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You have no idea what you are talking about. FWIW, I work at a risk analytics company. And if you worked on an automated execution desk, please excuse me for

by jfager 16y ago

You have no idea what you are talking about. FWIW, I work at a risk analytics company. And if you worked on an automated execution desk, please excuse me for suggesting that you may be more inclined to see and emphasize the positives of what you do every day. I fully admit that I'm probably more inclined to see the negatives, but if you're really suggesting they aren't there, you're kidding yourself. That's a small part of automated trading. It's a small part of automated trading, but reading the news to pounce on something and holding it for only 20 minutes clearly falls in that small part. We're obviously not talking about filling stop loss orders and the like. Honestly, if you are buying stocks long-term, you probably aren't focusing on short-term pricing changes. That's just wrong. Funds are compelled to make transactions for a wide variety of reasons all the time. They are very interested in what happens to prices when they start to move to fulfill those obligations. Large institutional investors can and do trade off-market entirely via Posit, block desks, other dark pools, etc. "Can and do" does not mean "always and only". But yes, you do not make large trades transparently in the marketplace, because people will take advantage of that. There is no way to trade without leaking information as well. But the point is that automated trading systems are far more sensitive to that information, and can act on it much more quickly, meaning the methods to minimize the transparency of a large trade have to become more and more sophisticated, meaning more investment in those methods == tax.

joshu 16y ago
I'd assumed you mean "jumping in front" meant flash orders. I don't think a lot of automated trading systems actually read news, so I didn't assume you meant that. I think that if you are holding for a long time, you probably don't care as much about the difference of a few pennies. The alpha due to long term trades needs be much larger than short term volatility to be able to make a profit. Whereas a lot of high speed trading folks seem to be trading around the volatility and short-term moves. I'm not really speaking about things about positives vs negatives. There's really no way to balance all of the desires you want. I think the fairest thing to do would be to have a once-a-day crossing for the stocks. But this would take away continuous trading, which has other advantages. (More specifically, I worked in a group that did automated trading for other parties. Probably mostly like the big folks you were talking about. However, I worked mostly in proprietary trading strategies directly. A good chunk of it involved risk model improvements.)
- jfager 16y ago
  Flash orders are weapons used on both sides of the arms race. I was just referring to the 'legal frontrunning' a lot of these algorithms are trying to achieve. A few pennies? What do you mean by that? High speed trading only nets fractions of a cent per trade, yes, but by the time a big order actually gets filled, you could be talking a few pennies per share, or more. Another part of the tax that I'm referring to is the cost of keeping pace in the arms race (or hiring people to do it for you). That certainly makes a difference to the kind of low-margin funds that might be trading because they have to more than because they want to, which also happen to be the kind of funds that most people who don't realize they're invested in the stock market are invested in (which is where the positives and negatives come in, imo).

by jfager 16y ago

joshu 16y ago

I'd assumed you mean "jumping in front" meant flash orders. I don't think a lot of automated trading systems actually read news, so I didn't assume you meant that. I think that if you are holding for a long time, you probably don't care as much about the difference of a few pennies. The alpha due to long term trades needs be much larger than short term volatility to be able to make a profit. Whereas a lot of high speed trading folks seem to be trading around the volatility and short-term moves. I'm not really speaking about things about positives vs negatives. There's really no way to balance all of the desires you want. I think the fairest thing to do would be to have a once-a-day crossing for the stocks. But this would take away continuous trading, which has other advantages. (More specifically, I worked in a group that did automated trading for other parties. Probably mostly like the big folks you were talking about. However, I worked mostly in proprietary trading strategies directly. A good chunk of it involved risk model improvements.)

jfager 16y ago
Flash orders are weapons used on both sides of the arms race. I was just referring to the 'legal frontrunning' a lot of these algorithms are trying to achieve. A few pennies? What do you mean by that? High speed trading only nets fractions of a cent per trade, yes, but by the time a big order actually gets filled, you could be talking a few pennies per share, or more. Another part of the tax that I'm referring to is the cost of keeping pace in the arms race (or hiring people to do it for you). That certainly makes a difference to the kind of low-margin funds that might be trading because they have to more than because they want to, which also happen to be the kind of funds that most people who don't realize they're invested in the stock market are invested in (which is where the positives and negatives come in, imo).