5 ms·

You should probably get to know some critical aspects of markets too, this article just praises them. That is pretty much the norm, but I think it's a valuable

You should probably get to know some critical aspects of markets too, this article just praises them. That is pretty much the norm, but I think it's a valuable educational endeavour to look at critiques of markets.

hericium 5y ago
Fully agree, especially during current instability. I think that everyone got used to constant "it's about to crash" news but the volatility and uncertainty are visible in recent months. I don't remember when inflation numbers releases were that impactful. The good coming out of this is the visibility of how strongly dependant cryptocoins are.
- iso1631 5y ago
  The "Stock Market" is down since July, it might not have crashed but it's not going up Ukraine kicking off is not going to help in a sane world, but it's not a sane world so I half expect all time highs while Odessa burns
  - lotsofpulp 5y ago
    One aspect of buying securities and currency is the stability. People like stability, they will pay extra for secure cash flows, consistent courts, and rule of law that is predictable. In which case, because of its practical distance from Russia I would be optimistic about the US’s relative position, even if nominal equity values decline, they will maintain their relative value assuming the US does remains relatively more stable than other countries.
bedobi 5y ago
but... it does explain some of the most ubiquitous and fundamental problems of markets, like spreads and illiquidity? granted you could go on forever about an infite list of problems, eg that today so much trading happens in dark pools, so much stocks are owned by passive index etf managers who don't take an active role in ownership etc etc but for a rough summary I think this article explained some of the basics quite well
darawk 5y ago
Do you have any in mind?
- agumonkey 5y ago
  "market makers" ?
  - bidirectional 5y ago
    Why are they a bad thing?
    - mosermint 5y ago
      Many market makers profit off speed and information advantages while providing liquidity. There are alternative market structures like frequent batch auctions that would allow better trading, lower spreads and negate the HFT speed arms race. This paper is a good overview: https://www.aeaweb.org/articles?id=10.1257/aer.104.5.418 https://www.aeaweb.org/articles?id=10.1257/aer.104.5.418
      - jallen_dot_dev 5y ago
        And the reason their orders execute in front of others' is because they offer the best price. If they didn't exist I would have to pay a little bit more to buy, or sell for a little bit less. Is the full paper available without a login? Alternative matching schemes to price-time priority suffer their own drawbacks. Either there's no guarantee your whole order will fill (pro rata) or trade at all, and there can still be a speed arms race (there's an incentive to get your order in at the last possible moment before the batch to benefit from maximum information).
        darawk 5y ago
        The alternative schemes he's referring to are batch auctions, which don't eliminate price-time priority per se. What they do is bucket time priority into discrete chunks, which eliminate a certain class of high frequency strategy that probably isn't particularly economically productive. The problem with batch auctions relative to continuous time trading is that that discreteness forces market makers to charge larger spreads. That's the primary trade-off. Volume would likely be dramatically reduced while achieving comparably efficient asset allocation, but at slightly higher average transaction costs. Those higher average transaction costs however would likely go along with better tail behavior of spreads in unusual market conditions, and maybe better human interpretability under unusual conditions as well. What it comes down to is a question of how much those non-monetary benefits are worth to your economy. The longer you force market makers to hold inventory, the more they have to charge for that risk, all else equal. However, when market volatility spikes, they're also going to be less able to play certain types of high frequency games that erode liquidity when it's most needed. It's kind of a robustness/efficiency trade-off, like many things.

hericium 5y ago

Fully agree, especially during current instability. I think that everyone got used to constant "it's about to crash" news but the volatility and uncertainty are visible in recent months. I don't remember when inflation numbers releases were that impactful. The good coming out of this is the visibility of how strongly dependant cryptocoins are.

iso1631 5y ago
The "Stock Market" is down since July, it might not have crashed but it's not going up Ukraine kicking off is not going to help in a sane world, but it's not a sane world so I half expect all time highs while Odessa burns
- lotsofpulp 5y ago
  One aspect of buying securities and currency is the stability. People like stability, they will pay extra for secure cash flows, consistent courts, and rule of law that is predictable. In which case, because of its practical distance from Russia I would be optimistic about the US’s relative position, even if nominal equity values decline, they will maintain their relative value assuming the US does remains relatively more stable than other countries.

bedobi 5y ago

but... it does explain some of the most ubiquitous and fundamental problems of markets, like spreads and illiquidity? granted you could go on forever about an infite list of problems, eg that today so much trading happens in dark pools, so much stocks are owned by passive index etf managers who don't take an active role in ownership etc etc but for a rough summary I think this article explained some of the basics quite well

darawk 5y ago

Do you have any in mind?

agumonkey 5y ago
"market makers" ?
- bidirectional 5y ago
  Why are they a bad thing?
  - mosermint 5y ago
    Many market makers profit off speed and information advantages while providing liquidity. There are alternative market structures like frequent batch auctions that would allow better trading, lower spreads and negate the HFT speed arms race. This paper is a good overview: https://www.aeaweb.org/articles?id=10.1257/aer.104.5.418 https://www.aeaweb.org/articles?id=10.1257/aer.104.5.418
    - jallen_dot_dev 5y ago
      And the reason their orders execute in front of others' is because they offer the best price. If they didn't exist I would have to pay a little bit more to buy, or sell for a little bit less. Is the full paper available without a login? Alternative matching schemes to price-time priority suffer their own drawbacks. Either there's no guarantee your whole order will fill (pro rata) or trade at all, and there can still be a speed arms race (there's an incentive to get your order in at the last possible moment before the batch to benefit from maximum information).
      - darawk 5y ago
        The alternative schemes he's referring to are batch auctions, which don't eliminate price-time priority per se. What they do is bucket time priority into discrete chunks, which eliminate a certain class of high frequency strategy that probably isn't particularly economically productive. The problem with batch auctions relative to continuous time trading is that that discreteness forces market makers to charge larger spreads. That's the primary trade-off. Volume would likely be dramatically reduced while achieving comparably efficient asset allocation, but at slightly higher average transaction costs. Those higher average transaction costs however would likely go along with better tail behavior of spreads in unusual market conditions, and maybe better human interpretability under unusual conditions as well. What it comes down to is a question of how much those non-monetary benefits are worth to your economy. The longer you force market makers to hold inventory, the more they have to charge for that risk, all else equal. However, when market volatility spikes, they're also going to be less able to play certain types of high frequency games that erode liquidity when it's most needed. It's kind of a robustness/efficiency trade-off, like many things.