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I agree with niggler, I guess this tax would eliminate >95% of all trades. Therefore the expected tax income of 352 billion would be significantly lower (~ 20

by emanuer 14y ago

I agree with niggler, I guess this tax would eliminate >95% of all trades. Therefore the expected tax income of 352 billion would be significantly lower (~ 20 billion) over 10 years. Still I do believe the tax would have a significant positive impact on the economy. The tax would most effect arbitrage trades. Arbitrageurs get between buyers and sellers. When a seller offers a stock for $95 and a buyer is willing to pay $105 the arbitrageurs buy the stock for $95 and sell it to the buyer for a premium (~ $102.5). Arbitrageurs have trading algorithms which can do this millions of times per second, that's how they can buy faster than the "real" buyer. They behave like vultures fighting for the scraps (so to speak) and getting in the way of "real" market participants. The act of arbitrage trades is taxing market participants already. The proposed tax of ¢3 might make buying stock cheaper on average. (I don't know the real numbers, this is just a guess) Further more I would rather see the money in the hand of the government, as there is a chance that some of the money is spend on better streets & health care. The alternative is to fund hoards of highly skilled engineers to improve algorithm that pick up the scraps. I personally know engineers at broker firms who feel their extremely well paid job provides absolutely no good to society. EDIT: The main argument for the existence of arbitrageurs is that they provide liquidity to the market when there are not enough buyers & sellers. My personal believe is, they liquidity they provide today comes with a to high of a price. 20 years ago when it was a few guys yelling on the trading floor you could always count on one guy yelling (the arbitrageur). Today the number of market participants & electronic transactions make trades near perfect; The utility of arbitrage trades vanished almost completely.

tradingdev 14y ago
I think you are misinformed about arbitrage. Arbitrage involves taking advantage of a price difference between two different markets. In the US for equities, there is a national best bid and offer which means that the prices stay in line. (Also see: http://en.wikipedia.org/wiki/National_best_bid_and_offer http://en.wikipedia.org/wiki/National_best_bid_and_offer) If someone in the US first wants to sell a stock for as low as $95 (places a resting ask order at $95), and then someone else comes in and is willing to buy the stock for up to $105 (places a bid at $105), their orders will match, and the transaction will occur at $95. They won't just sit around waiting for some arbitrageur to come around. Let's say there is an arbitrage between an index fund etf and its component companies such that you can buy all the components for $99, and sell the etf for $100. In this case who is the poor real market participant who gets screwed by the arbitraguer? If the "real market participant" got his order filled, he will be happy. "Today the number of market participants & electronic transactions make trades near perfect; The utility of arbitrage trades vanished almost completely." I think you are confusing cause and effect. The reason why the markets are indeed much more efficient these days is because of the existants of many more people engaged in arbitrage. This is something you should be happy about. Those algoritms that pick up the scraps significantly decrease the cost of investing for everyday people huge amounts of invested pension and retirement fund wealth.

by emanuer 14y ago

tradingdev 14y ago

I think you are misinformed about arbitrage. Arbitrage involves taking advantage of a price difference between two different markets. In the US for equities, there is a national best bid and offer which means that the prices stay in line. (Also see: http://en.wikipedia.org/wiki/National_best_bid_and_offer http://en.wikipedia.org/wiki/National_best_bid_and_offer) If someone in the US first wants to sell a stock for as low as $95 (places a resting ask order at $95), and then someone else comes in and is willing to buy the stock for up to $105 (places a bid at $105), their orders will match, and the transaction will occur at $95. They won't just sit around waiting for some arbitrageur to come around. Let's say there is an arbitrage between an index fund etf and its component companies such that you can buy all the components for $99, and sell the etf for $100. In this case who is the poor real market participant who gets screwed by the arbitraguer? If the "real market participant" got his order filled, he will be happy. "Today the number of market participants & electronic transactions make trades near perfect; The utility of arbitrage trades vanished almost completely." I think you are confusing cause and effect. The reason why the markets are indeed much more efficient these days is because of the existants of many more people engaged in arbitrage. This is something you should be happy about. Those algoritms that pick up the scraps significantly decrease the cost of investing for everyday people huge amounts of invested pension and retirement fund wealth.