4 ms·

So much material, so little time (today, for me at least). A few of his key points that I noticed: > In the real world you can create wealth as well as taking

by Mikeb85 11y ago

So much material, so little time (today, for me at least). A few of his key points that I noticed: > In the real world you can create wealth as well as taking it from others. A woodworker creates wealth. He makes a chair, and you willingly give him money in return for it. A high-frequency trader does not. He makes a dollar only when someone on the other end of a trade loses a dollar. Not surprising that he uses this example, it's popular. As a retail trader however, the amount of money I lose to a HFT is basically the HFT's commission for making my trade happen. In the old days I would have paid a broker, today I pay much less to my (electronic) broker and an HFT takes a few cents as well. It may seem to be zero-sum, but they are providing a service (liquidity). But then again, everyone will defend their own interests, as PG is doing, and as finance people do. > I've seen this myself: you don't have to grow up rich or even upper middle class to get rich as a startup founder, but few successful founders grew up desperately poor. This really should be the whole article. PG argues for economic inequality the whole time, but this is the real reason why economic inequality is bad. Economic inequality reduces social mobility, and reduces the pool of potential entrepreneurs. Also, PG should realize that what he does is basically what finance people do. He's increasing valuations of certain startups, not creating wealth. It's the same game played in the markets.

natrius 11y ago
Retail traders don't have liquidity needs on a sub-second basis. They'd all be better off with exchanges that used batch auctions. HFT is a tax on our economy. http://www.businessinsider.com/michael-lewis-high-frequency-trading-and-frequent-batch-auctions-2014-3 http://www.businessinsider.com/michael-lewis-high-frequency-...
- Mikeb85 11y ago
  No, retail traders don't. However if I go through my electronic broker, it's then trading on the 'real market' on my behalf, and the extra liquidity is much appreciated. And trading today is cheaper than ever before. I actually started trading on the TSX-V market, which has super-low liquidity and no HFT players (not even sure if there are market makers for most of the stocks). It's pretty much my idea of what hell is like. BTW, here's an interesting link: http://www.forbes.com/sites/timworstall/2015/01/26/relax-everyone-the-high-frequency-trading-problem-is-over/ http://www.forbes.com/sites/timworstall/2015/01/26/relax-eve... The thing about HFT, is that it's basically arbitrage. People used to do it manually, machines of course do it better. Now spreads are so small, there's basically no profit in it. The result, better liquidity than ever, smallest spreads in history. And yes I've read all the anti-HFT propaganda - but I'm also in the markets, and I like trading in high-liquidity markets, especially after trading in low-liquidity markets...
  - mrchicity 11y ago
    According to IIROC (Canada's SEC), HFTs are active on TSX-V, but not in all stocks or to the same extent that they trade the TSX blue chips. I would imagine they'd stick with the highest volume TSX-V stocks. The ones that aren't liquid have low opportunity and risks that are impossible to model/hedge (penny stocks can easily go to 0 from an accounting scandal or jump 1000% if a wildcat strikes gold or oil). "Figure 9 shows the HFT participation as a fraction of all transactions and value. Compared to the main market, HFT activity in TSXV stocks is lower, with only 20% of transactions and less than 10% of value involving an HFT on the passive side (aggressive volume is negligible). As Panel C indicates, however, they submit about 55% of all orders, and they are thus noticeable in these securities. Panel D highlights the share of HFT and other traders’ orders relative to best prices. HFTs generally submit more than half of the orders that are submitted at the best price or that are improving the best price." [1] 1: http://docs.iiroc.ca/DisplayDocument.aspx?DocumentID=048AE4017CF34FCE8243ECD7A3C2913A&Language=en http://docs.iiroc.ca/DisplayDocument.aspx?DocumentID=048AE40...
mrchicity 11y ago
I'd argue that a robust and liquid financial market does "create wealth" in that it opens up new strategies that were previously too costly. For example, due to lower spreads, automated pricing, and decreased transaction costs, it is now cheaper than ever before to rebalance one's portfolio frequently to avoid over-exposure to certain sectors, gain exposure to more diversified international markets through ETFs, etc. etc. A lot of this even has ties to the real physical economy. With a tight liquid market on the screen, commodity producers/consumers can adjust their oil/grain/gas hedges in real-time, retailers can manage their foreign exchange exposures and make live adjustments as orders arrive, and so on. Just makes the economy more efficient and reduces "slop" where end users built up risk exposures they didn't really want because hedging it was so expensive. And I agree the HFT is creating value, especially market-making HFT. Absent his bid or offer, you would either lose more money paying a higher spread, or lose more in opportunity cost wasting time to wait for another trader on the other side. People who trade with them "lose" like people buying insurance "lose." Not everyone has the same utility function.

by Mikeb85 11y ago

natrius 11y ago

Retail traders don't have liquidity needs on a sub-second basis. They'd all be better off with exchanges that used batch auctions. HFT is a tax on our economy. http://www.businessinsider.com/michael-lewis-high-frequency-trading-and-frequent-batch-auctions-2014-3 http://www.businessinsider.com/michael-lewis-high-frequency-...

Mikeb85 11y ago
No, retail traders don't. However if I go through my electronic broker, it's then trading on the 'real market' on my behalf, and the extra liquidity is much appreciated. And trading today is cheaper than ever before. I actually started trading on the TSX-V market, which has super-low liquidity and no HFT players (not even sure if there are market makers for most of the stocks). It's pretty much my idea of what hell is like. BTW, here's an interesting link: http://www.forbes.com/sites/timworstall/2015/01/26/relax-everyone-the-high-frequency-trading-problem-is-over/ http://www.forbes.com/sites/timworstall/2015/01/26/relax-eve... The thing about HFT, is that it's basically arbitrage. People used to do it manually, machines of course do it better. Now spreads are so small, there's basically no profit in it. The result, better liquidity than ever, smallest spreads in history. And yes I've read all the anti-HFT propaganda - but I'm also in the markets, and I like trading in high-liquidity markets, especially after trading in low-liquidity markets...
- mrchicity 11y ago
  According to IIROC (Canada's SEC), HFTs are active on TSX-V, but not in all stocks or to the same extent that they trade the TSX blue chips. I would imagine they'd stick with the highest volume TSX-V stocks. The ones that aren't liquid have low opportunity and risks that are impossible to model/hedge (penny stocks can easily go to 0 from an accounting scandal or jump 1000% if a wildcat strikes gold or oil). "Figure 9 shows the HFT participation as a fraction of all transactions and value. Compared to the main market, HFT activity in TSXV stocks is lower, with only 20% of transactions and less than 10% of value involving an HFT on the passive side (aggressive volume is negligible). As Panel C indicates, however, they submit about 55% of all orders, and they are thus noticeable in these securities. Panel D highlights the share of HFT and other traders’ orders relative to best prices. HFTs generally submit more than half of the orders that are submitted at the best price or that are improving the best price." [1] 1: http://docs.iiroc.ca/DisplayDocument.aspx?DocumentID=048AE4017CF34FCE8243ECD7A3C2913A&Language=en http://docs.iiroc.ca/DisplayDocument.aspx?DocumentID=048AE40...

mrchicity 11y ago

I'd argue that a robust and liquid financial market does "create wealth" in that it opens up new strategies that were previously too costly. For example, due to lower spreads, automated pricing, and decreased transaction costs, it is now cheaper than ever before to rebalance one's portfolio frequently to avoid over-exposure to certain sectors, gain exposure to more diversified international markets through ETFs, etc. etc. A lot of this even has ties to the real physical economy. With a tight liquid market on the screen, commodity producers/consumers can adjust their oil/grain/gas hedges in real-time, retailers can manage their foreign exchange exposures and make live adjustments as orders arrive, and so on. Just makes the economy more efficient and reduces "slop" where end users built up risk exposures they didn't really want because hedging it was so expensive. And I agree the HFT is creating value, especially market-making HFT. Absent his bid or offer, you would either lose more money paying a higher spread, or lose more in opportunity cost wasting time to wait for another trader on the other side. People who trade with them "lose" like people buying insurance "lose." Not everyone has the same utility function.