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Comment by etaioinshrdlu | Hacker News Reader

Incredible that it has taken 10 years for this case to be resolved. Still, he was only charged 5 years after the event apparently.

He caused the market to tank by billions of value but he only made $900k.

It is not like billions of dollars of value are destroyed when investors sell stock. It sounds like the market had a crash as they tend to sometimes do and in this case the authorities decided it was this guy who did it! I think that analysis is quite tenuous. Anyone who sold stock participated in the crash. It seems nuts to try to assign blame.

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Yeah, how much the market tanks is fairly irrelevant since it's just a paper loss and will pop right back. More interesting is how much money various actors made/lost.

The market tanks because the stocks that make the index have dropped, a stock drops when someone is selling/buying at a lower price. Therefore someone sold at a lower price.

Perhaps those that sold at a lower price purchased another stock also at a lower price and there is an assumption the universe will balance it out. But stocks drop at different % some institutions may choose to move to cash or another commodity temporarily. I don’t expect it’s a zero sum

That is what I know, am I missing something ?

A person who buys/sells the stock is responsible for their decision and it is no concern to anybody else if they are making or losing money. Particularly a flash crash. If they didn't want a stupid algorithm making their decisions for them they shouldn't have used a stupid algorithm.

I can understand the exchange rolling back half an hour of trading or whatever and calling it a wash. The idea that a trader is somehow liable for something seems absurd. Only thing he is guilty of is annoying powerful people.

Since the 80s it has been an integral part of society (at least in the UK and US) for citizens to invest their own money on the stock market — where “owning shares is as common as owning a car”:

https://www.margaretthatcher.org/document/106145

Having protections in place to guard against market manipulation is a facet of this policy where all citizens are now traders (and not just a select group of well educated, well steeled stock market professionals.)

I don’t defend this policy, but I see why the former leads to the latter.

Another good reason to enforce a level playing field in capital markets comes about from another backbone of the 80s and 90s: placing national infrastructure like power, water, and pensions in the hands of private companies traded on the stock market, who need some form of protection on their share price.

> ... who need some form of protection on their share price ...

I expect it will be quite difficult to defend that position. The value of a company to its owners is more or less its expected earning potential. That is to say, low share prices in and of themselves don't necessarily cause bad outcomes for the shareholders in the long term and have no impact at all on the prospects of a company. There is no reason to protect something that isn't important. If anything, the very high returns vs share price should drive additional investment in the sector, although the link there is a bit tenuous and speculative if market manipulation is involved.

Personally I don't see a problem investors are forced to - crazy as it may seem - buy things because they want to own them for the long term.

Was this "market manipulation", or just dumb bots doing what they do?

I'm a normal citizen who holds shares. I remember I got an email alert when the flash crash happened, had a minor heart attack, and then reminded myself that I'm investing for the long term and it doesn't matter what the market does on any one particular day. In that case, it wasn't even a whole day before my portfolio had recovered.

Markets need to be fair and transparent, but you can't save people who panic-sell in a crash.

You can't save anyone who gets their idea of a security's value entirely from the price, rather than the other way around. That's the root problem.

All citizens are not traders and virtually none of the ordinary people who trade stocks are doing it with a program that acts in fractions of a second. And those who were, deserve what they get.

This is like saying "because chainsaws are available everywhere to use without a license, we must make juggling them safe for all ages".

Well, ok, maybe we should forbid market orders to retail investors. Or make it a special privilege that you have to be approved for like margin and options.

considering every transaction gets taxed, and it's a zero-sum market.. there is no damage done overall. The opposite, actually. Money is raised for the government thanks to the activity.

It's possibly a foreign relations issue if the winners or losers are heavily biased towards one country or another. Like if all the winners were Russian and the losers were American

It's not zero sum though. It's possible for everybody to make money

Is it zero sum? It seems net loss to me. Just consider the lifetime of a single share. Company IPOs and someone buys the share for $100. The share may pass through thousands of hands, some at a profit and some at a loss, but eventually that share value goes to zero and the net loss over the lifetime of the share is its IPO price. It's only possible to have a net gain if there's dividends paid out. Is there some other mechanism I'm missing?

I like where you're going with this but I think you're taking a big leap at "the net loss over the lifetime of the share is its IPO price". And not because of the "not every stock eventually goes to $0".

I also don't have a definitive answer however some things that play into the equation must be:

I think VWAP (Volume-weighted average price) also plays into how much money was made by people and how much was lost in aggregate. This specific share we are tracking along its lifetime might have exchanged hands a lot while it is going up and traded rarely during periods of decline.

Also the share could have been first purchased as a part of the options given to investors, employees, etc.

Unless you're trading penny stocks it's not likely to go to zero. More likely to get bought out or merge with another company

Market is a zero sum game (less the transaction costs), if someone lost then someone won. It's just those who lost are the ones who have big mouths, wallets and clients

That's not how the market works. It is not zero sum. An easy counter point is dividend payouts.

On the intraday scale less the transaction costs and dividend payouts. Trades are trades, if one party buys the other party sells and vice versa; there's always two sides.

I don’t follow. If a stock keeps going up a share could change hands 10 times in a day, with 9 traders having positive realized PNL and 1 trader having positive unrealized PNL.

Exchange traded volume is still zero sum. Stock going up is driven by trades happening in the buy direction clearing the ask passive orders - someone had those limit orders there in the first place, and they're in the negative.

Or that person is taking profits, no reason they are in the negative. How do IPOs fit into your zero sum argument?

I'm only talking about intraday trading - FC wasn't caused by IPOs or dividends or other corporate actions. Whether you're taking profit or not doesn't matter - it's in the past. You lost the opportunity to close at a better profit at the end of the day - that's a relative loss.

"Anyone who sold stock participated in the crash"

Anyone who bought it, just as much. Heck, anyone who didn't buy it, as well. If more people had bought quicker, the price couldn't have declined, could it?

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