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The author doesn't seem to consider that legalizing insider trading would provide a huge incentive for insiders to conceal information from the general public,

by shimon 17y ago

The author doesn't seem to consider that legalizing insider trading would provide a huge incentive for insiders to conceal information from the general public, so that they and their cronies can act on it before the general public. Of course enforcement is imperfect, but is a price change due to insider trades really more informative than an earnings announcement heard by just-about-everyone and just-about-the-same-time?

codeslinger 17y ago
This is already the case and happens all day every day, although it goes by the name "high-frequency trading". The information that HFT systems trade on is "concealed" via the latency differences between multiple systems interacting with a given exchange(s). This "latency arbitrage" can be understood to be an extremely high-speed version of insider trading.
- quizbiz 17y ago
  High-frequency trading is a game of speed/efficiency, not of information/analysis.
  - codeslinger 17y ago
    The speed serves only to gain an informational advantage. That's what the speed is for.
  - joe_the_user 17y ago
    You can't necessarily separate those two elements. Further, there have been a number of articles here describing exactly how High-frequency trading gains an information edge - among other strategies, by "tasting" orders, the machines can discover demand without making investments and then front-run the demand.
- nandemo 17y ago
  This has nothing to do with high-frequency trading. Insider trading has to do with with knowledge of important and undisclosed facts about a company. Stuff that, when disclosed, might cause price swings (several percentage points). HFT works with disclosed information: prices and order books are public. Just because someone has access to this information 10 milliseconds earlier doesn't make it "insider" info. Also, HFT profit margin is usually tiny (measured in basis points). You're stretching the definition of "insider trading" so much that it's almost meaningless.

by shimon 17y ago

codeslinger 17y ago

This is already the case and happens all day every day, although it goes by the name "high-frequency trading". The information that HFT systems trade on is "concealed" via the latency differences between multiple systems interacting with a given exchange(s). This "latency arbitrage" can be understood to be an extremely high-speed version of insider trading.

quizbiz 17y ago
High-frequency trading is a game of speed/efficiency, not of information/analysis.
- codeslinger 17y ago
  The speed serves only to gain an informational advantage. That's what the speed is for.
- joe_the_user 17y ago
  You can't necessarily separate those two elements. Further, there have been a number of articles here describing exactly how High-frequency trading gains an information edge - among other strategies, by "tasting" orders, the machines can discover demand without making investments and then front-run the demand.
nandemo 17y ago
This has nothing to do with high-frequency trading. Insider trading has to do with with knowledge of important and undisclosed facts about a company. Stuff that, when disclosed, might cause price swings (several percentage points). HFT works with disclosed information: prices and order books are public. Just because someone has access to this information 10 milliseconds earlier doesn't make it "insider" info. Also, HFT profit margin is usually tiny (measured in basis points). You're stretching the definition of "insider trading" so much that it's almost meaningless.