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Prices determine the allocation of resources in society. Higher prices of food in New York allow a dense city of 9 million to channel enough food from the econo
by lend000 6y ago
Prices determine the allocation of resources in society. Higher prices of food in New York allow a dense city of 9 million to channel enough food from the economy to feed the populace. The more accurate the prices, the less waste (in terms of both the commodity and time).
While it may seem like any improvements to price-time reactivity would be negligible compared to the 300mm investment, these things are simply too difficult to measure in a complex system like a global economy where any change can result in a butterfly effect. Over many years, more reactive prices could prevent arbitrageurs (who perform a critical service) from making less efficient trades. In fact, the firm who commissioned the new line is likely doing arbitrage, which is one of the key services that allows us to have a globalized economy with relatively stable prices.
- xg15 6y agoOk, how exactly do HFT traders lead to less food waste?
- lend000 6y agoThe thing about complex systems is that you typically can't just say A causes B, which is what most people want. There is certainly a causal relationship, but it's a chain of events uncountably long, so it's best understood in terms of A improves prices and improved prices result in better resource allocation, as I tried to explain. If you truly want to put in the work to understand how markets work, I'd recommend running a simple forex arbitrage bot with a trivial amount of money (there are plenty of open source options that are straightforward to set up and won't make or lose you much money) to see hands on. Also, check out Matt Levine's newsletters.