4 ms·

Real world grocery shopping happens on perhaps a bi-weekly basis. But I want to be able to check out soon after I get to the register; I don't want to have to

Real world grocery shopping happens on perhaps a bi-weekly basis. But I want to be able to check out soon after I get to the register; I don't want to have to wait for hours or days for a cashier to decide that they're ready to execute the other side of my purchase. Investment happens on a timescale of months or years. But when I make the decision to exchange one investment for another (I include "cash" as an investment) I want to be able to make that exchange rapidly. If someone wants to jump on my offer in mere milliseconds, I'll take it. Maybe I could've gotten a few more cents by waiting for an offer minutes or hours later, but that's not the game I'm playing. If I cared about those last few cents I'd price my asset a little higher and wait for a better deal. Since I don't think it's worth the wait, I'll let the HFT have those few cents for the convenience of letting me clear my trade immediately so I can move on with my day.

nhaehnle 15y ago
I see your point in theory, but in practice it doesn't seem to apply. Even regular bank transfers, i.e. transferring money from one checking account to another checking account, usually take a day to clear over here. I am talking about regular bank accounts in Germany, by the way. The economy manages to run just fine with this system. As long as something as basic and fundamental as simply moving money from point A to point B is that slow, I really don't buy the argument that the real economy needs transactions on financial markets to clear that quickly. What's the point of having a trade clear in milliseconds if it takes me a day to transfer the money to a different account?
- yummyfajitas 15y ago
  Trades don't clear in milliseconds. Trades are agreed to in milliseconds, just as bank transfers are. I.e., once you push the "make transfer" button, the wheels are in motion, it just takes a day for the money to actually move. The same applies to equities - once the trade is made, the wheels are in motion. But actually transferring the securities takes up to 3 days.
  - lotharbot 15y ago
    > "Trades are agreed to in milliseconds" One might ask "why is this important if the transfer itself takes days?" The main reason is that it gives you certainty and closure. You try to make a trade for + or - X shares of Y at $Z and you get an essentially instant response. You don't have to wait around all day just to know if you've got a deal; you don't have to poke around looking for a slightly better price; you just make the offer and see it accepted immediately, and can move on to other things. (This is the sense in which I meant the word "clear" a few posts up: the trade is cleared from your to-do list, even if the securities take some time to actually move.) There is a cost for the service of being able to move on: the HFT will likely capture a tiny bit of profit which could have gone to you with more effort. You've traded money for time and effort.
  - nhaehnle 15y ago
    Question of understanding: If what you say is true, and it actually does take up to three days to transfer the securities, how can you immediately sell an asset that you just bought a few minutes ago? My understanding of HFT (including from your description) was that this type of thing, i.e. holding an asset for only a few minutes, happens all the time. How can that be possible if the transfer takes as long as you claim it does?
    - lotharbot 15y ago
      You don't actually have to have the securities physically in hand in order to enter into a contract to transfer them.
      - nhaehnle 15y ago
        But then yummyfajitas' comparison doesn't apply after all. When transferring money, the recipient has to wait a day until he can order the next transfer. This is not the case with trading, so this whole "three days" claim seems spurious to me.
        lotharbot 15y ago

nhaehnle 15y ago

I see your point in theory, but in practice it doesn't seem to apply. Even regular bank transfers, i.e. transferring money from one checking account to another checking account, usually take a day to clear over here. I am talking about regular bank accounts in Germany, by the way. The economy manages to run just fine with this system. As long as something as basic and fundamental as simply moving money from point A to point B is that slow, I really don't buy the argument that the real economy needs transactions on financial markets to clear that quickly. What's the point of having a trade clear in milliseconds if it takes me a day to transfer the money to a different account?

yummyfajitas 15y ago
Trades don't clear in milliseconds. Trades are agreed to in milliseconds, just as bank transfers are. I.e., once you push the "make transfer" button, the wheels are in motion, it just takes a day for the money to actually move. The same applies to equities - once the trade is made, the wheels are in motion. But actually transferring the securities takes up to 3 days.
- lotharbot 15y ago
  > "Trades are agreed to in milliseconds" One might ask "why is this important if the transfer itself takes days?" The main reason is that it gives you certainty and closure. You try to make a trade for + or - X shares of Y at $Z and you get an essentially instant response. You don't have to wait around all day just to know if you've got a deal; you don't have to poke around looking for a slightly better price; you just make the offer and see it accepted immediately, and can move on to other things. (This is the sense in which I meant the word "clear" a few posts up: the trade is cleared from your to-do list, even if the securities take some time to actually move.) There is a cost for the service of being able to move on: the HFT will likely capture a tiny bit of profit which could have gone to you with more effort. You've traded money for time and effort.
- nhaehnle 15y ago
  Question of understanding: If what you say is true, and it actually does take up to three days to transfer the securities, how can you immediately sell an asset that you just bought a few minutes ago? My understanding of HFT (including from your description) was that this type of thing, i.e. holding an asset for only a few minutes, happens all the time. How can that be possible if the transfer takes as long as you claim it does?
  - lotharbot 15y ago
    You don't actually have to have the securities physically in hand in order to enter into a contract to transfer them.
    - nhaehnle 15y ago
      But then yummyfajitas' comparison doesn't apply after all. When transferring money, the recipient has to wait a day until he can order the next transfer. This is not the case with trading, so this whole "three days" claim seems spurious to me.
      - lotharbot 15y ago