3 ms·

Indirectly, they are. The market price is the average predicted price by all the HFTs. The high-frequency shops are picking up pennies in front of a steamroller

Indirectly, they are. The market price is the average predicted price by all the HFTs. The high-frequency shops are picking up pennies in front of a steamroller so that the rest of us can ignore short term fluctuations in the price. This does not help pension funds all that much. A pension trader might decide to acquire a $1.5B position in some stock that usually trades $250M a day. To avoid being a market mover, large investors take weeks or even months to adjust their positions. HFTs arbitrage between the milliseconds, while retirement funds arbitrage between seasons (to the extent that they arbitrage at all, rather than investing for a share of the profits).

hft_throwaway 13y ago
Also more and more institutional investors are using bank algos that basically act like a one-sided market-making strategy. They can actually crowd out market-making HFTs since they're willing to trade for less edge.
nraynaud 13y ago
part of me thinks they'd better go the traditional bank route and just directly lend the money to companies/people (somehow it's also an active investment). They could tell their customer: "we financed this bridge, we financed this company, we financed this farmer's crop" and when there is a loss, they could explain that the company failed or the bridge could not get off the ground for some reason or the weather was bad for the crop. I don't think the current level of indirection is useful, and I don't think computer shakes the hand of the customer saying "let's build this road".
- Daniel_Newby 13y ago
  The indirection is useful when exit time rolls around. If you directly finance a bridge in a city that wins a major new factory, you have to figure out how to market and sell your share of their improved taxing ability. If you bought a government bond, you simply issue a sell order priced to account for the lower risk of default.

hft_throwaway 13y ago

Also more and more institutional investors are using bank algos that basically act like a one-sided market-making strategy. They can actually crowd out market-making HFTs since they're willing to trade for less edge.

nraynaud 13y ago

part of me thinks they'd better go the traditional bank route and just directly lend the money to companies/people (somehow it's also an active investment). They could tell their customer: "we financed this bridge, we financed this company, we financed this farmer's crop" and when there is a loss, they could explain that the company failed or the bridge could not get off the ground for some reason or the weather was bad for the crop. I don't think the current level of indirection is useful, and I don't think computer shakes the hand of the customer saying "let's build this road".

Daniel_Newby 13y ago
The indirection is useful when exit time rolls around. If you directly finance a bridge in a city that wins a major new factory, you have to figure out how to market and sell your share of their improved taxing ability. If you bought a government bond, you simply issue a sell order priced to account for the lower risk of default.