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> we may be getting to the point where the average day trader needs a 3000U server farm to compete effectively Yes. That's actually a bit of a problem. It is p

> we may be getting to the point where the average day trader needs a 3000U server farm to compete effectively Yes. That's actually a bit of a problem. It is perfectly all right that day traders are being out-competed by HFT firms, by itself that's fine. Humans replaced by computer, nothing bad about that. What is not good, is that a successful entry into arbitrage market nowadays require a lot of infrastructure and technical skills. That increased barrier reduces a number of players on the market. That reduces diversity. And that increases risk. That's bad. A simple example how that increases risk. Imagine that a single HFT firm had managed to out-compete all others. And now owns perfect infrastructure with nanosecond level latencies, speed-of-light channels between the exchanges and trading algos without any bugs and teams of quants maintaining them. Obviously no day trader will be able to compete with teams of PhDs. And no new newcomer HFT firm will be able to compete. But as a result diversity of day traders will have decreased to exactly one. And any glitch in the operation of that firm (sorry, a box that was trading SPY just crashed) will be creating flash-crash artifacts without easy resolutions to them. So yes, an increased entry barrier into day trading is bit of a problem.

kasey_junk 13y ago
The cost of entry into the markets has gone down not gone up. It is orders of magnitude cheaper to set up an electronic trading operation than it was to be on the floor. Further, successful entry into arbitrage markets always required specialist infrastructure and skills. They used to be good old boy networks, brightly colored vests, and arcane hand signals. Now it is programming and networking. In the previous world there was not "NASA" effect at all. Now at least the skills can be transfered to other industries.

kasey_junk 13y ago

The cost of entry into the markets has gone down not gone up. It is orders of magnitude cheaper to set up an electronic trading operation than it was to be on the floor. Further, successful entry into arbitrage markets always required specialist infrastructure and skills. They used to be good old boy networks, brightly colored vests, and arcane hand signals. Now it is programming and networking. In the previous world there was not "NASA" effect at all. Now at least the skills can be transfered to other industries.