29 ms·

How is it less efficient? What knowledge is conveyed in 10 seconds?

by powera 16y ago

ashika 16y ago
I think you're conflating computational finance with geographical arbitrage, and its pursuit by some traders. Computational finance is a general discipline that's more concerned with modeling and prediction of future asset prices, whereas the problem discussed in the article/paper has virtually nothing to do with prediction or modeling. It's much more about the pennies made when taking related product's prices to equilibrium in global markets, and a novel strategy of doing that.
- powera 16y ago
  I guess the solution is more to combat computational finance, but if there is time for prices everywhere to propagate between trades, the opportunities for geographical arbitrage diminish greatly. I think it's a bug in the system that this arbitrage can even exist, though. It's not like, say, rice, the location of your shares doesn't matter.
ig1 16y ago
Say a negative announcement is made regarding a stock when does it impact the price, now or ten seconds in the future ? If an exchange limits trading to every 10 seconds, then those trades will just happen privately between firms. So now the privately trading firms will know the "real" price of the stock, but the people on the exchange will be left it the dark with the "old" price. Once you hit the the next allowed trading period, everyone is going to be selling exactly simultaneously, which will cause a nosedive in the price. Institutional investors like pension funds are legally obliged to sell shares if they go past certain trigger points, so if the nosedive cause them to get triggered suddenly you have a lot more selling and a market in panic. Different people have different requirements for speed, and this naturally smoothes out trading, forcing everyone to trade at the same time is just asking for a disaster to happen. Plus there's all sorts of other complications. For example order matching. There's one buy order and 100 sell orders. How do you decide which sell order to fill ? - you can't do it by time of ordering anymore, but you need a transparent way to ensure fairness. So you randomize it. But then your rewarding whoever manages to put the most orders in, so you need a way to fix that, and then fix the problems in that fix and so on and so on until you end up with a horribly convoluted opaque system.

How is it less efficient? What knowledge is conveyed in 10 seconds?

by powera 16y ago

How is it less efficient? What knowledge is conveyed in 10 seconds?

I think you're conflating computational finance with geographical arbitrage, and its pursuit by some traders. Computational finance is a general discipline that's more concerned with modeling and prediction of future asset prices, whereas the problem discussed in the article/paper has virtually nothing to do with prediction or modeling. It's much more about the pennies made when taking related product's prices to equilibrium in global markets, and a novel strategy of doing that.

powera 16y ago
I guess the solution is more to combat computational finance, but if there is time for prices everywhere to propagate between trades, the opportunities for geographical arbitrage diminish greatly. I think it's a bug in the system that this arbitrage can even exist, though. It's not like, say, rice, the location of your shares doesn't matter.

ig1 16y ago

Say a negative announcement is made regarding a stock when does it impact the price, now or ten seconds in the future ? If an exchange limits trading to every 10 seconds, then those trades will just happen privately between firms. So now the privately trading firms will know the "real" price of the stock, but the people on the exchange will be left it the dark with the "old" price. Once you hit the the next allowed trading period, everyone is going to be selling exactly simultaneously, which will cause a nosedive in the price. Institutional investors like pension funds are legally obliged to sell shares if they go past certain trigger points, so if the nosedive cause them to get triggered suddenly you have a lot more selling and a market in panic. Different people have different requirements for speed, and this naturally smoothes out trading, forcing everyone to trade at the same time is just asking for a disaster to happen. Plus there's all sorts of other complications. For example order matching. There's one buy order and 100 sell orders. How do you decide which sell order to fill ? - you can't do it by time of ordering anymore, but you need a transparent way to ensure fairness. So you randomize it. But then your rewarding whoever manages to put the most orders in, so you need a way to fix that, and then fix the problems in that fix and so on and so on until you end up with a horribly convoluted opaque system.