6 ms·

It's a non-solution to a problem that doesn't even exist. The real "problem" as I understand it is that some people get information sooner than others and can p

It's a non-solution to a problem that doesn't even exist. The real "problem" as I understand it is that some people get information sooner than others and can profit from it, creating incentives to get information faster and faster even though there is little benefit to the rest of the economy for doing so. I doubt the total cost is that huge though. I'm not sure if it's possible to fix that, but one idea would be to do trades in discrete increments of a few seconds or whatever. Similar to how exchanges close overnight and companies can release important information, and everyone can be prepared by the next day when they start trading again.

thaumasiotes 13y ago
People trade after hours.
riffraff 13y ago
I think the problem this solution tries to fix is that a lot of money have moved to "pure financial investment" from "tangible stuff", e.g. think of Warren Buffet's Gotrocks parable. I don't know if the problem is real, and I don't know if this tax would fix it, but that is in my understanding why taxes on financial transactions are thought as useful.
- Houshalter 13y ago
  As far as I can tell this is aimed at HFT specifically, and wouldn't have an effect on the rest of the financial industry.
another-one-off 13y ago
Making money from pure trading revolves around information asymmetry, and ability to store goods - most of the time this is really good, because it helps to motivate people with clever ideas to put them into practice. The problem with HFT is that practically speaking, the value of a company can't change in timeframes shorter than a couple of hours (barring exceptional circumstances like a big announcement). So a HFT firm is not actually benefiting from information asymmetry about the product of the company being traded or real-world conditions, it is benefiting from information asymmetry about the conditions at the exchange. In theory this is transferring money from subject-matter experts to experts in how exchange servers & the local fiberoptic grid works. I'd be alone in a room of HF traders, but this isn't useful economic activity vs. subject matter experts making money. I don't understand all the arguments about 'liquidity', I don't see why a slight price spread is a bad thing; provided that I can sell stock in an hour or so. There isn't a magic 'efficient price' determined by the gods of the market - it is whatever the buyer is willing to pay.
- Houshalter 13y ago
  I don't think that's entirely correct. They are profiting from information asymmetry. Markets change slightly and they know it 1 millisecond before everyone else. In that millisecond they buy or sell and profit from the price change. This is stuff that would have been done anyways by regular traders. It's just the high speed traders are now faster and so do it first. As far as I can tell that isn't hurting anyone more than normal arbitrage.
SideburnsOfDoom 13y ago
> The real "problem" as I understand it is that some people get information sooner than others and can profit from it That's backwards. Exactly synchronising the dissemination of information is a hard problem. HFT leverages even small sub-second differences. Even simple physical factors (i.e. the speed of light) mean that being closer to the exchange is highly desirable as this will mean getting the information sooner. People did not create the phsyics of that problem.
- Houshalter 13y ago
  I'm aware of that. That's why I suggested doing trades in discrete time blocks. All trades within the time block will be executed at the end in a nondeterministic order, regardless of who was first. It's not perfect because someone could still get information at the end of the time block before anyone else does. I can't think of a solution to that. Perhaps instead of time blocks, execute trades randomly within a short period of them being posted. Completely disrupting millisecond advantages with random noise.
venomsnake 13y ago
You can have very different opinion about friction depending on where it is. You won't use the same lube that you use on your crankshaft on your brakes. At least I hope so - the last time I saw "My brakes are screeching I greased them" was hilarious, but that is what bumpers are for. So we want lower barriers to entry in trading and moving capital to the productive sectors of the economy and smarter trades. That is why the transaction tax could be helpful - we want to move the largest amount of capital to the economy and not the maximum possible numbers of transactions.
- Houshalter 13y ago
  Your analogy and the argument after it make no sense to me. Barriers to entry won't be lowered by this, nor will trades be smarter.
yxhuvud 13y ago
A solution that would probably be better and less easy to abuse would be to move the minimum price from a penny to like 1/100000 of a penny. It would reward those with better algorithms and it would not favor speed as much.
crdoconnor 13y ago
>It's a non-solution to a problem that doesn't even exist. The real "problem" as I understand it is that some people get information sooner than others and can profit from it That's effectively describing the problem is a slightly reformulated way. HFT basically gives traders priority access to the market - they can receive outside information at the same time as you and just react to it quicker. Moreover, they have priority access to information about how others in the market are behaving. >I'm not sure if it's possible to fix that, but one idea would be to do trades in discrete increments of a few seconds or whatever. That simply changes the race from about being the quickest trader to being first in the queue during the increments.
- Houshalter 13y ago
  >That simply changes the race from about being the quickest trader to being first in the queue during the increments. True, it would have to be in a nondeterministic order. I posted another possible solution above, randomly fuzz the time trades are executed to within a few seconds after they are received. Completely disrupting any millisecond advantages. I just realized the problem with that is someone could just send millions of trades through and increase the probability one of them is executed first. So maybe not.

thaumasiotes 13y ago

People trade after hours.

riffraff 13y ago

I think the problem this solution tries to fix is that a lot of money have moved to "pure financial investment" from "tangible stuff", e.g. think of Warren Buffet's Gotrocks parable. I don't know if the problem is real, and I don't know if this tax would fix it, but that is in my understanding why taxes on financial transactions are thought as useful.

Houshalter 13y ago
As far as I can tell this is aimed at HFT specifically, and wouldn't have an effect on the rest of the financial industry.

another-one-off 13y ago

Making money from pure trading revolves around information asymmetry, and ability to store goods - most of the time this is really good, because it helps to motivate people with clever ideas to put them into practice. The problem with HFT is that practically speaking, the value of a company can't change in timeframes shorter than a couple of hours (barring exceptional circumstances like a big announcement). So a HFT firm is not actually benefiting from information asymmetry about the product of the company being traded or real-world conditions, it is benefiting from information asymmetry about the conditions at the exchange. In theory this is transferring money from subject-matter experts to experts in how exchange servers & the local fiberoptic grid works. I'd be alone in a room of HF traders, but this isn't useful economic activity vs. subject matter experts making money. I don't understand all the arguments about 'liquidity', I don't see why a slight price spread is a bad thing; provided that I can sell stock in an hour or so. There isn't a magic 'efficient price' determined by the gods of the market - it is whatever the buyer is willing to pay.

Houshalter 13y ago
I don't think that's entirely correct. They are profiting from information asymmetry. Markets change slightly and they know it 1 millisecond before everyone else. In that millisecond they buy or sell and profit from the price change. This is stuff that would have been done anyways by regular traders. It's just the high speed traders are now faster and so do it first. As far as I can tell that isn't hurting anyone more than normal arbitrage.

SideburnsOfDoom 13y ago

> The real "problem" as I understand it is that some people get information sooner than others and can profit from it That's backwards. Exactly synchronising the dissemination of information is a hard problem. HFT leverages even small sub-second differences. Even simple physical factors (i.e. the speed of light) mean that being closer to the exchange is highly desirable as this will mean getting the information sooner. People did not create the phsyics of that problem.

Houshalter 13y ago
I'm aware of that. That's why I suggested doing trades in discrete time blocks. All trades within the time block will be executed at the end in a nondeterministic order, regardless of who was first. It's not perfect because someone could still get information at the end of the time block before anyone else does. I can't think of a solution to that. Perhaps instead of time blocks, execute trades randomly within a short period of them being posted. Completely disrupting millisecond advantages with random noise.

venomsnake 13y ago

You can have very different opinion about friction depending on where it is. You won't use the same lube that you use on your crankshaft on your brakes. At least I hope so - the last time I saw "My brakes are screeching I greased them" was hilarious, but that is what bumpers are for. So we want lower barriers to entry in trading and moving capital to the productive sectors of the economy and smarter trades. That is why the transaction tax could be helpful - we want to move the largest amount of capital to the economy and not the maximum possible numbers of transactions.

Houshalter 13y ago
Your analogy and the argument after it make no sense to me. Barriers to entry won't be lowered by this, nor will trades be smarter.

yxhuvud 13y ago

A solution that would probably be better and less easy to abuse would be to move the minimum price from a penny to like 1/100000 of a penny. It would reward those with better algorithms and it would not favor speed as much.

crdoconnor 13y ago

>It's a non-solution to a problem that doesn't even exist. The real "problem" as I understand it is that some people get information sooner than others and can profit from it That's effectively describing the problem is a slightly reformulated way. HFT basically gives traders priority access to the market - they can receive outside information at the same time as you and just react to it quicker. Moreover, they have priority access to information about how others in the market are behaving. >I'm not sure if it's possible to fix that, but one idea would be to do trades in discrete increments of a few seconds or whatever. That simply changes the race from about being the quickest trader to being first in the queue during the increments.

Houshalter 13y ago
>That simply changes the race from about being the quickest trader to being first in the queue during the increments. True, it would have to be in a nondeterministic order. I posted another possible solution above, randomly fuzz the time trades are executed to within a few seconds after they are received. Completely disrupting any millisecond advantages. I just realized the problem with that is someone could just send millions of trades through and increase the probability one of them is executed first. So maybe not.