5 ms·

Stocks should only be allowed to trade at the speed that value is created or lost. The stock market is a human institution, (supposedly) designed to measure val

by jkahn 15y ago

Stocks should only be allowed to trade at the speed that value is created or lost. The stock market is a human institution, (supposedly) designed to measure value of human businesses. Trading in microseconds is ridiculous. Trades should be in human time - essentially, minutes and hours, not seconds and microseconds. Business value does not change that quickly. HFT is representative of a financial industry set on creating ever more abstract tools and products that are more akin to gambling than representing the value of the actual business. The stock market needs to return to it's roots. There's been enough chaos already.

cellis 15y ago
Humans do make decisions in milliseconds.
- jkahn 15y ago
  Humans make decisions in milliseconds, but market factors do not change that quickly. Even major, unforecasted issues like the Japan Tsunami happened in human time.
Game_Ender 15y ago
That has a feel good populist sense to it, but do you have evidence that your idea would improve things? What exactly is your proposal? Computers are better at processing information then people, eventually they will be able to determine, in microseconds, what the market effects of world events are and execute trades. I think the world will be better off for it, not worse.
- jkahn 15y ago
  Why would the world be better off with computers making trades? I don't have a proposal, except that the financial industry needs to be reviewed. A good start would be to remove the products that are abstractions of the value of companies or markets rather than representative of real value. Eliminate futures and most forms of derivatives. Keep shares and managed/indexed funds. Keep everything physical (e.g. Gold, Oil, etc). That would reduce a number of the swings in the market caused by relatively small real stock movement. Return the market to trading value, rather than trading the anticipation of what might happen The stock market should be used for trading companies, not shifting money from owners of stocks to the financial industry by having people manipulate it.
  - mynameishere 15y ago
    Eliminate futures This statement is almost identical to "Eliminate automobile insurance", for reasons you don't understand. General advice: Don't speak on that which your ignorance is total.
feral 15y ago
First off, business value can change quickly. Sudden events happen. You can think of dramatic events such as terrorist attacks or death of an important executive; but there's other information, such as the public announcement of a new product (e.g. 'Apple are making a new type of device!', perhaps rapidly followed by 'Google have just said they'll support it!') that also result in fast changes. But, most importantly, the market price provides information that influences further decisions. Maybe I'm not an expert on oil prices, but I believe if it goes below $70 a barrel, its a signal that the world economy is slowing down, and I want to dump my Google stock, because I'm only willing to accept a certain level of risk in my personal investments. The fact that I can see the price of the oil provides me with a signal (maybe noisy), derived from aggregated intelligence of other investors. This is a useful function. Its completely legitimate to want to sell my Google stock in response to other market signals, and as quickly as possible, in response to the new information they provide. The fundamental value of holding the Google stock, to me, has changed, fast, because of other information that's become available. So fundamental business value can change fast, for a variety of reasons, and it can add value to be able to respond to quick changes quickly.
- joe_the_user 15y ago
  You've made the arguments for seconds. Maybe tenths of a second. A tenth of a second is pretty fast in my subjective perception of things. I can't see the same argument extending credibly to milliseconds.
  - Game_Ender 15y ago
    Why should we arbitrarily limit the efficiency of the markets? This just feels like some kind of luddite like fear of technology. The markets have breaks in place to stop rapid crashes. The flash crash was caused by human placing a bad trade, quickly followed by the automated trading systems leaving the market. Someone really has to make a much better case then this then pension funds being upset someone has detected their buy order and is driving up their purchase price.
    - 15y ago
unabridged 15y ago
subsecond liquidity is definitely overrated and only serves to enrich firms who can afford colocation with the exchange while effectively taxing all other traders. some kind of system where all trades are matched once a second or every other second, would provide all of the needed liquidity and level the playing field for all traders. 1st second: trades are accepted 2nd second: trades are matched and results are published repeat
- MKT 15y ago
  that would reduce liquidity drastically. Think about this. Suppose all the quotes show up once a second: if the values of the assets in question are momentarily mispriced relative to some other assets somewhere in the world, HFT algorithms will attack those quotes and make money from taking liquidity instead of providing it. That would also increase adverse selection and reduce the incentives to provide liquidity, resulting in less liquidity for small investors

by jkahn 15y ago

cellis 15y ago

Humans do make decisions in milliseconds.

jkahn 15y ago
Humans make decisions in milliseconds, but market factors do not change that quickly. Even major, unforecasted issues like the Japan Tsunami happened in human time.

Game_Ender 15y ago

That has a feel good populist sense to it, but do you have evidence that your idea would improve things? What exactly is your proposal? Computers are better at processing information then people, eventually they will be able to determine, in microseconds, what the market effects of world events are and execute trades. I think the world will be better off for it, not worse.

jkahn 15y ago
Why would the world be better off with computers making trades? I don't have a proposal, except that the financial industry needs to be reviewed. A good start would be to remove the products that are abstractions of the value of companies or markets rather than representative of real value. Eliminate futures and most forms of derivatives. Keep shares and managed/indexed funds. Keep everything physical (e.g. Gold, Oil, etc). That would reduce a number of the swings in the market caused by relatively small real stock movement. Return the market to trading value, rather than trading the anticipation of what might happen The stock market should be used for trading companies, not shifting money from owners of stocks to the financial industry by having people manipulate it.
- mynameishere 15y ago
  Eliminate futures This statement is almost identical to "Eliminate automobile insurance", for reasons you don't understand. General advice: Don't speak on that which your ignorance is total.

feral 15y ago

First off, business value can change quickly. Sudden events happen. You can think of dramatic events such as terrorist attacks or death of an important executive; but there's other information, such as the public announcement of a new product (e.g. 'Apple are making a new type of device!', perhaps rapidly followed by 'Google have just said they'll support it!') that also result in fast changes. But, most importantly, the market price provides information that influences further decisions. Maybe I'm not an expert on oil prices, but I believe if it goes below $70 a barrel, its a signal that the world economy is slowing down, and I want to dump my Google stock, because I'm only willing to accept a certain level of risk in my personal investments. The fact that I can see the price of the oil provides me with a signal (maybe noisy), derived from aggregated intelligence of other investors. This is a useful function. Its completely legitimate to want to sell my Google stock in response to other market signals, and as quickly as possible, in response to the new information they provide. The fundamental value of holding the Google stock, to me, has changed, fast, because of other information that's become available. So fundamental business value can change fast, for a variety of reasons, and it can add value to be able to respond to quick changes quickly.

joe_the_user 15y ago
You've made the arguments for seconds. Maybe tenths of a second. A tenth of a second is pretty fast in my subjective perception of things. I can't see the same argument extending credibly to milliseconds.
- Game_Ender 15y ago
  Why should we arbitrarily limit the efficiency of the markets? This just feels like some kind of luddite like fear of technology. The markets have breaks in place to stop rapid crashes. The flash crash was caused by human placing a bad trade, quickly followed by the automated trading systems leaving the market. Someone really has to make a much better case then this then pension funds being upset someone has detected their buy order and is driving up their purchase price.
  - 15y ago

unabridged 15y ago

subsecond liquidity is definitely overrated and only serves to enrich firms who can afford colocation with the exchange while effectively taxing all other traders. some kind of system where all trades are matched once a second or every other second, would provide all of the needed liquidity and level the playing field for all traders. 1st second: trades are accepted 2nd second: trades are matched and results are published repeat

MKT 15y ago
that would reduce liquidity drastically. Think about this. Suppose all the quotes show up once a second: if the values of the assets in question are momentarily mispriced relative to some other assets somewhere in the world, HFT algorithms will attack those quotes and make money from taking liquidity instead of providing it. That would also increase adverse selection and reduce the incentives to provide liquidity, resulting in less liquidity for small investors