SOES Bandits

What Is SOES Bandits?

SOES Bandits was the moniker given all in all to a group of individual investors who — following the 1987 Market Crash — took advantage of the Nasdaq's Small Order Execution System (SOES) for day trading. The strategies and strategies they conceived in those days made the earliest form of what's presently called high-frequency trading. While the outlaw's average profit per trade is small, they compensate for it by trading handfuls or many times each week. Bandits generally lay out a position prior to most market creators having refreshed their statements and lay off the positions at ideal prices.

A fascinating side note to the SOES desperado story was their ability to profit off professional market markers notwithstanding a comparative disadvantage in information capacities. Since bandits procure the profits and bear the losses from their trades, maybe they were more keen given greater incentives to perform better than traditional market-production firms.

Figuring out the SOES Bandits

The present man versus machine banter has its beginnings in the story leading up to the SOES bandits adventure. In numerous ways, the October 19, 1987, crash of the Dow Jones Industrial Average helped plant the seeds for high-frequency trading. Presently known as Black Monday, the Dow fell almost 23 percent, its biggest one-day decline of all time. With stocks dropping so rapidly, numerous Nasdaq market producers — the mediators who oil the markets' wheels — basically stopped picking up their telephones. Retail investors were left incapable to safeguard their portfolios.

Perceiving an opportunity, a small group of investors hoped to take advantage of a hole in the market's cycle. This hole emerged in light of the fact that SOES trades are automated, getting close to instant execution.

In this manner, these trades are given priority ahead of the remainder of the market. This permitted fast traders to move all through stocks utilizing SOES at a more quick rate than large investors, which ended up generating big profits.

Who Were the SOES Bandits?

The original SOES bandits were Sheldon Maschler and Harvey Houtkin of the now notorious, Datek Securities. With the assistance of Jeff Citron and Josh Levine, in 1989 they made a software program named Watcher, which permitted informal investors to exploit the SOES system's weakness in leisurely refreshing price statements.

Albeit just intended for small orders, Datek was involving the SOES system for large trades, basically buying stocks and afterward selling them again inside only seconds. By 1996, Datek had scalped such countless trades that they were utilizing more than 500 traders, a great deal of them just out of Ivy League schools.

Special Considerations

The outcome of Datek Securities and other early high-frequency traders proceeded to spark a Electronic Communications Network (ECN), named Island, trailed by the Archipelago ECN, which merged with the New York Stock Exchange in 2006.