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His main poing is wrong. High Frequency Trading makes trading stocks cheaper. There have always been market makers. They used to be expensive humans. Now they

by harryh 14y ago

His main poing is wrong. High Frequency Trading makes trading stocks cheaper. There have always been market makers. They used to be expensive humans. Now they are cheap computers. This means that it now costs less for you to trade a stock.

jackgavigan 14y ago
There are still human market makers on the NYSE and some argue that their presence in that market makes it more stable.
fennecfoxen 14y ago
I'm given to understand that the reason we have high-frequency traders being as crazy as they are is that there's a (government-mandated) rule where you can't price anything in increments of less than $0.01. 1 penny times hundreds or thousands of shares starts a minute starts to add up. So instead of being able to compete on price, market-makers compete on latency in order to be the one making all the monies, resulting in the current arms race. Cf. this blog: http://www.chrisstucchio.com/blog/2012/subpenny_rule_responses.html http://www.chrisstucchio.com/blog/2012/subpenny_rule_respons...
- dtby 14y ago
  If you do not know of what you speak, do not speak. Yes I am "dead" for expressing this reason.
- dtby 14y ago
  If you do not know of what you speak, do not speak. Yes I am "dead" for expressing this reason.
- Evbn 14y ago
  The 1 penny used to be 12.5 pennies, not long ago. That is yummifajita's blog, btw.
digikata 14y ago
By demanding automation, HFT drives down the operational cost of a particular transaction. However, for trades themselves, it's arguable that it drives up the cost of the overall transaction for long-term traders - especially those who end up needing to break up a larger overall stock transactions into smaller batches.
- lmm 14y ago
  I find it hard to believe the overhead of doing that comes to more than $.24/share. It does mean the market demands more knowledge; it's more sensitive now, so you can no longer do a buy or sell "at market" and expect a good price. But even if you don't know how to play the market you can go through a broker and still pay far less than you would've in the "good old days".
anon808 14y ago
I think you missed his main point. His main point: Wall Street doesn’t know what business it is in. Wall Street has nothing to do with creating capital for businesses, its original goal. He's saying wall street should have an incentive to create/raise capital for businesses, not invest in marginally profitable trading strategies like HFT. The opportunity cost of wall street investing in trading is that other pursuits like capital raising get less or no attention. So it's not that HFT is necessarily good or bad, it's that it's a distraction that's not going away, to the detriment of other potentially more value-creating pursuits, like raising capital for new companies.
- plc 14y ago
  Does anyone here even have any experience in NYC, or on Wall Street? Wall street knows what business it's in...lots of them. It does bond research, equity research, investment management, sales and trading, and yes, investment banking (to raise capital to all these poor companies that can't find anyone to pay millions of dollars in fees to do) Do people really think that there are no investment bankers who raise capital anymore? That because of HFT, a job that pays 1mm a year when you're 30 has no more interest to anybody? That there are so many humanities majors graduating from princeton and harvard that normally do client relationship investment banking but because of HFT, they are going to write algorithms and optimize OS code for latency instead? Have people seen how many layoffs are happening in investment banking division on wall street? (where they raise the capital for companies) It is NOT A ZERO SUM GAME. HFT doing well is NOT AT THE EXPENSE OF CAPITAL RAISING. What kind of point is this? Is it even informed by any facts?
  - tptacek 14y ago
    No, most of the people here have no experience in high-end trading. And no, it's not informed by facts. It's very frustrating, but if it's any consolation, it's the same kind of struggle against ignorance that occurs on threads about cryptography (a nerd subject) or language design (another nerd subject). Personally, I'm not irritated at the nerds (after all, I'm one of them) so much as I am at places like Zero Hedge and Rolling Stone which prey on the ignorance of nerds to drive up pageviews.

by harryh 14y ago

jackgavigan 14y ago

There are still human market makers on the NYSE and some argue that their presence in that market makes it more stable.

fennecfoxen 14y ago

I'm given to understand that the reason we have high-frequency traders being as crazy as they are is that there's a (government-mandated) rule where you can't price anything in increments of less than $0.01. 1 penny times hundreds or thousands of shares starts a minute starts to add up. So instead of being able to compete on price, market-makers compete on latency in order to be the one making all the monies, resulting in the current arms race. Cf. this blog: http://www.chrisstucchio.com/blog/2012/subpenny_rule_responses.html http://www.chrisstucchio.com/blog/2012/subpenny_rule_respons...

dtby 14y ago
If you do not know of what you speak, do not speak. Yes I am "dead" for expressing this reason.
dtby 14y ago
If you do not know of what you speak, do not speak. Yes I am "dead" for expressing this reason.
Evbn 14y ago
The 1 penny used to be 12.5 pennies, not long ago. That is yummifajita's blog, btw.

digikata 14y ago

By demanding automation, HFT drives down the operational cost of a particular transaction. However, for trades themselves, it's arguable that it drives up the cost of the overall transaction for long-term traders - especially those who end up needing to break up a larger overall stock transactions into smaller batches.

lmm 14y ago
I find it hard to believe the overhead of doing that comes to more than $.24/share. It does mean the market demands more knowledge; it's more sensitive now, so you can no longer do a buy or sell "at market" and expect a good price. But even if you don't know how to play the market you can go through a broker and still pay far less than you would've in the "good old days".

anon808 14y ago

I think you missed his main point. His main point: Wall Street doesn’t know what business it is in. Wall Street has nothing to do with creating capital for businesses, its original goal. He's saying wall street should have an incentive to create/raise capital for businesses, not invest in marginally profitable trading strategies like HFT. The opportunity cost of wall street investing in trading is that other pursuits like capital raising get less or no attention. So it's not that HFT is necessarily good or bad, it's that it's a distraction that's not going away, to the detriment of other potentially more value-creating pursuits, like raising capital for new companies.

plc 14y ago
Does anyone here even have any experience in NYC, or on Wall Street? Wall street knows what business it's in...lots of them. It does bond research, equity research, investment management, sales and trading, and yes, investment banking (to raise capital to all these poor companies that can't find anyone to pay millions of dollars in fees to do) Do people really think that there are no investment bankers who raise capital anymore? That because of HFT, a job that pays 1mm a year when you're 30 has no more interest to anybody? That there are so many humanities majors graduating from princeton and harvard that normally do client relationship investment banking but because of HFT, they are going to write algorithms and optimize OS code for latency instead? Have people seen how many layoffs are happening in investment banking division on wall street? (where they raise the capital for companies) It is NOT A ZERO SUM GAME. HFT doing well is NOT AT THE EXPENSE OF CAPITAL RAISING. What kind of point is this? Is it even informed by any facts?
- tptacek 14y ago
  No, most of the people here have no experience in high-end trading. And no, it's not informed by facts. It's very frustrating, but if it's any consolation, it's the same kind of struggle against ignorance that occurs on threads about cryptography (a nerd subject) or language design (another nerd subject). Personally, I'm not irritated at the nerds (after all, I'm one of them) so much as I am at places like Zero Hedge and Rolling Stone which prey on the ignorance of nerds to drive up pageviews.