5 ms·

Those milliseconds being shaved off forex trading are the reason that commercial and retail spreads are much tighter than they were a decade ago. When currenci

by ig1 13y ago

Those milliseconds being shaved off forex trading are the reason that commercial and retail spreads are much tighter than they were a decade ago. When currencies were priced every second market makers had to set a spread that would protect them from market variance within that one-second period, as that time period shrunk the amount of risk dropped as did the spreads. Think about the thousands of currency transactions that had to happen for your smartphone to exist. It makes a huge difference to international trade when you can pay a lower premium to exchange currencies. Just because you don't understand the value something provides, it doesn't mean that it doesn't provide it.

koralatov 13y ago
Just because you don't understand the value something provides, it doesn't mean that it doesn't provide it. I don't think the argument is that these optimisations don't bring value; it's that they don't bring as much value to society as an effective cancer treatment, or a new technology that cheaply and cleanly purifies water, or [insert other breakthrough here].
- notacoward 13y ago
  I think it's more about the ratio of value created vs. value extracted. Sure, more efficient markets create some benefits for the rest of us, but those benefits are the crumbs under the market makers' tables. So we get slightly better smart phones, huh? Whoop de do. That's a benefit very close to zero. If I had to choose between a new smart phone and one scoop of good ice cream, even for an equal price, I'd go for the ice cream. On the flip side, for that "amazing increase in market efficiency" quite a few financiers end up making nine or even ten figures. Which part of that really motivates them? Which part has a greater effect on society (a negative one BTW) ten years from now? People who dismiss the value of complex derivatives and HFT and other Wall Street shenanigans don't necessarily lack understanding, and it's obnoxious to say so. They just add perspective to that understanding. People who obsess over prices and ignore true value are sociopaths and should be dealt with as such.
DougWebb 13y ago
I've never understood the claim that "market makers" are providing a valuable service in the stock market by providing liquidity and reducing spreads. If this is a necessary service, why aren't there market makers in every market? My local grocery wants to sell bananas for $1.50 a pound, but I only want to pay $1.00. Why isn't there a market maker buying and selling these bananas thousands of times per second to reduce the spread between me and my grocer so we can meet in the middle? oh right, it's because the market takes care of that for us. If others are happy paying $1.50 the grocer will stay at that price and I'll have to accept it or go without my bananas. If most buyers agree with me the grocer will have to lower their price if they want to sell the bananas. No market maker is needed.
- mpyne 13y ago
  > No market maker is needed That doesn't mean that market makers don't provide value, just that they are not necessary.
  - DougWebb 13y ago
    I don't see the value; I never have. I understand that the market maker is able to extract profit from the spread, but they keep that for themselves. The original buyer and seller don't gain anything they wouldn't have gained otherwise, and it seems likely that one or both of them lose out on a share of that spread-profit.
    - mpyne 13y ago
      I don't even own stock, but I believe the "value" is as simple as a reduction in the price for the buyer, along with an increase in liquidity for the seller, along with a reduction of the spread for both (which should make it easier to budget and make predictions).
- maxerickson 13y ago
  Your grocer is a market maker! To the point that the word market is often used for small stores. If you had to buy bananas off a truck when it happened to be in town, you'd get a lot less bananas and you'd pay more for them.

by ig1 13y ago

koralatov 13y ago

Just because you don't understand the value something provides, it doesn't mean that it doesn't provide it. I don't think the argument is that these optimisations don't bring value; it's that they don't bring as much value to society as an effective cancer treatment, or a new technology that cheaply and cleanly purifies water, or [insert other breakthrough here].

notacoward 13y ago
I think it's more about the ratio of value created vs. value extracted. Sure, more efficient markets create some benefits for the rest of us, but those benefits are the crumbs under the market makers' tables. So we get slightly better smart phones, huh? Whoop de do. That's a benefit very close to zero. If I had to choose between a new smart phone and one scoop of good ice cream, even for an equal price, I'd go for the ice cream. On the flip side, for that "amazing increase in market efficiency" quite a few financiers end up making nine or even ten figures. Which part of that really motivates them? Which part has a greater effect on society (a negative one BTW) ten years from now? People who dismiss the value of complex derivatives and HFT and other Wall Street shenanigans don't necessarily lack understanding, and it's obnoxious to say so. They just add perspective to that understanding. People who obsess over prices and ignore true value are sociopaths and should be dealt with as such.

DougWebb 13y ago

I've never understood the claim that "market makers" are providing a valuable service in the stock market by providing liquidity and reducing spreads. If this is a necessary service, why aren't there market makers in every market? My local grocery wants to sell bananas for $1.50 a pound, but I only want to pay $1.00. Why isn't there a market maker buying and selling these bananas thousands of times per second to reduce the spread between me and my grocer so we can meet in the middle? oh right, it's because the market takes care of that for us. If others are happy paying $1.50 the grocer will stay at that price and I'll have to accept it or go without my bananas. If most buyers agree with me the grocer will have to lower their price if they want to sell the bananas. No market maker is needed.

mpyne 13y ago
> No market maker is needed That doesn't mean that market makers don't provide value, just that they are not necessary.
- DougWebb 13y ago
  I don't see the value; I never have. I understand that the market maker is able to extract profit from the spread, but they keep that for themselves. The original buyer and seller don't gain anything they wouldn't have gained otherwise, and it seems likely that one or both of them lose out on a share of that spread-profit.
  - mpyne 13y ago
    I don't even own stock, but I believe the "value" is as simple as a reduction in the price for the buyer, along with an increase in liquidity for the seller, along with a reduction of the spread for both (which should make it easier to budget and make predictions).
maxerickson 13y ago
Your grocer is a market maker! To the point that the word market is often used for small stores. If you had to buy bananas off a truck when it happened to be in town, you'd get a lot less bananas and you'd pay more for them.