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His argument seems to hinge on the claim that fundamental investors need to be able to trade large amounts without affecting the price. He backs it up with the

by Lorento 11y ago

His argument seems to hinge on the claim that fundamental investors need to be able to trade large amounts without affecting the price. He backs it up with the claim that some traders see that as a fundamental human right. Is it really important?

tptacek 11y ago
There can't possibly be a right to trade large numbers of shares without moving the price, that of course being the whole point of a market.
- Dylan16807 11y ago
  Without moving the price outside of the direct effect of applying the trade to the order book. In other words, the prices everyone else offers do not change based on your purchase. They are based on an assessment of the company, not based on exactly how much you are willing to pay for stocks minus .01 cents. (Yes there are gray areas, but as a principle it's valid.)
  - tptacek 11y ago
    Aren't you in effect arguing against the law of supply and demand? Stipulating that you can reliably predict the future cash flows of a company and holding them constant, the number of shares available to buy or on offer should determine the price. Ergo, the impact on the market of a giant block of shares should be large.
    - Dylan16807 11y ago
      I don't read it that way. I take it as an insistence that basic supply and demand decide the price. This means no millisecond-level attempts to outsmart the other guy. So for example you want to buy a million shares starting at $9.00 and this naturally moves the price up to $9.20 based on what everyone is offering. You're okay with that, but you are not okay with someone intercepting mid-purchase, buying a whole bunch of shares that were between $9.02 and $9.15, and instantly selling them back to you at $9.18. Maybe I'm being too generous in my interpretation of "not moving the price", but this is the effect you get when you disguise your purchase. Only the actual demand affects the price. So I think that's what the real meaning is.
      - kasey_junk 11y ago
        Your read is skewed by a common but incorrect perception about the way the markets operate. You see it as party A wants to trade with party B and party C steps into the middle of the transaction to extract money from the transaction that they have no right to. What is in fact happening is that party A wants to trade with party B over and over again at the same price and party B wants to change their price based on these interactions. The later is what is actually happening (in greatly simplified form) and it is the mechanic by which the market goes from $9.00 to $9.20. Further, large block traders absolutely positively hate that it goes up no matter how it happens, because their whole trade is based on finding a market price inefficiency. The longer it remains, they longer they profit. If they could, they would make it a law that prices of transactions couldn't be shared.
        Dylan16807 11y ago
        In this scenario it's okay for B to change their price based on "sold some, bump the price based on supply". It's not okay for B to change their price even more based on tracking A's actions. So you treat trades as independent, and there would be no benefit from hiding the fact that you're trading. This means the price smoothly curves up from $9.00 to $9.20, it doesn't instantly jump to $9.19 or $9.27 because B figures out how much A is willing to pay. I'm not going to comment on how realistic such a principle is.
        kasey_junk 11y ago
        Again, I think that you are misunderstanding the way the exchanges work. Party B is not doing anything but watching 1) The trades that are public information available to anyone (ie his peers) and 2) his specific interactions with the market and in some rare cases 3) the orders going into the exchange that are public to everyone. Party B is then inferring things about supply/demand patterns. He is not tracking a specific entity. Party A meanwhile is doing everything in his power to hide his large intentions (trading across multiple venues, with different executors, at different times, at different sizes, etc). This natural adversarial relationship is what causes the price to go from 9 to 9.20 and it does not instantly jump, it is smooth. This is the mechanic for how that smoothness occurs and happens in real life and needn't add any impossible principles to the mix for it to occur. In either case, Party A is unhappy about it jumping. They want it at 9 for as long as they can charge it, and Party B wants to maximize the average price they can sell it at (that is it is better for them to continue selling at 9.18 than to scare everyone off at 9.20).
hudibras 11y ago
Levine is being sarcastic about the "fundamental human right" part, by the way.

by Lorento 11y ago

tptacek 11y ago

There can't possibly be a right to trade large numbers of shares without moving the price, that of course being the whole point of a market.

Dylan16807 11y ago
Without moving the price outside of the direct effect of applying the trade to the order book. In other words, the prices everyone else offers do not change based on your purchase. They are based on an assessment of the company, not based on exactly how much you are willing to pay for stocks minus .01 cents. (Yes there are gray areas, but as a principle it's valid.)
- tptacek 11y ago
  Aren't you in effect arguing against the law of supply and demand? Stipulating that you can reliably predict the future cash flows of a company and holding them constant, the number of shares available to buy or on offer should determine the price. Ergo, the impact on the market of a giant block of shares should be large.
  - Dylan16807 11y ago
    I don't read it that way. I take it as an insistence that basic supply and demand decide the price. This means no millisecond-level attempts to outsmart the other guy. So for example you want to buy a million shares starting at $9.00 and this naturally moves the price up to $9.20 based on what everyone is offering. You're okay with that, but you are not okay with someone intercepting mid-purchase, buying a whole bunch of shares that were between $9.02 and $9.15, and instantly selling them back to you at $9.18. Maybe I'm being too generous in my interpretation of "not moving the price", but this is the effect you get when you disguise your purchase. Only the actual demand affects the price. So I think that's what the real meaning is.
    - kasey_junk 11y ago
      Your read is skewed by a common but incorrect perception about the way the markets operate. You see it as party A wants to trade with party B and party C steps into the middle of the transaction to extract money from the transaction that they have no right to. What is in fact happening is that party A wants to trade with party B over and over again at the same price and party B wants to change their price based on these interactions. The later is what is actually happening (in greatly simplified form) and it is the mechanic by which the market goes from $9.00 to $9.20. Further, large block traders absolutely positively hate that it goes up no matter how it happens, because their whole trade is based on finding a market price inefficiency. The longer it remains, they longer they profit. If they could, they would make it a law that prices of transactions couldn't be shared.
      - Dylan16807 11y ago
        In this scenario it's okay for B to change their price based on "sold some, bump the price based on supply". It's not okay for B to change their price even more based on tracking A's actions. So you treat trades as independent, and there would be no benefit from hiding the fact that you're trading. This means the price smoothly curves up from $9.00 to $9.20, it doesn't instantly jump to $9.19 or $9.27 because B figures out how much A is willing to pay. I'm not going to comment on how realistic such a principle is.
        kasey_junk 11y ago
        Again, I think that you are misunderstanding the way the exchanges work. Party B is not doing anything but watching 1) The trades that are public information available to anyone (ie his peers) and 2) his specific interactions with the market and in some rare cases 3) the orders going into the exchange that are public to everyone. Party B is then inferring things about supply/demand patterns. He is not tracking a specific entity. Party A meanwhile is doing everything in his power to hide his large intentions (trading across multiple venues, with different executors, at different times, at different sizes, etc). This natural adversarial relationship is what causes the price to go from 9 to 9.20 and it does not instantly jump, it is smooth. This is the mechanic for how that smoothness occurs and happens in real life and needn't add any impossible principles to the mix for it to occur. In either case, Party A is unhappy about it jumping. They want it at 9 for as long as they can charge it, and Party B wants to maximize the average price they can sell it at (that is it is better for them to continue selling at 9.18 than to scare everyone off at 9.20).

hudibras 11y ago

Levine is being sarcastic about the "fundamental human right" part, by the way.