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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

#81

Post by physguy1123 »

lin_lin wrote: post #40
corporateslave3 wrote: post #33

Earlier quoted context omitted.

You are aware that HFT is essentially dead? It isnt profitable anymore and most of those firms are failing. Trading situations that allow for easy outsized profits like that disappear very fast.

Is this true? Any links? Not doubting you, just interested.

To say it's dead is a bit extreme, but it's not like 2008 when anybody kinda fast could find success.

Speed doesn't make money by itself anymore, so a lot of players whose only trick was being fast and not-so-smart are having problems.

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

#82

Post by stouset »

rramdin wrote: post #65
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.

4) increased volatility 5) less efficient price discovery The HFT shops put millions of dollars into research to attempt to ascertain correct prices (e.g. ETF pricing, derivatives pricing, etc). If they are disincentivized from trading in the equities markets, they will no longer be a conduit of relevant pricing information from other global markets into the equities markets. That means investors (big Wall Street fir…

What is the value of trading at increasingly marginally more accurate prices? And more importantly, what is the cost?

You seem to take it at face value that trading at accurate prices is an unalloyed good. But for the extremely overwhelming majority of retail investors — whose only sane strategy is buy and hold — buying at a few tenths of a percentage points closer to the most-accurate possible price is worth nearly nothing (and has negative worth half of the time, practically by definition).

On the other hand, Wall Street has been raking in tens if not hundreds of billions in profits from this service. What value we get from more accurate pricing may very easily be offset by these costs a hundredfold.

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

#83

Post by harryh »

minimax wrote: post #78
harryh wrote: post #67

Earlier quoted context omitted.

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…

Are there really people proposing a 0.5% tax on trades? Jesus. That's 1-2 orders of magnitude bigger than I thought we were talking about. That's crazy!

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

#84

Post by CuriouslyC »

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.

High frequency trading is basically capitalizing on inefficiencies in the market. Ideally, those inefficiencies would be addressed directly, and the benefit of a lower friction marketplace would be distributed among all participants. Then all the energy going into HFT could be redirected to something more productive.

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

#85

Post by zo1 »

harryh wrote: post #53
javajosh wrote: post #17

Earlier quoted context omitted.

I've always thought a better solution would be a voluntary market "quantization" at some reasonable human-scale time frame. It would be a little random (to avoid gaming), so all put and asks get resolved "about every hour". There would probably have to be a law to prevent people from running markets at faster time-scales on top of this.

This solves fewer problems than you might think. 1) Let's say that trades are resolved at time X. Participants have every incentive to submit all bids/asks as close to time X as possible (microseconds possibly). 2) How do you handle a mismatched number of bids/asks at a given price? Resolving this difficulty without creating bigger problems than the problem you were trying to eliminate is challenging. 3) I'm just a r…

1) You only get to see and make a potential buy/bid for last hour's bid/asks, only.

2) The system itself resolves it. Either it prevents you from making a buy/bid for something that was already "fulfilled" (though this would leak information). Or it accepts them sequentially, and refunds you at the end of the hour.

3) We're not taking that away from you. We'd be taking it away from everyone. You are welcome to see last hour's trades and try trade on it.

Additional points:

2) Another option. If your order didn't make it, the system can simply let it "stay" on on the system to be fulfilled in the future. If someone wants to take you up on the offer you made, they'll do it in the next hour, or any subsequent hour.

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

#86

Post by dsacco »

hasbroslasher wrote: post #49
dsacco wrote: post #25

Earlier quoted context omitted.

Your comment, while snarky, isn't a refutable statement. As it stands you seem to be endorsing some position, which I'm inferring is in favor of Sanders and maybe in opposition to HFT. I can't really tell what you're getting at precisely though. > Remember how he was widely pronounced deranged for suggesting that there should be a fee associated with trades? How it would destroy the market? Who said this, specificall…

I'm not OP but I sympathize: > Who said this, specifically? What is your point in bringing it up? Sanders. The point in bringing it up is to point out the irony that Wall Street already does this behind the scenes, but people called the Senator crazy for proposing it. > I'm getting the sense that you'd be in favor of this - can you tell me why, in your own words, you believe we should be trying to "recoup value" from…

All you did was move the goalposts...

> but people called the Senator crazy for proposing it.

Who called him crazy? That is my question. And the corollary to that question - why do we care about this party, and why is it relevant to the point? A lot of people say plenty of idiotic things, but that doesn't mean they have any real authority in the matter.

I'm looking for precision and an understanding of why it's relevant.

> Shortest terms I can put this is: our country needs the money that Wall Street siphons off of the economy.

This is an emotionally loaded claim, and it's also not axiomatic. How precisely does Wall Street "siphon off of the economy" without providing value in exchange?

> High frequency trading, unlike traditional investment, is not a "mom and pop" thing, it's a tool only accessible to the wealthy to enrich themselves.

High frequency trading is a very small industry compared to all the types of trading that occurs on Wall Street. It has outsize publicity for a variety of reasons, many of which circle back to FUD.

Moreover, every single type of trading firm is only accessible to the wealthy - that is very nearly what defines institutional trading. You are no more going to start a discretionary hedge fund than you are going to set up colocation and an FPGA for high frequency trading, which means that HFT is not nearly alone in being inaccessible.

You're not actually explaining your point here. You're just repeating claims without defending them. On the contrary, market makers (who almost exclusively use HFT these days), provide liquidity to the market, just as the institutional investors in charge of endowments and pension funds provide value for retail investors' retirement savings.

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

#87

Post by alpos »

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.

I suspect this debate was/is largely conducted by uninformed parties. There already is a small fee imposed on every trade due to gov't regulation. https://www.sec.gov/fast-answers/answerssec31htm.html

At best, there could be a meaningful debate over increasing the appropriation to the SEC and adding new regulation mandates for them.

The question over whether we should have transaction fees should already be settled by the fact that the SEC is currently funded by such fees.

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

#88

Post by dsacco »

CuriouslyC wrote: post #84
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.

High frequency trading is basically capitalizing on inefficiencies in the market. Ideally, those inefficiencies would be addressed directly, and the benefit of a lower friction marketplace would be distributed among all participants. Then all the energy going into HFT could be redirected to something more productive.

Yes, and this is happening. The low hanging fruit in HFT is effectively gone, and you can no longer compete on just speed. The industry has been shrinking since the early 2010s.

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

#89

Post by orclev »

harryh wrote: post #30
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...

Might other things be happening in the world besides orders on a single exchange?

It seems like that would only matter if you assume that a bid can't be canceled or changed. Assuming you're free to cancel or modify a bid right up until the close, whether you put the bid in at the start of the window or the close of the window wouldn't matter as you could always modify or cancel the bid as new information comes in.

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

#90

Post by harryh »

stouset wrote: post #82
rramdin wrote: post #65

Earlier quoted context omitted.

4) increased volatility 5) less efficient price discovery The HFT shops put millions of dollars into research to attempt to ascertain correct prices (e.g. ETF pricing, derivatives pricing, etc). If they are disincentivized from trading in the equities markets, they will no longer be a conduit of relevant pricing information from other global markets into the equities markets. That means investors (big Wall Street fir…

What is the value of trading at increasingly marginally more accurate prices? And more importantly, what is the cost ? You seem to take it at face value that trading at accurate prices is an unalloyed good. But for the extremely overwhelming majority of retail investors — whose only sane strategy is buy and hold — buying at a few tenths of a percentage points closer to the most-accurate possible price is worth nearly…

You are drastically overestimating how much money HFT market makers earn. Virtu Financial (one of the biggest firms in this area) earns about 100 million a year.

I think you are also underestimating the costs to retail investors to not getting accurate pricing. Shaving a few tents of a point off of every trade will have a huge effect on the lifetime earnings of an individuals.

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