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The secondary market provides liquidity to investors who participated in the initial company stock issuance. Without a robust means for selling their shares at

The secondary market provides liquidity to investors who participated in the initial company stock issuance. Without a robust means for selling their shares at some point in the future, investors would be loathe to provide capital in the first place.

soup10 15y ago
Most markets have far more liquidity than is really needed.
- tptacek 15y ago
  What does it mean to have "too much liquidity"? Liquidity is the cost of buying or selling. You're saying that it would be better if it cost more to sell out of a position, or to buy into a new one?
  - soup10 15y ago
    Well the question is what's the point of the stock market and financial sector if the only time investment is really happening is when shares are offered. The answer the parent suggested is that the stock market provides liquidity that is necessary for people to be willing to invest. I believe that most stocks have far far more liquidity than is necessary for people to feel comfortable investing in them. More liquidity has very little value at this point. It's a problem because thousands of bright minds are piped into the financial industry when they could be contributing much more to society.
    - tptacek 15y ago
      I don't understand. "Liquidity" is another way of saying "cost of trading". You're saying, "most stocks cost so little to trade that people are already willing to trade them, so why upset the applecart for people who make a profit scalping off those trades"?
      - soup10 15y ago
        I'll say it very simply: People insist that more liquidity is a good thing. I'm saying it's not that good, and we have plenty of liquidity already. Companies that do HFT(and otherwise provide more liquidity) are part of the larger problem of financial companies that hire a lot of smart people and make them do work that has little value to society, but happens to be very profitable.
        tptacek 15y ago
        You're not saying it simply. You're using the word "liquidity" as if it's an abstraction. The equivalent term is "cost of trading". When you replace the word "liquidity" with "cost of trading", your assertion stops making sense; it becomes "trading is cheap enough already". Huh?
        soup10 15y ago
        I have no opinion on whether more liquidity and "lowering the cost of trading" is a net good or bad. On the one hand it means less profit for market makers and a slightly lower price to buy stocks. On the other it means more volatility when algorithms mess up. HFT doesn't matter at all to long and medium term investors that actually provide the value in the stock market(which is providing capital to help grow companies).
        mmodahl 15y ago
        Long and Medium term investors should be investing broadly across the entire market. Just a decade ago you needed to buy into a mutual fund and pay sales loads and expense ratios over 1%. Now, you can own an ETF containing a piece of each of the Fortune 500 companies for an expense ratio < 0.1% because spreads in those 500 companies are narrow and trade constantly. Medium term and long term investors love HFT because it saves them 0.9% in yearly expenses. If you've got 100k invested in SPY instead of some Fidelity fund, HFT is saving you $900 a year.
        yummyfajitas 15y ago
- RickHull 15y ago
  How can you tell?
MarkPNeyer 15y ago
is there any evidence for this argument? would investment just stop alltogether, or would it change to support lots of smaller ventures instead of a few big ones?
- buff-a 15y ago
  Of course there is evidence: the stock market wasn't invented until 1999. Before 1999, noone dared buy stocks because they were afraid they couldn't sell it later. Its historical fact.
- wtvanhest 15y ago
  Answer this question and you will need no evidence: What would a stock be worth the day of the IPO if there was no way to sell it the day after the IPO?

soup10 15y ago

Most markets have far more liquidity than is really needed.

tptacek 15y ago
What does it mean to have "too much liquidity"? Liquidity is the cost of buying or selling. You're saying that it would be better if it cost more to sell out of a position, or to buy into a new one?
- soup10 15y ago
  Well the question is what's the point of the stock market and financial sector if the only time investment is really happening is when shares are offered. The answer the parent suggested is that the stock market provides liquidity that is necessary for people to be willing to invest. I believe that most stocks have far far more liquidity than is necessary for people to feel comfortable investing in them. More liquidity has very little value at this point. It's a problem because thousands of bright minds are piped into the financial industry when they could be contributing much more to society.
  - tptacek 15y ago
    I don't understand. "Liquidity" is another way of saying "cost of trading". You're saying, "most stocks cost so little to trade that people are already willing to trade them, so why upset the applecart for people who make a profit scalping off those trades"?
    - soup10 15y ago
      I'll say it very simply: People insist that more liquidity is a good thing. I'm saying it's not that good, and we have plenty of liquidity already. Companies that do HFT(and otherwise provide more liquidity) are part of the larger problem of financial companies that hire a lot of smart people and make them do work that has little value to society, but happens to be very profitable.
      - tptacek 15y ago
        You're not saying it simply. You're using the word "liquidity" as if it's an abstraction. The equivalent term is "cost of trading". When you replace the word "liquidity" with "cost of trading", your assertion stops making sense; it becomes "trading is cheap enough already". Huh?
        soup10 15y ago
        I have no opinion on whether more liquidity and "lowering the cost of trading" is a net good or bad. On the one hand it means less profit for market makers and a slightly lower price to buy stocks. On the other it means more volatility when algorithms mess up. HFT doesn't matter at all to long and medium term investors that actually provide the value in the stock market(which is providing capital to help grow companies).
        mmodahl 15y ago
        Long and Medium term investors should be investing broadly across the entire market. Just a decade ago you needed to buy into a mutual fund and pay sales loads and expense ratios over 1%. Now, you can own an ETF containing a piece of each of the Fortune 500 companies for an expense ratio < 0.1% because spreads in those 500 companies are narrow and trade constantly. Medium term and long term investors love HFT because it saves them 0.9% in yearly expenses. If you've got 100k invested in SPY instead of some Fidelity fund, HFT is saving you $900 a year.
        yummyfajitas 15y ago
RickHull 15y ago
How can you tell?

MarkPNeyer 15y ago

is there any evidence for this argument? would investment just stop alltogether, or would it change to support lots of smaller ventures instead of a few big ones?

buff-a 15y ago
Of course there is evidence: the stock market wasn't invented until 1999. Before 1999, noone dared buy stocks because they were afraid they couldn't sell it later. Its historical fact.
wtvanhest 15y ago
Answer this question and you will need no evidence: What would a stock be worth the day of the IPO if there was no way to sell it the day after the IPO?