Just over a week ago, trading firm Knight Capital lost $440 million in the space of a few minutes. This was all thanks to an upgrade to their trading software that went very wrong, resulting in bad trades that cost the company around half its equity.
It’s not the first time this has happened – in 2010, nearly $1,000 billion in value was wiped off the Dow Jones industrial average in a few minutes, thanks again to high frequency trading ‘algo bots’.
This sent the markets into panic and triggered a frenzied clean up that narrowly avoided a contagion effect that could potentially have created a global economic meltdown.
These algorithmic trading bots are thought to make up around 60% of high frequency trades on major stock exchanges, and up to 40% of trades are thought to be between bots – all “making a fraction of a cent at a time, multiplied by hundreds of shares, tens of thousands of times a day”.
Aside from the scary thought that this is still happening despite warnings from experts (“We will be vulnerable until we learn that deep, liquid and fair markets will never result from unrestrained and unregulated high-speed algo-bots.” said a comment piece in the FT over a year ago), I thought the idea of bots, silently trading between each other in the ether, reacting as new algorithms enter and exit the market place, was pretty mind-blowing.
Then I found out about quote spam – where the bots make thousands of seemingly pointless quotes designed to add noise to the market, cost competitors through having to store and analyse the data, trick them into revealing information or triggering trades. This has dramatically increased over the past five years, as shown by real-time data service Nanex in the gif below.
I’ m not sure if Ross’s obsession with robots has rubbed off on me a bit but the idea of the algo-bots and their dark and silent meddling in our world from trading cyber space got me thinking about what happens when the bots and us cross paths more overtly.
Of course we’re surrounded by bots that crawl, click and catalogue content and advertising, and have been for a long time, but I realised that the bots are already very much among us.
A recent study showed that nearly half of some big brands followers are bots and if you’re on Twitter you’ve probably had some experience of certain types – but aside from the random, link firing or those listening for specific keywords to tweet back a link to a ‘relevant’ product or service, there’s another type of twitter bot I found interesting.
These sit out there tweeting a seemingly human stream of quotes and pithy comments that presumably go unnoticed by both Twitter and its users – simply to create a home for a link to bolster someone’s SEO rankings.
It didn’t take me long to find one: ‘Laura Bolt’ (it didn’t tweet links when I looked, but it does link to something racy looking in the bio, – if you click something don’t blame me).
She’s supposedly from New Mexico and has been on Twitter since 12th March 2012, pushing out a mix of pensive observations on life and slightly naughty pick-up lines.
But she’s far from alone – do a quick search for the text in one of her tweets and you get a sense of the scale of what’s happening now - hundreds, possibly tens of thousands of Lauras, with their slightly-too-polished profile pictures.
The scary thing is: Laura gets retweeted by some of the real people in amongst her 423 followers (presumably some bots, some people who simply follow back). Seemingly undetectable to Twitter’s sophisticated technology and even the brain of human beings, the bots have infiltrated our world.
Laura and her bot friends are arguably harmless and clearly pretty simplistic, but where could this end up?
What if networks of bots, instead of churning out pointless quotes, made allegations about politicians, expressed seemingly real product recommendations, subtly influencing the we vote, the brands we favour, or the charities we trust?
If they can manage to go undetected now, soon they’ll be able to engage in complex interactions between themselves, to make their behaviour look even more trustworthy and believable, or even with you and I.
All it takes is for the bots to understand what makes us tick and who we listen to – relatively simple things to do using conversation and network analysis – and our worlds could be inextricably linked.