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> And you think it's morally wrong even if it leads to better functioning markets with lower costs and better prices for everyone else. But it doesn't lead to

> And you think it's morally wrong even if it leads to better functioning markets with lower costs and better prices for everyone else. But it doesn't lead to any of these things. It leads to worse-functioning markets with worse prices for everyone else. Where do you think the profits made by HFT come from? The air? Ghosts? Fairies?

harryh 13y ago
Market makers have always made money. They now make DRAMATICALLY LESS money than they used to due to automation. Here's the Vanguard CIO saying the same thing: http://www.cnbc.com/id/49434073 http://www.cnbc.com/id/49434073 You realize that spreads used to be 12.5 cents or 25 cents and now they're generally 1 cent right?
- nhaehnle 13y ago
  How much of that is genuinely down to HFT, and how much is down to changing the "protocol"? Keep in mind that in the bad old days, it was simply impossible to place orders at a cent-level granularity for most stocks. You could probably get the same benefits by (a) forcing exchanges to allow something like a 10^-9 granularity of prices, (b) restricting matching engines to operate on something like a 15 minute heartbeat, (c) regulating the crap out of exchanges to lower the barrier of entry. You'd get reasonably low spreads while eliminating the waste of resources caused by the high speed arms race. At the same time, for individuals who actually invest (rather than speculate/trade), the spread is a distraction. Access to markets and fees are the real hurdle.
  - harryh 13y ago
    What waste of resources? HFT revenues were estimated at 1B for last year. That's nothing in the grand scheme of things.
saalweachter 13y ago
Someone deriving a profit doesn't necessarily imply worse prices for everyone. For instance, consider a middle-man between a wholesaler and a retail consumer. The wholesaler sells widgets in lots of 1000 for $1 a widget, and individual widgets for $2. A middle-man steps in, buys the lots of 1000 widgets for $1 a widget, and sells direct to consumers for $1.50 a widget. Consumers are getting a better price, and the middle-man derives a comfortable profit.

harryh 13y ago

Market makers have always made money. They now make DRAMATICALLY LESS money than they used to due to automation. Here's the Vanguard CIO saying the same thing: http://www.cnbc.com/id/49434073 http://www.cnbc.com/id/49434073 You realize that spreads used to be 12.5 cents or 25 cents and now they're generally 1 cent right?

nhaehnle 13y ago
How much of that is genuinely down to HFT, and how much is down to changing the "protocol"? Keep in mind that in the bad old days, it was simply impossible to place orders at a cent-level granularity for most stocks. You could probably get the same benefits by (a) forcing exchanges to allow something like a 10^-9 granularity of prices, (b) restricting matching engines to operate on something like a 15 minute heartbeat, (c) regulating the crap out of exchanges to lower the barrier of entry. You'd get reasonably low spreads while eliminating the waste of resources caused by the high speed arms race. At the same time, for individuals who actually invest (rather than speculate/trade), the spread is a distraction. Access to markets and fees are the real hurdle.
- harryh 13y ago
  What waste of resources? HFT revenues were estimated at 1B for last year. That's nothing in the grand scheme of things.

saalweachter 13y ago

Someone deriving a profit doesn't necessarily imply worse prices for everyone. For instance, consider a middle-man between a wholesaler and a retail consumer. The wholesaler sells widgets in lots of 1000 for $1 a widget, and individual widgets for $2. A middle-man steps in, buys the lots of 1000 widgets for $1 a widget, and sells direct to consumers for $1.50 a widget. Consumers are getting a better price, and the middle-man derives a comfortable profit.