever it is.

Read the rest at The Atlantic, it’s interesting.

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