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He's making a distinction between trading and investment. The purpose of the stock market is raising capital to start/grow/sell companies (investment). The tech

He's making a distinction between trading and investment. The purpose of the stock market is raising capital to start/grow/sell companies (investment). The technical term for high frequency trading is "scalping" (yes, exactly the same word and meaning as ticket scalping). HFT traders like to think they "create liquidity", but I haven't heard a credible argument to support that. Divide the market into three categories of participants: A. Holding period less than one minute (high frequency traders) B. Holding period greater than one month (entrepreneurs, companies, value investors) C. Everyone else (noise) Question: Does category A really create any useful liquidity for category B? Category B is the economic purpose and intent of the stock market. He's saying: that the HFT guys are like trolls living under a bridge stealing a shoelace from each person who crosses the bridge. He's saying that doesn't fulfill an economic purpose. I'd love to hear a counterargument. I don't know enough to have a firm position.

lifeisstillgood 14y ago
My view (possibly wrong, it has been known) is that liquidity need only be provided by one party. A competitive Market in liquidity has minimal benefits it is unimportant if the Market maker holds for 1 pixo second or one month - what matters is that someone is there to trade. Now HFT is at a disadvantage as they have less scope to make their spread (essentially the other side must already be in the Market) but that's where if all other Market makers disappeared (and the stock slowed down) HFTs must become LFTs and hey presto are indistinguishable from the old style Market maker yes there is a price point issue but most buyers really have a range they will buy at so more precisely I am conjecturing that there are minimal benefits to an exchange to having more than one Market maker at a given stock within a given price range. How to provethat - not sure
- Ntrails 14y ago
  "I am conjecturing that there are minimal benefits to an exchange to having more than one Market maker at a given stock within a given price range." Could you perhaps explain the downside of having multiple market makers per stock? It seems trivial to state that competition in providing liquidity alters the cost of said liquidity and disprove your contention - but why bother to make that argument when there can't really be additional costs by multiple parties competing to offer a service?
  - lifeisstillgood 14y ago
    With zero Market makers, the exchange cannot guarantee I can walk in and sell at a reasonable price in a reasonable time. With one Market maker the exchange can do so and so it benefits from being a effective place to trade - this is a huge advantage over any other exchange With a second Market maker, the exchnage gain is I believe orders of magnitude lower. Almost any Market maker is forced to maintain sensible spreads (else it is worth trading without them) so just one Market maker will offer expensive but not outrageous spreads. A second one brings only the benefit of slightly cheaper, which coma red to the benefits from the first are negligible
Evbn 14y ago
If you place a limit order you can be the one stealing shoelaces. Or you can be your shoelace in exchange for getting instantaneous execution, just like you pay your ISP a shoelace for the megabyte of data used to send the order.

lifeisstillgood 14y ago

My view (possibly wrong, it has been known) is that liquidity need only be provided by one party. A competitive Market in liquidity has minimal benefits it is unimportant if the Market maker holds for 1 pixo second or one month - what matters is that someone is there to trade. Now HFT is at a disadvantage as they have less scope to make their spread (essentially the other side must already be in the Market) but that's where if all other Market makers disappeared (and the stock slowed down) HFTs must become LFTs and hey presto are indistinguishable from the old style Market maker yes there is a price point issue but most buyers really have a range they will buy at so more precisely I am conjecturing that there are minimal benefits to an exchange to having more than one Market maker at a given stock within a given price range. How to provethat - not sure

Ntrails 14y ago
"I am conjecturing that there are minimal benefits to an exchange to having more than one Market maker at a given stock within a given price range." Could you perhaps explain the downside of having multiple market makers per stock? It seems trivial to state that competition in providing liquidity alters the cost of said liquidity and disprove your contention - but why bother to make that argument when there can't really be additional costs by multiple parties competing to offer a service?
- lifeisstillgood 14y ago
  With zero Market makers, the exchange cannot guarantee I can walk in and sell at a reasonable price in a reasonable time. With one Market maker the exchange can do so and so it benefits from being a effective place to trade - this is a huge advantage over any other exchange With a second Market maker, the exchnage gain is I believe orders of magnitude lower. Almost any Market maker is forced to maintain sensible spreads (else it is worth trading without them) so just one Market maker will offer expensive but not outrageous spreads. A second one brings only the benefit of slightly cheaper, which coma red to the benefits from the first are negligible

Evbn 14y ago

If you place a limit order you can be the one stealing shoelaces. Or you can be your shoelace in exchange for getting instantaneous execution, just like you pay your ISP a shoelace for the megabyte of data used to send the order.