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it seems like arbitrage is often presented as somewhat negative. floating exchange rates between fungible commodities (and the arbitrage opportunities that acc

it seems like arbitrage is often presented as somewhat negative. floating exchange rates between fungible commodities (and the arbitrage opportunities that accompany them) are a feature not a bug. they allow markets to correct for fluctuations in supply and demand very quickly ensuring more efficient resource distribution. arbitrage being available exclusively to a small group who also control membership to their own group? corporatism, and obviously bad. this problem of the financial world having insiders and outsiders has nothing to do with high speed arbitrage, that's just an illustration of it.

andylei 17y ago
actually, a lot of the best high frequency trading shops out there are small, private, prop trading groups. for example, tower research capital (http://www.tower-research.com/ http://www.tower-research.com/) is a pretty successful high frequency shop that isn't a big bank. it was started from scratch by mark gorton, the guy who created limewire. there are tons of high frequency shops making tons of money who are just like this.
pbhjpbhj 17y ago
Fluctuations in supply over milliseconds aren't causing an inefficient distribution in resources though. There is an inefficiency here though in the extraction of wealth from the financial system without a corresponding input simply by making high-frequency transactions. What resources were you thinking of? The only resource I can think of that needs instantaneous variation in supply is electricity. Logistics of distribution mean that supply of most other things will only be variable on the order of 6 hours or so. Or do you mean supply of shares to be traded? As an outsider, trading of securities and derivatives appears to be a long way from the initial goal of optimising the market and providing capital. Thinking aloud: If trades were pegged to a single time each day (per market) how would that affect the goal of supplying capital (I'm guessing it wouldn't really)? It would reduce liquidity by quantising it in step with the market but would that be harmful? I'm sure someone will point out to me why, beyond making traders less wealthy, that's a bad idea?

andylei 17y ago

actually, a lot of the best high frequency trading shops out there are small, private, prop trading groups. for example, tower research capital (http://www.tower-research.com/ http://www.tower-research.com/) is a pretty successful high frequency shop that isn't a big bank. it was started from scratch by mark gorton, the guy who created limewire. there are tons of high frequency shops making tons of money who are just like this.

pbhjpbhj 17y ago

Fluctuations in supply over milliseconds aren't causing an inefficient distribution in resources though. There is an inefficiency here though in the extraction of wealth from the financial system without a corresponding input simply by making high-frequency transactions. What resources were you thinking of? The only resource I can think of that needs instantaneous variation in supply is electricity. Logistics of distribution mean that supply of most other things will only be variable on the order of 6 hours or so. Or do you mean supply of shares to be traded? As an outsider, trading of securities and derivatives appears to be a long way from the initial goal of optimising the market and providing capital. Thinking aloud: If trades were pegged to a single time each day (per market) how would that affect the goal of supplying capital (I'm guessing it wouldn't really)? It would reduce liquidity by quantising it in step with the market but would that be harmful? I'm sure someone will point out to me why, beyond making traders less wealthy, that's a bad idea?