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Right, but how does "market efficiency" trickle through the rest of society? I can't even find anything that quantifies market efficiency, let alone anyone who

Right, but how does "market efficiency" trickle through the rest of society? I can't even find anything that quantifies market efficiency, let alone anyone who has tracked it over the years.

rtx 9y ago
Increases market confidence, which in turn promotes economic activity.
- keenerd 9y ago
  Too vague! Since 1990, US population has increased 30% while the (inflation corrected) GDP has increased 90%. So something improved. I'm going to (arbitrarily) say it was computer literacy, since home PC ownership went from 15% of households to 85% of households in that time period. What can you counter with to say that the improvements were from market efficiency? If we never had HFT, how much lower would the GDP be?
  - corporateslave3 9y ago
    To be completely honest with you, I think you are trying to back someone into a logical corner on something you dont understand. You are arguing one thing and missing the whole picture.
corporateslave3 9y ago
The proper allocation of capital to working business. Are you arguing against the existence of the investment industry? How would capital move around, how would growth occur?
- keenerd 9y ago
  I'm arguing against the existence of things that can't be measured. How is "market efficiency" different from Carl Sagan's "Dragon in my Garage"? It sounds like you saying that private companies that don't participate in the stock market are incapable of managing capital or achieving growth.
gnaritas 9y ago
Market efficiency means everyone gets cheaper trades with less slippage and less money going to middle men. All of society benefits from market efficiency. If you have a 401k or any stocks of any kind, you benefit from a more efficient market. Efficient means less money is lost in the transaction to middle men like traders. HFT make less per trade than old school manual traders did because they've out competed them and lowered the spread which means you get a better deal when buying and selling stock.
- keenerd 9y ago
  This is more specific and useful. But it is still fairly hand-wavy. How is this efficiency measured? Is "market efficiency" really nothing more than the average USD to conduct a trade? Or the number of microseconds? (In either case it isn't an efficiency, efficiency is always a unitless number between 0 and 1.) 401k is a great indicator, but I'm not sure it makes HFT look very good. The median trade time is more than 1000x faster than in 1990. But people's 401ks are not doing 1000x better. Did we hit a point of diminishing returns long ago? If so, is HFT pointless? I feel like you are conflating HFT with electronic trading. Electronic trading can be HFT or slow, either way it is cheap and cuts the middleman out.
  - consz 9y ago
    If you want something more specific, how about something like the following -- for a fixed number of shares N that you want to buy (or sell), the average "cost" (as measured by the difference between the price you pay and the midpoint between the best bid and offer) of performing that transaction has gone down (true whether you buy all N shares in one order or across a block of time T).
  - gnaritas 9y ago
    You're asking all the wrong questions. HFT is just trading really fast, we live in a free country, some people want to trade really fast because they've found it profitable to take on the risk of doing so, it doesn't matter one bit if you or anyone else thinks it's pointless, you have no right to tell someone else they're trading too fast. They aren't hurting you, they're making your trades cheaper, they're making it easier for you to get into and out of any position you're in by being there to buy or sell exactly at the moment you want to buy or sell, and you're complaining about what? You don't even know. You seem to have this backwards notion that they need to justify their existence, they don't, they're just traders executing their rights to buy and sell like everyone else. It's those like you seeking to regulate HFT that need to justify yourselves. You don't even understand what HFT is really as you're asking basic questions like what does market efficiency mean and does HFT help it, and you think you're in a position to question someone else's trading habits? Really? HFT doesn't need to look good, those of you trying to punish them need to show some actual evidence they're doing something bad, but they're not and you can't. Efficiency in a market means things are priced accurately and you're not getting ripped off when you buy or sell; if you find that vague and hand wavy, well, sorry but that's what it means and you should be able to understand that without further explanation. HFT traders make the price more accurate benefiting you and everyone else, they don't need to justify themselves, you need to justify your witch hunt against them. HFT is a form of electronic trading, I'm not conflating them, they're just different forms of using tech to trade and there's valid reason at all to single either of them out as bad. HFT are market makers, they're providing you and everyone else liquidity for a vastly smaller fee than you've been provided it ever before. So say thank you to HFT, enjoy your cheaper trades and increased liquidity, and go find a real problem to complain about instead of attacking those who make your life better.

Right, but how does "market efficiency" trickle through the rest of society? I can't even find anything that quantifies market efficiency, let alone anyone who has tracked it over the years.

rtx 9y ago

Increases market confidence, which in turn promotes economic activity.

keenerd 9y ago
Too vague! Since 1990, US population has increased 30% while the (inflation corrected) GDP has increased 90%. So something improved. I'm going to (arbitrarily) say it was computer literacy, since home PC ownership went from 15% of households to 85% of households in that time period. What can you counter with to say that the improvements were from market efficiency? If we never had HFT, how much lower would the GDP be?
- corporateslave3 9y ago
  To be completely honest with you, I think you are trying to back someone into a logical corner on something you dont understand. You are arguing one thing and missing the whole picture.

corporateslave3 9y ago

The proper allocation of capital to working business. Are you arguing against the existence of the investment industry? How would capital move around, how would growth occur?

keenerd 9y ago
I'm arguing against the existence of things that can't be measured. How is "market efficiency" different from Carl Sagan's "Dragon in my Garage"? It sounds like you saying that private companies that don't participate in the stock market are incapable of managing capital or achieving growth.

gnaritas 9y ago

Market efficiency means everyone gets cheaper trades with less slippage and less money going to middle men. All of society benefits from market efficiency. If you have a 401k or any stocks of any kind, you benefit from a more efficient market. Efficient means less money is lost in the transaction to middle men like traders. HFT make less per trade than old school manual traders did because they've out competed them and lowered the spread which means you get a better deal when buying and selling stock.

keenerd 9y ago
This is more specific and useful. But it is still fairly hand-wavy. How is this efficiency measured? Is "market efficiency" really nothing more than the average USD to conduct a trade? Or the number of microseconds? (In either case it isn't an efficiency, efficiency is always a unitless number between 0 and 1.) 401k is a great indicator, but I'm not sure it makes HFT look very good. The median trade time is more than 1000x faster than in 1990. But people's 401ks are not doing 1000x better. Did we hit a point of diminishing returns long ago? If so, is HFT pointless? I feel like you are conflating HFT with electronic trading. Electronic trading can be HFT or slow, either way it is cheap and cuts the middleman out.
- consz 9y ago
  If you want something more specific, how about something like the following -- for a fixed number of shares N that you want to buy (or sell), the average "cost" (as measured by the difference between the price you pay and the midpoint between the best bid and offer) of performing that transaction has gone down (true whether you buy all N shares in one order or across a block of time T).
- gnaritas 9y ago
  You're asking all the wrong questions. HFT is just trading really fast, we live in a free country, some people want to trade really fast because they've found it profitable to take on the risk of doing so, it doesn't matter one bit if you or anyone else thinks it's pointless, you have no right to tell someone else they're trading too fast. They aren't hurting you, they're making your trades cheaper, they're making it easier for you to get into and out of any position you're in by being there to buy or sell exactly at the moment you want to buy or sell, and you're complaining about what? You don't even know. You seem to have this backwards notion that they need to justify their existence, they don't, they're just traders executing their rights to buy and sell like everyone else. It's those like you seeking to regulate HFT that need to justify yourselves. You don't even understand what HFT is really as you're asking basic questions like what does market efficiency mean and does HFT help it, and you think you're in a position to question someone else's trading habits? Really? HFT doesn't need to look good, those of you trying to punish them need to show some actual evidence they're doing something bad, but they're not and you can't. Efficiency in a market means things are priced accurately and you're not getting ripped off when you buy or sell; if you find that vague and hand wavy, well, sorry but that's what it means and you should be able to understand that without further explanation. HFT traders make the price more accurate benefiting you and everyone else, they don't need to justify themselves, you need to justify your witch hunt against them. HFT is a form of electronic trading, I'm not conflating them, they're just different forms of using tech to trade and there's valid reason at all to single either of them out as bad. HFT are market makers, they're providing you and everyone else liquidity for a vastly smaller fee than you've been provided it ever before. So say thank you to HFT, enjoy your cheaper trades and increased liquidity, and go find a real problem to complain about instead of attacking those who make your life better.