3 ms·

suppose "real time" means order of magnitude milliseconds for example's sake. the price could change a bunch in that interval of 1000ms. you may think "well on

suppose "real time" means order of magnitude milliseconds for example's sake. the price could change a bunch in that interval of 1000ms. you may think "well only slightly" - fractions of cents - but if GS can make fractions of pennies on those events, scaled up to all seconds that the market is open, you can see why that's potentially attractive. for whatever it's worth, GS in 2009 claimed that HFT generated <1% of their profits. whether you believe that is another thing.

jedberg 7y ago
Ok that explains why they want to do it, but how does it benefit the market to allow that? How does it benefit the consumers and corporations? In other words, what is the argument against creating a law that requires a minimum of 1 second batches for example?
- denormalfloat 7y ago
  Exchange traded funds depend on special traders who buy the underlying stocks (like AMZN and MSFT), and sell them in exchange for the ETFs (like SPY and VOO). If the individual stocks are more valuable the special traders can buy the ETF shares, exchange them for the individuals, and then sell those for cash. If the ETF is more valuable, they can buy the individual stocks, exchange them for the ETF, and sell the ETF for cash. This is what keeps Index funds matching the underlying index. Whenever the prices are out of whack, one of the assets can be exchanged for the other. However, there is the concept of tracking error, where by the value of the ETF doesn't track its index. High frequency traders are constantly trying to take advantage of this mismatch (i.e. arbitrage), and as a result the fund's tracking error is moved very close to 0 (i.e. it achieves the goal stated in the prospectus). Retail investors (like you and me) benefit from this because the price of the index fund is kept in line, and HFT people get to make a little money being keeping it that way. Who would want to make a law that hurts everyone involved by preventing them from entering a mutually beneficial relationship?
- alkibiades 7y ago
  my question would be how/who does it harm? what is the argument FOR setting that law? other than you think it’s greedy or something?
  - jedberg 7y ago
    I don't care about the greediness, I just care about fairness. Why should GS get the best trades just because they can make a deal to get the shortest ethernet cables?

jedberg 7y ago

Ok that explains why they want to do it, but how does it benefit the market to allow that? How does it benefit the consumers and corporations? In other words, what is the argument against creating a law that requires a minimum of 1 second batches for example?

denormalfloat 7y ago
Exchange traded funds depend on special traders who buy the underlying stocks (like AMZN and MSFT), and sell them in exchange for the ETFs (like SPY and VOO). If the individual stocks are more valuable the special traders can buy the ETF shares, exchange them for the individuals, and then sell those for cash. If the ETF is more valuable, they can buy the individual stocks, exchange them for the ETF, and sell the ETF for cash. This is what keeps Index funds matching the underlying index. Whenever the prices are out of whack, one of the assets can be exchanged for the other. However, there is the concept of tracking error, where by the value of the ETF doesn't track its index. High frequency traders are constantly trying to take advantage of this mismatch (i.e. arbitrage), and as a result the fund's tracking error is moved very close to 0 (i.e. it achieves the goal stated in the prospectus). Retail investors (like you and me) benefit from this because the price of the index fund is kept in line, and HFT people get to make a little money being keeping it that way. Who would want to make a law that hurts everyone involved by preventing them from entering a mutually beneficial relationship?
alkibiades 7y ago
my question would be how/who does it harm? what is the argument FOR setting that law? other than you think it’s greedy or something?
- jedberg 7y ago
  I don't care about the greediness, I just care about fairness. Why should GS get the best trades just because they can make a deal to get the shortest ethernet cables?