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These need to be discussed together. Otherwise, the defence of HFT tends to cite the economic damage caused by measures to reduce it. Anyway, I agree with you.

by netcan 9y ago

These need to be discussed together. Otherwise, the defence of HFT tends to cite the economic damage caused by measures to reduce it. Anyway, I agree with you. I don’t see a significant downside to using a small transaction tax or one of the other suggestions. The real hard question is about the benefit or harm of HFT itself. I haven’t heard a decisive argument yet, but I would say that the “liquidity defence” of HFT is in unconvincing to me. I don’t see how liquidity can add value past a certain point.

harryh 9y ago
For the record I do actually see a downside to a trading tax and do not think we should have one. Trading is a useful activity. There is no need to single it out separately from all other forms of economic activity for a special tax.
- netcan 9y ago
  Trading is probably essential, it definitely is given our economic system which involves trading. In my opinion, HFT does easily merit singling out for evaluation. It is a relatively marginal economic activity, but accounts for a large portion of transactions, mostly in highly liquid markets purposely designed/evolved to be highly efficient like stock markets and other tradable securities markets. I don't think pure theory economics can say much about what happens at extremes like that. Transactions are prices and information. If most transactions are based on HFT strategies divorced from anything even remotely related to an understanding of the underlying asset, who knows what wheels fall off the theoretical model and/or reality. It's worth looking at, at least. As I said though, I agree with you that there's an onus on those proposing a HFT tax to convict it convincingly. I don't think this has happened yet. The argument can't be "weird and scary." I don't see the liquidity defense. How can liquidity beyond a certain point be meaningfully more useful, but that's not a conviction. In my mind, it rests on how HFT impacts economic fragility, and increases the likelihood or impact of busts. We're talking about something like a 0.02% of equity tax on HFT specifically or lower if it's going to be everyone. That does not impede the ability to price in real information. An artificial restriction on trading is not unlike natural ones. Did we have liquidity issues when trading in and out multiple times within tenths of seconds was impossible? I don't think the cost is high. The risk is ..unproven.
  - harryh 9y ago
    Did we have liquidity issues when trading in and out multiple times within tenths of seconds was impossible? I don't think the cost is high. Yes. Spreads were a dime (or more). Now they're a penny.
  - gnaritas 9y ago
    Your argument boils down to they're trading too much, it scares me, make them stop. That's not a logical argument. Whether they're economically beneficial or not is simply not relevant, people have a right to buy and sell stocks for whatever reason they want whether it's beneficial to the market or not. They shouldn't have to defend themselves for buying and selling stock. HFT'ers simply do this a lot, so any objection against them is an objection to the either the speed at which they do it or the volumes they do it in, neither of which should be relevant to you. You shouldn't be able to tell someone they can't trade because they're too fast at it. Said proposed tax is nothing more than people who can't compete trying to punish those who can because they don't understand why they're losing. HFT has improved the market for everyone involved, spreads are lower, liquidity is higher, everyone pays far less for trades than ever before. There's no reason at all to regulate it that isn't simply fear based.
gnaritas 9y ago
HFT should be presumed innocent until proven guilty; the question isn't to defend HFT, it's to show it's actually a problem to begin with. Those wanting to regular HFT really have no argument that makes sense other than "we don't understand that thing so it's bad". Proposing a tax on trades is punishing those presumed guilty without a lick of actual evidence they are. HFT don't need to prove they're good, they're just traders making trades in the market like anyone else, that they do it faster than a manual trader doesn't make them bad. To try and regulate them should require an actual case be made against them and all such cases I've seen so far are completely irrational emotional arguments by people who just want to point a finger at someone to explain why they're no longer able to compete.

by netcan 9y ago

harryh 9y ago

For the record I do actually see a downside to a trading tax and do not think we should have one. Trading is a useful activity. There is no need to single it out separately from all other forms of economic activity for a special tax.

netcan 9y ago
Trading is probably essential, it definitely is given our economic system which involves trading. In my opinion, HFT does easily merit singling out for evaluation. It is a relatively marginal economic activity, but accounts for a large portion of transactions, mostly in highly liquid markets purposely designed/evolved to be highly efficient like stock markets and other tradable securities markets. I don't think pure theory economics can say much about what happens at extremes like that. Transactions are prices and information. If most transactions are based on HFT strategies divorced from anything even remotely related to an understanding of the underlying asset, who knows what wheels fall off the theoretical model and/or reality. It's worth looking at, at least. As I said though, I agree with you that there's an onus on those proposing a HFT tax to convict it convincingly. I don't think this has happened yet. The argument can't be "weird and scary." I don't see the liquidity defense. How can liquidity beyond a certain point be meaningfully more useful, but that's not a conviction. In my mind, it rests on how HFT impacts economic fragility, and increases the likelihood or impact of busts. We're talking about something like a 0.02% of equity tax on HFT specifically or lower if it's going to be everyone. That does not impede the ability to price in real information. An artificial restriction on trading is not unlike natural ones. Did we have liquidity issues when trading in and out multiple times within tenths of seconds was impossible? I don't think the cost is high. The risk is ..unproven.
- harryh 9y ago
  Did we have liquidity issues when trading in and out multiple times within tenths of seconds was impossible? I don't think the cost is high. Yes. Spreads were a dime (or more). Now they're a penny.
- gnaritas 9y ago
  Your argument boils down to they're trading too much, it scares me, make them stop. That's not a logical argument. Whether they're economically beneficial or not is simply not relevant, people have a right to buy and sell stocks for whatever reason they want whether it's beneficial to the market or not. They shouldn't have to defend themselves for buying and selling stock. HFT'ers simply do this a lot, so any objection against them is an objection to the either the speed at which they do it or the volumes they do it in, neither of which should be relevant to you. You shouldn't be able to tell someone they can't trade because they're too fast at it. Said proposed tax is nothing more than people who can't compete trying to punish those who can because they don't understand why they're losing. HFT has improved the market for everyone involved, spreads are lower, liquidity is higher, everyone pays far less for trades than ever before. There's no reason at all to regulate it that isn't simply fear based.

gnaritas 9y ago

HFT should be presumed innocent until proven guilty; the question isn't to defend HFT, it's to show it's actually a problem to begin with. Those wanting to regular HFT really have no argument that makes sense other than "we don't understand that thing so it's bad". Proposing a tax on trades is punishing those presumed guilty without a lick of actual evidence they are. HFT don't need to prove they're good, they're just traders making trades in the market like anyone else, that they do it faster than a manual trader doesn't make them bad. To try and regulate them should require an actual case be made against them and all such cases I've seen so far are completely irrational emotional arguments by people who just want to point a finger at someone to explain why they're no longer able to compete.