5 ms·
Most markets have far more liquidity than is really needed.
by soup10 15y ago
Most markets have far more liquidity than is really needed.
- tptacek 15y agoWhat 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 agoWell 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 agoI 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 agoI'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 agoYou'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 agoI 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 agoLong 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 agoI think the point he is trying to make is that trading is cheap enough, and maybe smart people should focus their efforts on something other than making trading even cheaper.
- aidenn0 15y agoI think a better restatement of what soup is trying to say would be "20ms latency HFT market makers provide insufficiently more value to the market than 200ms latency HFT market makers to justify the human capital involved in obtaining the lower latency"
- RickHull 15y agoHow can you tell?