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> you're obviously going to want to trade FIRST on those fundamentals .. right? Cause whoever does is going to win the day If you're only trading long term, th

> you're obviously going to want to trade FIRST on those fundamentals .. right? Cause whoever does is going to win the day If you're only trading long term, then sub-second differences are essentially irrelevant. I think there's a perfectly reasonable point here. Fundamentals as "trading against the future profit of the company". HFT as "trading against the system".

blazespin 11y ago
Absolutely! Which is why a transactional / tobin tax wouldn't hurt such folks as they will be trading infrequently. https://en.wikipedia.org/wiki/European_Union_financial_transaction_tax https://en.wikipedia.org/wiki/European_Union_financial_trans...
- Frondo 11y ago
  And it's funny, New York already has such a law on the books: http://www.thenation.com/article/why-cuomo-leaving-wall-street-cash-table/ http://www.thenation.com/article/why-cuomo-leaving-wall-stre... The tax is instantly rebated since 1981 (thanks, Reagan-era politicians!), so no money around this tax ever changes hands. It seems like it could be an interesting place to start looking as a model for a federal-level tax on financial trading.
  - blazespin 11y ago
    Yeah, but I'm not naive enough to think this will get passed soon. The problem with the US is that its manufacturing base has been so hollowed out it has become reliant on its treasury bonds + QE money printing fed (backed by its military) and financial hegemony (think Goldman Sachs) that results from it. The ftt got passed in the EU because Germany (which runs the EU, mostly) actually still makes things. They don't need the world to transact their bonds in order to stay liquid.
    - dantillberg 11y ago
      I was curious about this conjecture that the US doesn't make things, while Germany does. So I dug up [0], a table of "Manufacturing, value added (current US$)", and here are the top five countries for 2013: 1: China $2.9bn, 2: United States $1.9bn, 3: Japan $904m, 4: Germany $745m, 5: Korea $368m Manufacturing in Germany may contribute a higher percentage of GDP, but it does not appear to have a larger (in dollars, according to this data) manufacturing base than the US in absolute terms. [0]: http://data.worldbank.org/indicator/NV.IND.MANF.CD?order=wbapi_data_value_2013+wbapi_data_value&sort=desc http://data.worldbank.org/indicator/NV.IND.MANF.CD?order=wba...
      - deleted 11y ago
        [deleted]
      - jazzyk 11y ago
        It would be hard to expect Germany to produce more in absolute terms, with Germany's population being 25 % of US population (US=320M, Germany=80M). With its population 4x higher, the US only produces 2.5x more stuff. That's a huge difference.
        kasey_junk 11y ago
        It's a huge difference but it isn't particularly telling about any larger points. A large component of US output is agricultural or natural resources which are not included in that number (nor is software for that matter).
- tptacek 11y ago
  To the extent transactional taxes retard market-making and drive spreads back towards where they were in the 1980s, those taxes do in fact harm retail investors.
  - vasilipupkin 11y ago
    Sweden tried it and had to go back on this due to liquidity drying up. By the way, we already have transaction taxes in the US. That's how we fund the SEC and CFTC. Every sale of stock is charged an SEC fee. The issue is, if you set these fees too high, then you will in fact harm investors by reducing liquidity.
    - blazespin 11y ago
      Sweden's fee was probably a bit high. They also were too small to implement it and didn't discourage the use of foreign brokers enough.
  - blazespin 11y ago
    Unless you're trading way more frequently than you need to be, the spread is hardly a big deal. If you are trading frequently, than the spread is an opportunity to make money. As someone who trades a lot, I like fat spreads. My advice to any retail investor though is just dollar cost average into an index fund as a function of your age and forget about it. If you are going to try to 'beat the market' (and worry bout things like transaction taxes and spreads) you will lose. When people talk about retail traders in this conversation, they are either totally clueless or working in the industry and just don't want to be taxed. Anyone who says a retail trader should be trading enough to worry about spreads is not your friend.
    - tptacek 11y ago
      "Retail trading" here being a term capturing all trading done on behalf of normal people, including pension and mutual funds. So no, that argument very much does not carry.
JesperRavn 11y ago
But people who trade against fundamentals aren't trading directly against future profits, they are just betting on long term price movements. HFT traders are betting on (very) short term price movements. According to the theory that stock prices are a martingale (which is well established), there is no qualitative difference between long and short run price movements. In particular, there is no reversion to the mean in stock prices [0]. [0] Of course, there are going to be literally hundreds of papers exhibiting some reversion to the mean effect. But this effect is always tiny.
- vasilipupkin 11y ago
  yeah, in fact any long term movement is mathematically a sum of short term movements :) so if your goal is to predict a long term movement, there is really no contradiction between using both long term and short term predictions to trade
  - JesperRavn 11y ago
    Yes, but being a martingale implies something stronger, which is that both short and long term traders are betting on the fundamentals to exactly the same extent.
- cynicalkane 11y ago
  "In particular, there is no reversion to the mean... there are going to be literally hundreds of papers exhibiting some reversion to the mean effect." Okay. I also think you don't know what a martingale is. It is impossible to make any expected value betting on martingale movements, by definition. If you believe traders are purely "betting on price movements" of martingales then profit is impossible. So either prices aren't martingales or trading is not purely a process of betting on the movements of market-clearing prices. Actually, both assumptions are false.
  - JesperRavn 11y ago
    If you knew anything about academia, or if you even bothered to carefully read my post instead of nitpicking, you would understand that just because something is in general true, doesn't mean that there won't be hundreds of papers showing how this thing fails to be true in special cases, or to a very small extent. Regarding martingales, a martingale is defined relative to an information set (you know what a martingale is so you already knew that, right?). Saying that there is no reversion to the mean implies being a martingale with respect to the weakest possible information set (the history of prices). Traders, whether high frequency or others, may have extra information outside this information set. In short, stop nitpicking and revise your understanding of what a martingale is.

blazespin 11y ago

Absolutely! Which is why a transactional / tobin tax wouldn't hurt such folks as they will be trading infrequently. https://en.wikipedia.org/wiki/European_Union_financial_transaction_tax https://en.wikipedia.org/wiki/European_Union_financial_trans...

Frondo 11y ago
And it's funny, New York already has such a law on the books: http://www.thenation.com/article/why-cuomo-leaving-wall-street-cash-table/ http://www.thenation.com/article/why-cuomo-leaving-wall-stre... The tax is instantly rebated since 1981 (thanks, Reagan-era politicians!), so no money around this tax ever changes hands. It seems like it could be an interesting place to start looking as a model for a federal-level tax on financial trading.
- blazespin 11y ago
  Yeah, but I'm not naive enough to think this will get passed soon. The problem with the US is that its manufacturing base has been so hollowed out it has become reliant on its treasury bonds + QE money printing fed (backed by its military) and financial hegemony (think Goldman Sachs) that results from it. The ftt got passed in the EU because Germany (which runs the EU, mostly) actually still makes things. They don't need the world to transact their bonds in order to stay liquid.
  - dantillberg 11y ago
    I was curious about this conjecture that the US doesn't make things, while Germany does. So I dug up [0], a table of "Manufacturing, value added (current US$)", and here are the top five countries for 2013: 1: China $2.9bn, 2: United States $1.9bn, 3: Japan $904m, 4: Germany $745m, 5: Korea $368m Manufacturing in Germany may contribute a higher percentage of GDP, but it does not appear to have a larger (in dollars, according to this data) manufacturing base than the US in absolute terms. [0]: http://data.worldbank.org/indicator/NV.IND.MANF.CD?order=wbapi_data_value_2013+wbapi_data_value&sort=desc http://data.worldbank.org/indicator/NV.IND.MANF.CD?order=wba...
    - deleted 11y ago
      [deleted]
    - jazzyk 11y ago
      It would be hard to expect Germany to produce more in absolute terms, with Germany's population being 25 % of US population (US=320M, Germany=80M). With its population 4x higher, the US only produces 2.5x more stuff. That's a huge difference.
      - kasey_junk 11y ago
        It's a huge difference but it isn't particularly telling about any larger points. A large component of US output is agricultural or natural resources which are not included in that number (nor is software for that matter).
tptacek 11y ago
To the extent transactional taxes retard market-making and drive spreads back towards where they were in the 1980s, those taxes do in fact harm retail investors.
- vasilipupkin 11y ago
  Sweden tried it and had to go back on this due to liquidity drying up. By the way, we already have transaction taxes in the US. That's how we fund the SEC and CFTC. Every sale of stock is charged an SEC fee. The issue is, if you set these fees too high, then you will in fact harm investors by reducing liquidity.
  - blazespin 11y ago
    Sweden's fee was probably a bit high. They also were too small to implement it and didn't discourage the use of foreign brokers enough.
- blazespin 11y ago
  Unless you're trading way more frequently than you need to be, the spread is hardly a big deal. If you are trading frequently, than the spread is an opportunity to make money. As someone who trades a lot, I like fat spreads. My advice to any retail investor though is just dollar cost average into an index fund as a function of your age and forget about it. If you are going to try to 'beat the market' (and worry bout things like transaction taxes and spreads) you will lose. When people talk about retail traders in this conversation, they are either totally clueless or working in the industry and just don't want to be taxed. Anyone who says a retail trader should be trading enough to worry about spreads is not your friend.
  - tptacek 11y ago
    "Retail trading" here being a term capturing all trading done on behalf of normal people, including pension and mutual funds. So no, that argument very much does not carry.

JesperRavn 11y ago

But people who trade against fundamentals aren't trading directly against future profits, they are just betting on long term price movements. HFT traders are betting on (very) short term price movements. According to the theory that stock prices are a martingale (which is well established), there is no qualitative difference between long and short run price movements. In particular, there is no reversion to the mean in stock prices [0]. [0] Of course, there are going to be literally hundreds of papers exhibiting some reversion to the mean effect. But this effect is always tiny.

vasilipupkin 11y ago
yeah, in fact any long term movement is mathematically a sum of short term movements :) so if your goal is to predict a long term movement, there is really no contradiction between using both long term and short term predictions to trade
- JesperRavn 11y ago
  Yes, but being a martingale implies something stronger, which is that both short and long term traders are betting on the fundamentals to exactly the same extent.
cynicalkane 11y ago
"In particular, there is no reversion to the mean... there are going to be literally hundreds of papers exhibiting some reversion to the mean effect." Okay. I also think you don't know what a martingale is. It is impossible to make any expected value betting on martingale movements, by definition. If you believe traders are purely "betting on price movements" of martingales then profit is impossible. So either prices aren't martingales or trading is not purely a process of betting on the movements of market-clearing prices. Actually, both assumptions are false.
- JesperRavn 11y ago
  If you knew anything about academia, or if you even bothered to carefully read my post instead of nitpicking, you would understand that just because something is in general true, doesn't mean that there won't be hundreds of papers showing how this thing fails to be true in special cases, or to a very small extent. Regarding martingales, a martingale is defined relative to an information set (you know what a martingale is so you already knew that, right?). Saying that there is no reversion to the mean implies being a martingale with respect to the weakest possible information set (the history of prices). Traders, whether high frequency or others, may have extra information outside this information set. In short, stop nitpicking and revise your understanding of what a martingale is.