5 ms·

If you're going to hold AAPL longer than a quarter, then the tick vs. 1/8 doesn't matter, and if you're not, your trade doesn't need to happen to support the co

If you're going to hold AAPL longer than a quarter, then the tick vs. 1/8 doesn't matter, and if you're not, your trade doesn't need to happen to support the core goal of financial markets which is to finance companies.

benreesman 4y ago
You're the best kind of correct, which is technically correct. But what I said is that "multiplied by every retirement account we're talking real money". Which is no-qualifiers correct. That ETF that you should have your roll in? It's buying and selling securities all the time, and encountering friction along the way. And whether people have ETFs or individual equities in their (hopefully tax-advantaged) retirement account, across everyone with a retirement account it adds up. I know that people often have a low-key axe to grind about advanced market actors being "bad", and I know that politicians go to the well with this narrative all the time, but it's misleading at best and usually just demonstrably wrong. And with nothing but respect, I tend to bow out of conversations where people push the issue past a comment or two. There are exceptions: Citadel paying 2x for PFOF on Robinhood vs. Schwab to get optionality on internalizing against dumb flow? Yeah, that's pretty iffy. But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere.
- cycomanic 4y ago
  > But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere. I am not sure I understand. That would mean that the number of advanced actors would stay stable or go down over time (generally much research shows that markets tend to concentrate even in pure random trading, so the number of advanced actors should go down). Is that actually the case?
  - benreesman 4y ago
    As I've mentioned elsewhere in the thread, it's notoriously difficult to get citations on this stuff so take with a grain of salt, but I've heard that in 2019 the "HFT" industry (defined some way) had cumulative annual profits in the US of somewhere between 2-4 billion dollars. That's a long holiday weekend for Google or FB. I've also heard that this (inflation-adjusted etc. etc.) this is down sharply from ten years before, when spreads were wide and undocumented order types were winked at. To wildly oversimplify, market makers will tend to drive the spread down to the tick size, and arbitrageurs will tend to put themselves out of a job. For the industry as a whole to be growing either in distinct actors or cumulative top-line, the number of markets and instruments and general financial activity has to be growing faster than the big dogs are eating each other. This is my (semi-informed) guess.
    - robocat 4y ago
      > HFT industry annual profits 2-4 billion. That's a long holiday weekend for Google or FB Nitpick: that’s 10 to 37 days for Google or FB. 2B for Google is ~10 days, 4B for Meta is 37 days. Alphabet net income for 2021 was $76.033B, Meta Net income $39.370B.
      - benreesman 4y ago
        Haha fair play, but to nitpick in return: when I worked on FB Ads, revenue was not even remotely uniformly distributed across days of the year, and Thanksgiving? Lots of family photos going up and being looked at relative to your typical Thursday. Morbidly funny anecdote: when I first moved to the NYC office I obviously didn't have many friends, let alone a significant other. Myself and a few of the other sad saps who failed to notice the office clearing out a bit early around us were borderline freaking out over what looked like very anomalous behavior in the IG ranking system. It wasn't until we raised it in a slack group that included some coupled folks that we realized it was Valentines day. Womp Womp. ;)
- ivalm 4y ago
  > That ETF that you should have your roll in? It's buying and selling securities all the time, and encountering friction along the way I really hope it isn’t, or it would be making lots of tax events! I hope it’s doing in-kind transactions like all the normal ETFs. > Citadel paying 2x for PFOF on Robinhood vs. Schwab to get optionality on internalizing against dumb flow? Yeah, that's pretty iffy. But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere. No, robinhood average order is just smaller so less risk of adverse selection.
  - benreesman 4y ago
    I didn't think that a digression about the tax optimization opportunities of in-kind securities swaps would be enlightening to a general audience. As for your second point, I guess neither of us works at Citadel so we're both guessing, but if you agree that there is a market for order flow and that the most charitable interpretation of why that would be the case is because of the attached optionality for internal netting, then you're sort of making the assertion that all PFOF is equally valuable, which would be a hell of a coincidence. As a sort of side note, I regard the cherry-pick the parent with ">" prefixes and go after snippets of what they posted as basically the lowest form of discourse on HN in spite of how popular it is, and I would encourage anyone to try to reply to someone's entire comment rather than just trying to find the weld points and lean on those spots. It's pretty weak.
- tomrmp 4y ago
  Is Citadel paying 2X for PFOF on Robinhood vs Schwab because it is dumb retail flow or due to increased optionality because it is inherently built in slow transmission flow to reach the execution platform?
esoterica 4y ago
If the only people who trade AAPL plan on holding it for 10 years then by the time they want to sell it there will be no one to buy it from them, since the probability that someone else will want to make their once-every-10-years trade at the exact same time is zero. In order for long term investors to function they need liquidity to enter and exit positions.
- jaycroft 4y ago
  But it doesn't have to happen at the exact same time? Limit orders exist, no?
  - FabHK 4y ago
    Further: Suppose you had an auction on shares once an hour, or even once a day, but no continuous trading. Would that make the world any worse off? (except for high frequency shops?)
    - benreesman 4y ago
      I mean, what you're describing is how to create a black market in securities for people who want to act on news, knowledge, or sentiment before tomorrow's auction. Sooner or later (spoiler alert: sooner) someone would put it on the Internet, and it would be unregulated, at least at first, and the insiders would do even better than they are now. You should read up on the early days of ECNs, Island and Archipelago and what not. Alternatively, you could look at this exact script being played out in crypto right now.
    - lightbendover 4y ago
      While not the spirit of your question, I would love to see the system that could resolve global NYSE hourly demand at an hourly cadence.
    - em500 4y ago
      I doubt it. I've never heard a coherent explanation how liquidity on sub-second scale is a great social good, while at the same time the largest equity markets in the world are closed 2/3rd of the day, plus all weekends and holidays.
SnowHill9902 4y ago
That’s a moralistic positivistic take on a real friction problem which has been reduced. It doesn’t matter what people use the market for.
kasey_junk 4y ago
You are really going to need a citation to back up that the core goal of financial markets is to finance companies. That is, in my view, at best an ancillary goal (notice that most money in the markets doesn’t participate in buying shares from the company itself). That may be what you want the markets to be about but every other participant has other desires from the markets and the great thing is they can all get what they want from them.
- notahacker 4y ago
  Markets in equities exist because companies want finance enough to be willing to sell the equity. Not sure why something that elementary needs a citation. It's also true there are many other participants with many other strategies to extract that value created by the companies from acquiring and merging them to collecting dividends from a balanced portfolio to day trading, but the reason the market exists in the first place is because companies that create value need their capital in order to do it. As you correctly point out, most of the actual trades are secondary market ones involving companies not in the process of fundraising, but those trades are still positive sum inasmuch as without liquid secondary markets, companies that create the actual value might have found it too hard to raise funding. The difference between being able to sell TWTR on IPO day or shortly afterwards and being forced to hold it until an Elon Musk comes along and follows through with its existence has a huge impact on its ability to raise funds and grow. On the other hand reducing the time between trades down to smaller sub-second microsecond intervals is - whilst useful to people trying to win at essentially zero-sum trading games and inflating asset prices very slightly - going to have a pretty minimal impact on whether companies create more value by raising more funds.
  - matred 4y ago
    I’m not sure you’re reading that correctly, since the response concerned the idea that the core goal of financial markets is X, and you respond with a statement on equities markets, which by definition only concern financing companies. Equities markets are a piece of the pie. The largest, by far, for the kind of HFT we’re talking about, but a fraction of financial activity. The core goal of financial markets is to gather and match prospective buyers and sellers so that trading can occur.
1980phipsi 4y ago
But what if you hold a mutual fund that bulls and sells AAPL regularly as part of managing inflows and outflows?

benreesman 4y ago

You're the best kind of correct, which is technically correct. But what I said is that "multiplied by every retirement account we're talking real money". Which is no-qualifiers correct. That ETF that you should have your roll in? It's buying and selling securities all the time, and encountering friction along the way. And whether people have ETFs or individual equities in their (hopefully tax-advantaged) retirement account, across everyone with a retirement account it adds up. I know that people often have a low-key axe to grind about advanced market actors being "bad", and I know that politicians go to the well with this narrative all the time, but it's misleading at best and usually just demonstrably wrong. And with nothing but respect, I tend to bow out of conversations where people push the issue past a comment or two. There are exceptions: Citadel paying 2x for PFOF on Robinhood vs. Schwab to get optionality on internalizing against dumb flow? Yeah, that's pretty iffy. But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere.

cycomanic 4y ago
> But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere. I am not sure I understand. That would mean that the number of advanced actors would stay stable or go down over time (generally much research shows that markets tend to concentrate even in pure random trading, so the number of advanced actors should go down). Is that actually the case?
- benreesman 4y ago
  As I've mentioned elsewhere in the thread, it's notoriously difficult to get citations on this stuff so take with a grain of salt, but I've heard that in 2019 the "HFT" industry (defined some way) had cumulative annual profits in the US of somewhere between 2-4 billion dollars. That's a long holiday weekend for Google or FB. I've also heard that this (inflation-adjusted etc. etc.) this is down sharply from ten years before, when spreads were wide and undocumented order types were winked at. To wildly oversimplify, market makers will tend to drive the spread down to the tick size, and arbitrageurs will tend to put themselves out of a job. For the industry as a whole to be growing either in distinct actors or cumulative top-line, the number of markets and instruments and general financial activity has to be growing faster than the big dogs are eating each other. This is my (semi-informed) guess.
  - robocat 4y ago
    > HFT industry annual profits 2-4 billion. That's a long holiday weekend for Google or FB Nitpick: that’s 10 to 37 days for Google or FB. 2B for Google is ~10 days, 4B for Meta is 37 days. Alphabet net income for 2021 was $76.033B, Meta Net income $39.370B.
    - benreesman 4y ago
      Haha fair play, but to nitpick in return: when I worked on FB Ads, revenue was not even remotely uniformly distributed across days of the year, and Thanksgiving? Lots of family photos going up and being looked at relative to your typical Thursday. Morbidly funny anecdote: when I first moved to the NYC office I obviously didn't have many friends, let alone a significant other. Myself and a few of the other sad saps who failed to notice the office clearing out a bit early around us were borderline freaking out over what looked like very anomalous behavior in the IG ranking system. It wasn't until we raised it in a slack group that included some coupled folks that we realized it was Valentines day. Womp Womp. ;)
ivalm 4y ago
> That ETF that you should have your roll in? It's buying and selling securities all the time, and encountering friction along the way I really hope it isn’t, or it would be making lots of tax events! I hope it’s doing in-kind transactions like all the normal ETFs. > Citadel paying 2x for PFOF on Robinhood vs. Schwab to get optionality on internalizing against dumb flow? Yeah, that's pretty iffy. But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere. No, robinhood average order is just smaller so less risk of adverse selection.
- benreesman 4y ago
  I didn't think that a digression about the tax optimization opportunities of in-kind securities swaps would be enlightening to a general audience. As for your second point, I guess neither of us works at Citadel so we're both guessing, but if you agree that there is a market for order flow and that the most charitable interpretation of why that would be the case is because of the attached optionality for internal netting, then you're sort of making the assertion that all PFOF is equally valuable, which would be a hell of a coincidence. As a sort of side note, I regard the cherry-pick the parent with ">" prefixes and go after snippets of what they posted as basically the lowest form of discourse on HN in spite of how popular it is, and I would encourage anyone to try to reply to someone's entire comment rather than just trying to find the weld points and lean on those spots. It's pretty weak.
tomrmp 4y ago
Is Citadel paying 2X for PFOF on Robinhood vs Schwab because it is dumb retail flow or due to increased optionality because it is inherently built in slow transmission flow to reach the execution platform?

esoterica 4y ago

If the only people who trade AAPL plan on holding it for 10 years then by the time they want to sell it there will be no one to buy it from them, since the probability that someone else will want to make their once-every-10-years trade at the exact same time is zero. In order for long term investors to function they need liquidity to enter and exit positions.

jaycroft 4y ago
But it doesn't have to happen at the exact same time? Limit orders exist, no?
- FabHK 4y ago
  Further: Suppose you had an auction on shares once an hour, or even once a day, but no continuous trading. Would that make the world any worse off? (except for high frequency shops?)
  - benreesman 4y ago
    I mean, what you're describing is how to create a black market in securities for people who want to act on news, knowledge, or sentiment before tomorrow's auction. Sooner or later (spoiler alert: sooner) someone would put it on the Internet, and it would be unregulated, at least at first, and the insiders would do even better than they are now. You should read up on the early days of ECNs, Island and Archipelago and what not. Alternatively, you could look at this exact script being played out in crypto right now.
  - lightbendover 4y ago
    While not the spirit of your question, I would love to see the system that could resolve global NYSE hourly demand at an hourly cadence.
  - em500 4y ago
    I doubt it. I've never heard a coherent explanation how liquidity on sub-second scale is a great social good, while at the same time the largest equity markets in the world are closed 2/3rd of the day, plus all weekends and holidays.

SnowHill9902 4y ago

That’s a moralistic positivistic take on a real friction problem which has been reduced. It doesn’t matter what people use the market for.

kasey_junk 4y ago

You are really going to need a citation to back up that the core goal of financial markets is to finance companies. That is, in my view, at best an ancillary goal (notice that most money in the markets doesn’t participate in buying shares from the company itself). That may be what you want the markets to be about but every other participant has other desires from the markets and the great thing is they can all get what they want from them.

notahacker 4y ago
Markets in equities exist because companies want finance enough to be willing to sell the equity. Not sure why something that elementary needs a citation. It's also true there are many other participants with many other strategies to extract that value created by the companies from acquiring and merging them to collecting dividends from a balanced portfolio to day trading, but the reason the market exists in the first place is because companies that create value need their capital in order to do it. As you correctly point out, most of the actual trades are secondary market ones involving companies not in the process of fundraising, but those trades are still positive sum inasmuch as without liquid secondary markets, companies that create the actual value might have found it too hard to raise funding. The difference between being able to sell TWTR on IPO day or shortly afterwards and being forced to hold it until an Elon Musk comes along and follows through with its existence has a huge impact on its ability to raise funds and grow. On the other hand reducing the time between trades down to smaller sub-second microsecond intervals is - whilst useful to people trying to win at essentially zero-sum trading games and inflating asset prices very slightly - going to have a pretty minimal impact on whether companies create more value by raising more funds.
- matred 4y ago
  I’m not sure you’re reading that correctly, since the response concerned the idea that the core goal of financial markets is X, and you respond with a statement on equities markets, which by definition only concern financing companies. Equities markets are a piece of the pie. The largest, by far, for the kind of HFT we’re talking about, but a fraction of financial activity. The core goal of financial markets is to gather and match prospective buyers and sellers so that trading can occur.

1980phipsi 4y ago

But what if you hold a mutual fund that bulls and sells AAPL regularly as part of managing inflows and outflows?