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People who have memorized the "marketmaking is essential" arguments for HFT may disagree with you. People who dislike arguments from "does this serve its state

by ble 10y ago

People who have memorized the "marketmaking is essential" arguments for HFT may disagree with you. People who dislike arguments from "does this serve its stated purpose for society" may reject your argumentation style. I think you've got a hell of a point on both sides. If a teeny-tiny fraction of a percentage or a penny flat tax would cause a trade to not be profitable in expectation, then that trade probably never had anything to do with the real economy in the first place.

noir_lord 10y ago
I fundamentally believe that governments sole job should be answering the question "is this for society?" and here society doesn't mean "the people with money" which it mostly does now. We seem to have forgotten that this is governments job and if you go back to first principles and look at government through that lens, I think you end up with the scenario where western governments are failing abd failing badly, government should be both a counterweight again other powerful interests and a referee. Single issues take far too much prominence (which they want as divisive issues by nature serve to devide people).
ikeboy 10y ago
HFT takes market share from market makers and reduces spread sizes. I don't know where your strawman is from, but you're missing the point.
- mundo 10y ago
  Isn't "reduces spread sizes" a fancy way of saying that when a big pension fund decides to move a billion dollars from Coke to Pepsi, they pay slightly more to do so than they would if HFT didn't exist? That's what people mean when they complain about HFT affecting retail investors (as opposed to someone selling 100 shares of something on Etrade).
  - ikeboy 10y ago
    What no, it means they pay less. They sell coke and get slightly more, and buy Pepsi and get a slightly lower price. Instead of say, Coke being at 194.01 bid and 194.02 ask, that might narrow to 194.012 bid and 194.018 ask. If you trade in that market, you're better off. The loser is the company previously making the market, which had been buying at 194.01 and selling at 194.02. There are more complicated ways in which HFTs can indeed be at odds with institutional investors. See e.g. https://www.bloomberg.com/view/articles/2014-03-31/michael-lewis-doesn-t-like-high-frequency-traders https://www.bloomberg.com/view/articles/2014-03-31/michael-l... But if they couldn't adjust their price so fast, the spreads would be higher in the first place to account for the risk. Nobody has the right, or should have the right, to sell a billion dollars in any market without moving the market before it's over. Why should someone take the other side of that trade, knowing the price will crash as soon as it's over?
    - mundo 10y ago
      All of these details sound plausible, but as whole this (the assertion that the profit made by HFT comes primarily at the expense of other market makers) smells wrong. If that assertion were true, it would seem to imply that market-making is less profitable today than in the past. Is that the case? I was under the impression that it was more profitable.
      - ikeboy 10y ago
        Virtu is a huge market maker. They are/were 3-5% of all equity trades in the US [0]. They make $200 million a year in profit [1]. [0] https://online.wsj.com/public/resources/documents/VirtuOverview.pdf https://online.wsj.com/public/resources/documents/VirtuOverv... [1] https://en.wikipedia.org/wiki/Virtu_Financial https://en.wikipedia.org/wiki/Virtu_Financial

by ble 10y ago

noir_lord 10y ago

I fundamentally believe that governments sole job should be answering the question "is this for society?" and here society doesn't mean "the people with money" which it mostly does now. We seem to have forgotten that this is governments job and if you go back to first principles and look at government through that lens, I think you end up with the scenario where western governments are failing abd failing badly, government should be both a counterweight again other powerful interests and a referee. Single issues take far too much prominence (which they want as divisive issues by nature serve to devide people).

ikeboy 10y ago

HFT takes market share from market makers and reduces spread sizes. I don't know where your strawman is from, but you're missing the point.

mundo 10y ago
Isn't "reduces spread sizes" a fancy way of saying that when a big pension fund decides to move a billion dollars from Coke to Pepsi, they pay slightly more to do so than they would if HFT didn't exist? That's what people mean when they complain about HFT affecting retail investors (as opposed to someone selling 100 shares of something on Etrade).
- ikeboy 10y ago
  What no, it means they pay less. They sell coke and get slightly more, and buy Pepsi and get a slightly lower price. Instead of say, Coke being at 194.01 bid and 194.02 ask, that might narrow to 194.012 bid and 194.018 ask. If you trade in that market, you're better off. The loser is the company previously making the market, which had been buying at 194.01 and selling at 194.02. There are more complicated ways in which HFTs can indeed be at odds with institutional investors. See e.g. https://www.bloomberg.com/view/articles/2014-03-31/michael-lewis-doesn-t-like-high-frequency-traders https://www.bloomberg.com/view/articles/2014-03-31/michael-l... But if they couldn't adjust their price so fast, the spreads would be higher in the first place to account for the risk. Nobody has the right, or should have the right, to sell a billion dollars in any market without moving the market before it's over. Why should someone take the other side of that trade, knowing the price will crash as soon as it's over?
  - mundo 10y ago
    All of these details sound plausible, but as whole this (the assertion that the profit made by HFT comes primarily at the expense of other market makers) smells wrong. If that assertion were true, it would seem to imply that market-making is less profitable today than in the past. Is that the case? I was under the impression that it was more profitable.
    - ikeboy 10y ago
      Virtu is a huge market maker. They are/were 3-5% of all equity trades in the US [0]. They make $200 million a year in profit [1]. [0] https://online.wsj.com/public/resources/documents/VirtuOverview.pdf https://online.wsj.com/public/resources/documents/VirtuOverv... [1] https://en.wikipedia.org/wiki/Virtu_Financial https://en.wikipedia.org/wiki/Virtu_Financial