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So like if the ticket scalper was the one running the ticket booth? Is there really a difference between: I see you want X, so I go buy X and sell it to you a

So like if the ticket scalper was the one running the ticket booth? Is there really a difference between: I see you want X, so I go buy X and sell it to you at a slightly higher price to make some money. I see you want X, so I take my X out of stock and sell it to you at a slightly higher price to make some extra money. I'm not sure they are really different.

kasey_junk 11y ago
What about this. You just bought all of my stock of X. I have no idea if thats all you want or why you want it, but there is now less X available. If you think the price shouldn't be impacted by that, it means something very fundamental about markets.
- Lawtonfogle 11y ago
  So if X are tickets, and my plan (which you don't care about) is to now sell the tickets at 125% of the price I paid... are you saying scalping should happen?
  - tptacek 11y ago
    I think scalping is a really bad example of what HFTs are actually doing (see https://news.ycombinator.com/edit?id=10981812 https://news.ycombinator.com/edit?id=10981812). But scalping is an interesting example for another reason. Ticket scalping is a response to an extremely inefficient market. Scalping can only be profitable if people are willing to pay more than face value for a ticket. It might make sense to restrict scalping for tickets, because artists might want to make tickets available to people across a wide spectrum of means. But that is never the case for tradable instruments. Restrictions on scalping deliberately seek to impede price discovery. The whole point of liquid trading markets is that the price of the instruments being traded is supposed to reflect their actual value.
fisherjeff 11y ago
Maybe I'm misunderstanding but my impression is it's more like the scalper's standing off in the distance, waiting. Once they see someone walking up to the booth, they race in to buy up the last ticket at the current price and sell it to the person who was about to buy that same ticket, but now for a little more money. Then rinse and repeat all day long. Again, I may be misunderstanding, but if this is truly analogous, I completely fail to see the utility.
- tptacek 11y ago
  HFTs don't corner the market for a particular instrument. So what's really happening is more like the market for limited- release sneakers. They rush to the store, they buy up a bunch of sneakers. Now they're holding inventory. They only make money if they can sell that inventory off for more than they paid for it. But there are thousands of other places where the same shoes are being sold. If the demand for the particular sneakers they bought climbs, they will make money. But it's just as likely that the demand will fall (in fact, it's much more likely that demand will fall in the instruments HFTs trade --- that's what those instruments do! They take random walks!), in which case that inventory they bought is a liability.

kasey_junk 11y ago

What about this. You just bought all of my stock of X. I have no idea if thats all you want or why you want it, but there is now less X available. If you think the price shouldn't be impacted by that, it means something very fundamental about markets.

Lawtonfogle 11y ago
So if X are tickets, and my plan (which you don't care about) is to now sell the tickets at 125% of the price I paid... are you saying scalping should happen?
- tptacek 11y ago
  I think scalping is a really bad example of what HFTs are actually doing (see https://news.ycombinator.com/edit?id=10981812 https://news.ycombinator.com/edit?id=10981812). But scalping is an interesting example for another reason. Ticket scalping is a response to an extremely inefficient market. Scalping can only be profitable if people are willing to pay more than face value for a ticket. It might make sense to restrict scalping for tickets, because artists might want to make tickets available to people across a wide spectrum of means. But that is never the case for tradable instruments. Restrictions on scalping deliberately seek to impede price discovery. The whole point of liquid trading markets is that the price of the instruments being traded is supposed to reflect their actual value.

fisherjeff 11y ago

Maybe I'm misunderstanding but my impression is it's more like the scalper's standing off in the distance, waiting. Once they see someone walking up to the booth, they race in to buy up the last ticket at the current price and sell it to the person who was about to buy that same ticket, but now for a little more money. Then rinse and repeat all day long. Again, I may be misunderstanding, but if this is truly analogous, I completely fail to see the utility.

tptacek 11y ago
HFTs don't corner the market for a particular instrument. So what's really happening is more like the market for limited- release sneakers. They rush to the store, they buy up a bunch of sneakers. Now they're holding inventory. They only make money if they can sell that inventory off for more than they paid for it. But there are thousands of other places where the same shoes are being sold. If the demand for the particular sneakers they bought climbs, they will make money. But it's just as likely that the demand will fall (in fact, it's much more likely that demand will fall in the instruments HFTs trade --- that's what those instruments do! They take random walks!), in which case that inventory they bought is a liability.