Cracking the Street's New Math

摘要

Ted oberhaus used to have one big headache. As director of equity trading at the $93 billion Jersey City-based Lord Abbett & Co. mutual-fund group, he typically needs to buy and sell about 7 million shares a day. Trouble is, the average-size deal on the New York Stock Exchange has fallen to just 400 shares, down from 1,477 in 1998, when prices were last quoted in fractions, according to market researcher The TABB Group. As a result, if other traders get wind of what Oberhaus is up to, market prices could move swiftly against him. "We're trying to put elephant-size orders through a keyhole," says Oberhaus. These days, thanks to so-called algorithmic programs executed on highpowered computers, Oberhaus and other professional money managers can ram orders for an average trade of 155,000 shares through such small openings. Simply put, an algorithm—first identified by a 9th century Arab mathematician—is a series of calculated steps strung together to produce a desired numeric goal. Now, these formulas are used to buy and sell large blocks of stock that have been traditionally shopped around traders on the floor of the NYSE or through Wall Street brokers.