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Wall Street Profits by Putting Investors in the Slow Lane

nytimes.com

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Re: Wall Street Profits by Putting Investors in the Slow Lane

#71

Post by netcan »

harryh wrote: post #15
dm3 wrote: post #12

Earlier quoted context omitted.

Something like a minimum holding time is a more reasonable approach. However, there's not a clear cut answer in any case.

Before you start talking about what would be effective in reducing the amount of high frequency trading you have to make the case that reducing HFT is a good goal in the first place. This is a challenging case to make.

These need to be discussed together. Otherwise, the defence of HFT tends to cite the economic damage caused by measures to reduce it.

Anyway, I agree with you. I don’t see a significant downside to using a small transaction tax or one of the other suggestions. The real hard question is about the benefit or harm of HFT itself.

I haven’t heard a decisive argument yet, but I would say that the “liquidity defence” of HFT is in unconvincing to me. I don’t see how liquidity can add value past a certain point.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#72

Post by dsacco »

kesselvon wrote: post #37
dsacco wrote: post #27

Earlier quoted context omitted.

> Something like a minimum holding time is a more reasonable approach. However, there's not a clear cut answer in any case. Why do you want to reduce high frequency trading?

flash market crashes.

Okay, fair enough. But do you believe these happen often enough, or will increase in the future, to outweigh the improvements to liquidity provided by HFT?

Re: Wall Street Profits by Putting Investors in the Slow Lane

#73

Post by rramdin »

Pxtl wrote: post #2

Remember when Sanders proposed a small fee on every trade on Wall Street to discourage high frequency trading and to recoup some value from the market? Remember how he was widely pronounced deranged for suggesting that there should be a fee associated with trades? How it would destroy the market? Funny, that.

Sanders lacks fundamental understanding of the stock market, indicated by his unsubstantiated refrain "the business model of Wall Street is fraud." First, there are already per-trade regulatory fees, so this isn't a novel idea. Second, this is necessarily a regressive tax: wider spreads mean worse prices for the ultimate owner of stocks; that tax is applied whether trades are retail (you and me), institutional (big Wall Street firms, i.e. IEX's clients), or HFT (small tech firms).

Re: Wall Street Profits by Putting Investors in the Slow Lane

#74

Post by harryh »

netcan wrote: post #71
harryh wrote: post #15

Earlier quoted context omitted.

Before you start talking about what would be effective in reducing the amount of high frequency trading you have to make the case that reducing HFT is a good goal in the first place. This is a challenging case to make.

These need to be discussed together. Otherwise, the defence of HFT tends to cite the economic damage caused by measures to reduce it. Anyway, I agree with you. I don’t see a significant downside to using a small transaction tax or one of the other suggestions. The real hard question is about the benefit or harm of HFT itself. I haven’t heard a decisive argument yet, but I would say that the “liquidity defence” of HFT…

For the record I do actually see a downside to a trading tax and do not think we should have one. Trading is a useful activity. There is no need to single it out separately from all other forms of economic activity for a special tax.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#75

Post by orclev »

sseveran wrote: post #42
osrec wrote: post #28

Earlier quoted context omitted.

Hint: If you can't see the orders during that minute, it doesn't matter when you submit...

Of course it does. A trader (not an investor) is incentivized to wait to the last possible moment when he can still expect a fill. This is why exchanges disseminate auction imbalance information, to attract people to the auction prior to its completion.

In what way is he incentivized? What advantage does he get from waiting till the last possible moment? He has no clue what the current bids are, so whether he bids at the start or the end he still has exactly as much information. He'll have more information after the bidding closes and the winner is announced of course, but by then it's too late, only thing he can do then is participate in the next round of bidding, but that puts him right back in the situation he was in before where until the close the only thing he knows is what the previous winning bid was.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#76

Post by heptathorp »

> IEX has a speed bump that prevents high-frequency traders from front-running ordinary investors.

Anyone care to explain, in precise terms, how a high-frequency trader front-runs ordinary investors on a typical exchange and how putting a delay on all incoming orders prevents it?

Re: Wall Street Profits by Putting Investors in the Slow Lane

#77

Post by rramdin »

Whenever I see these IEX articles, I think it is useful to point out that they generally describe 3 types of traders: 1) Retail - you and me, who make money through asset appreciation 2) Institutional (IEX's client-base) - big Wall Street firms, big money managers, big pensions, who make money by charging fees 3) HFT - small technology firms, who make money through trading

Re: Wall Street Profits by Putting Investors in the Slow Lane

#78

Post by minimax »

harryh wrote: post #67
minimax wrote: post #46

Earlier quoted context omitted.

I think that's about half right. A 0.5% tax on all equities trades, which is what Bernie was proposing, would put a bunch of HFTs out of business basically overnight and at the same time dramatically increase costs for investors via 1) the tax (obviously) 2) wider spreads 3) reduced liquidity.

It's a bit hard to say to be honest. The wider spreads should make a lot of HFT strategies more profitable. Profitable enough that they can successfully absorb the costs from the tax and not go out of business. You are probably right that this wouldn't be true in all cases though.

Here are some numbers. 0.5% of a $50 stock is $0.25. So to break even on the tax alone you need to sell $.50 higher than you buy. That alone will blow out the spread any market maker is able to quote at. The other problem is that now scratching (you buy at the bid and now it looks like the price is going the other way so you aggress and sell back into the bid for no profit) is also extremely expensive (you lose $.50 per share on a $50 stock just scratching). That's going to really kill your profitability. Maybe someone could figure out how to make it work, but it would be an extremely painful regime for market makers.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#79

Post by ghostbrainalpha »

dsacco wrote: post #27
dm3 wrote: post #12

Earlier quoted context omitted.

Something like a minimum holding time is a more reasonable approach. However, there's not a clear cut answer in any case.

> Something like a minimum holding time is a more reasonable approach. However, there's not a clear cut answer in any case. Why do you want to reduce high frequency trading?

http://www.investopedia.com/articles/markets/012716/four-big...

This article has a lot of the reasons. I think loss of confidence in Market Integrity is the most important one.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#80

Post by harryh »

orclev wrote: post #75
sseveran wrote: post #42

Earlier quoted context omitted.

Of course it does. A trader (not an investor) is incentivized to wait to the last possible moment when he can still expect a fill. This is why exchanges disseminate auction imbalance information, to attract people to the auction prior to its completion.

In what way is he incentivized? What advantage does he get from waiting till the last possible moment? He has no clue what the current bids are, so whether he bids at the start or the end he still has exactly as much information. He'll have more information after the bidding closes and the winner is announced of course, but by then it's too late, only thing he can do then is participate in the next round of bidding,…

There are lots of other forms of information in the world other than the orders in a closed auction.

Serious question: Why do people always forget this? This comes up ALL THE TIME when people talk about quantized auction times.

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