5 ms·

You're wrong about liquidity. By providing liquidity to a market you are providing immediacy to someone else. Market participants seeking immediacy place a spec

by lrm242 17y ago

You're wrong about liquidity. By providing liquidity to a market you are providing immediacy to someone else. Market participants seeking immediacy place a specific value on it and are willing to pay someone for the privilege. As a market participant, if you want to buy or sell at the market, you're directly benefiting from the liquidity being provided by other participants.

cwp 17y ago
Yeah liquidity is great, but only up to a point. If it takes me six months to sell my house at "market price" that really sucks. I'd welcome a little real estate speculation, and the liquidity it brings. But if bond traders shave 600 milliseconds off the time it takes to sell my bond holdings, so what? People may be willing to pay for that, but society doesn't benefit.
- lrm242 17y ago
  Because while they shaved 600ms of your execution time they also lowered your spread by 50 basis points, making it cheaper for you to unload your bond holdings on the market.
  - cwp 17y ago
    So? That's that's a tiny benefit, even to me, let alone society at large. Our society already has very efficient allocation of resources. Devoting significant resources to increasing that efficiency by tiny amounts is just a waste. I'd prefer Carter devoted his intellect to making it cheaper to put cargo into low-earth orbit, than to making it cheaper to sell bonds.
    - xxzz 17y ago
      A tiny benefit multiplied by a billion people and several trillion dollars per day suddenly isn't so tiny anymore.
      - cwp 17y ago
        The difference in benefit I'm talking about is qualitative, not quantitative. I'd rather have a cure for cancer than a thousand years of narrower bond spreads. And when I'm on my death bed, I hope I can look back on my life and say that I contributed to something more meaningful than the bond market.
  - losvedir 17y ago
    Making it cheaper for WHO to unload their bond holdings? The person who buys and holds for some time wouldn't notice the fractionally smaller spread. The majority of trading today is done automatically, and it's all this trading that sees the benefit. But, again, how useful is this sort of trading? Surely at some point it must move from "efficiently pricing securities" to gambling with the froth. How would trading change if the goal weren't to flip your security to someone else a bit down the road, but to hold it for its intrinsic value, as higher transaction costs would encourage?
    - lrm242 17y ago
      Please define flipping a security when you're holding a futures contract for the near month. You need to step back and understand the totality of the complex financial markets before you presume to understand peoples motivations by dictating to them how long they should hold a financial instrument. People use the markets for varying motivations and their holding periods are one, of many things, that vary.
      - losvedir 17y ago
        Why are you holding the contract? You're an airline hedging against rising oil prices? You're a multinational corporation locking in a reasonable exchange rate when dealing with overseas manufacturers? You're a speculator who thinks the market isn't properly anticipating the impact of a weather pattern? All these seem fairly reasonable to me. I define a "flipper" as someone whose sole purpose in owning a security is to pass it off at a higher price to another "flipper" down the road. It was an offhand comment and my terms were non-standard, I apologize. I wasn't so much defining "flipper" by the length of time one holds a security, but the motivation for doing so. If most of the trading boils down to huge groups of firms selling back and forth to each other, it doesn't seem to matter to me whether the spreads shrink or not. It's a zero sum game and it's just a matter of one side ekeing out more money or the other.
        yummyfajitas 17y ago
        What you call "flipper" is normally called a "speculator". Also, speculators add value to the market because they push prices toward the true values. If an asset is expected to be more valuable in the future, speculators will buy it now, raise the prices, thereby encouraging consumers of that asset to use less of it. This ensures that more is available for future use. Also, speculators also add liquidity for consumers. Unless demand for a long hedge exactly matches demand for a short hedge, you need speculators to pick up the slack.
albertsun 17y ago
Yes, but still no. By providing liquidity you can be directly benefiting someone else but you're still not directly creating value. Liquidity, immediacy or anything else in the financial markets don't have any intrinsic value. The only reason the financial system exists at all is to facilitate the efficient allocation of resources towards the production of things that have real value.
- shrughes 17y ago
  Farm equipment doesn't have any intrinsic value. The only reason farm equipment exists at all is to facilitate the allocation of natural resources towards the production of things that have real value.
  - albertsun 17y ago
    Yep. And the people creating farm equipment fully realize that. When they create new equipment they do so in order to help farmers create food more easily. In finance, there is a whole lot of effort and innovation, but it's hard to say how much of it is helping people create real value.
- lrm242 17y ago
  Please define "things that have real value".
  - albertsun 17y ago
    Things people want that aren't a means to get something else. Burrito? Yes. Clothes? Yes. Art? Yes. Money? No. Liquidity? No.
    - lionhearted 17y ago
      Liquidity provides mobility - there's been a couple times in my life that I'd have converted to any religion on the planet if their chief deity promised me a buyer at even half the market value of the asset I wanted to sell. People don't want liquidity the same way they don't want a tune-up in their car. Nobody wants "a tune up", but people want a working auto that doesn't break down. No one wants liquidity, but a heck of a lot of people want to sell something they have so that they can get on with their life, move somewhere else, buy a new home, invest in something exciting, and so on. If you think freedom and mobility are valuable, then liquidity is valuable too - because liquidity can be very important in letting you do go where you want and do what you want when you have something important you need to sell or relinquish before moving on.

by lrm242 17y ago

cwp 17y ago

Yeah liquidity is great, but only up to a point. If it takes me six months to sell my house at "market price" that really sucks. I'd welcome a little real estate speculation, and the liquidity it brings. But if bond traders shave 600 milliseconds off the time it takes to sell my bond holdings, so what? People may be willing to pay for that, but society doesn't benefit.

lrm242 17y ago
Because while they shaved 600ms of your execution time they also lowered your spread by 50 basis points, making it cheaper for you to unload your bond holdings on the market.
- cwp 17y ago
  So? That's that's a tiny benefit, even to me, let alone society at large. Our society already has very efficient allocation of resources. Devoting significant resources to increasing that efficiency by tiny amounts is just a waste. I'd prefer Carter devoted his intellect to making it cheaper to put cargo into low-earth orbit, than to making it cheaper to sell bonds.
  - xxzz 17y ago
    A tiny benefit multiplied by a billion people and several trillion dollars per day suddenly isn't so tiny anymore.
    - cwp 17y ago
      The difference in benefit I'm talking about is qualitative, not quantitative. I'd rather have a cure for cancer than a thousand years of narrower bond spreads. And when I'm on my death bed, I hope I can look back on my life and say that I contributed to something more meaningful than the bond market.
- losvedir 17y ago
  Making it cheaper for WHO to unload their bond holdings? The person who buys and holds for some time wouldn't notice the fractionally smaller spread. The majority of trading today is done automatically, and it's all this trading that sees the benefit. But, again, how useful is this sort of trading? Surely at some point it must move from "efficiently pricing securities" to gambling with the froth. How would trading change if the goal weren't to flip your security to someone else a bit down the road, but to hold it for its intrinsic value, as higher transaction costs would encourage?
  - lrm242 17y ago
    Please define flipping a security when you're holding a futures contract for the near month. You need to step back and understand the totality of the complex financial markets before you presume to understand peoples motivations by dictating to them how long they should hold a financial instrument. People use the markets for varying motivations and their holding periods are one, of many things, that vary.
    - losvedir 17y ago
      Why are you holding the contract? You're an airline hedging against rising oil prices? You're a multinational corporation locking in a reasonable exchange rate when dealing with overseas manufacturers? You're a speculator who thinks the market isn't properly anticipating the impact of a weather pattern? All these seem fairly reasonable to me. I define a "flipper" as someone whose sole purpose in owning a security is to pass it off at a higher price to another "flipper" down the road. It was an offhand comment and my terms were non-standard, I apologize. I wasn't so much defining "flipper" by the length of time one holds a security, but the motivation for doing so. If most of the trading boils down to huge groups of firms selling back and forth to each other, it doesn't seem to matter to me whether the spreads shrink or not. It's a zero sum game and it's just a matter of one side ekeing out more money or the other.
      - yummyfajitas 17y ago
        What you call "flipper" is normally called a "speculator". Also, speculators add value to the market because they push prices toward the true values. If an asset is expected to be more valuable in the future, speculators will buy it now, raise the prices, thereby encouraging consumers of that asset to use less of it. This ensures that more is available for future use. Also, speculators also add liquidity for consumers. Unless demand for a long hedge exactly matches demand for a short hedge, you need speculators to pick up the slack.

albertsun 17y ago

Yes, but still no. By providing liquidity you can be directly benefiting someone else but you're still not directly creating value. Liquidity, immediacy or anything else in the financial markets don't have any intrinsic value. The only reason the financial system exists at all is to facilitate the efficient allocation of resources towards the production of things that have real value.

shrughes 17y ago
Farm equipment doesn't have any intrinsic value. The only reason farm equipment exists at all is to facilitate the allocation of natural resources towards the production of things that have real value.
- albertsun 17y ago
  Yep. And the people creating farm equipment fully realize that. When they create new equipment they do so in order to help farmers create food more easily. In finance, there is a whole lot of effort and innovation, but it's hard to say how much of it is helping people create real value.
lrm242 17y ago
Please define "things that have real value".
- albertsun 17y ago
  Things people want that aren't a means to get something else. Burrito? Yes. Clothes? Yes. Art? Yes. Money? No. Liquidity? No.
  - lionhearted 17y ago
    Liquidity provides mobility - there's been a couple times in my life that I'd have converted to any religion on the planet if their chief deity promised me a buyer at even half the market value of the asset I wanted to sell. People don't want liquidity the same way they don't want a tune-up in their car. Nobody wants "a tune up", but people want a working auto that doesn't break down. No one wants liquidity, but a heck of a lot of people want to sell something they have so that they can get on with their life, move somewhere else, buy a new home, invest in something exciting, and so on. If you think freedom and mobility are valuable, then liquidity is valuable too - because liquidity can be very important in letting you do go where you want and do what you want when you have something important you need to sell or relinquish before moving on.