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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

#131

Post by rtx »

keenerd wrote: post #118
corporateslave3 wrote: post #109

Earlier quoted context omitted.

Right now the newest investment strategies are taking alternative data sets, like mining website data, and using it to predict stock prices. What value does that provide to the average guy? Nothing but market efficiency. It's just how the industry works.

Right, but how does "market efficiency" trickle through the rest of society? I can't even find anything that quantifies market efficiency, let alone anyone who has tracked it over the years.

Increases market confidence, which in turn promotes economic activity.

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

#132

Post by aphextron »

corporateslave3 wrote: post #33
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.

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.

Did it serve any higher purpose? Did any meaningful software/hardware advances come out of this? Has it evolved into something else now?

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

#133

Post by rramdin »

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…

Automating the work done by human traders, market makers, and specialists has not only facilitated decimilization resulting in smaller spreads, but also allowed trading fees for the retail investor to reach historic lows (the worst you'll find at a retail brokerage nowadays is about $8/trade, far better than the $35/trade), with many even being free. Wall Street had always been raking in billions in profit from market making activity, if anything that profit margin has been significantly reduced by automating market making.

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

#134

Post by harryh »

dragonwriter wrote: post #130
harryh wrote: post #122

Earlier quoted context omitted.

The real world is continuous. It cannot be quantized.

> The real world is continuous. It cannot be quantized. I thought modern physics leaned more toward “the real world is quantized, but the quanta are small enough that things usually seem continuous to human perception.”

Heh. Perhaps that is true. But since we're all up here operating at speeds far slower than planck time I am gonna cheat and call it continuous. For the discussion at hand it is true enough.

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

#135

Post by Retric »

sseveran wrote: post #97
orclev wrote: post #75

Earlier quoted context omitted.

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,…

First off a trader with the results of all previous auctions should be able to make some educated estimates about what the auction contains. Secondly prices are formed by incorporating information into the price. Supply and demand information is only one type of information. Say that we have an auction expiring at 10AM. At 9:59:59.500 Goldman's equity research desk announces that it is downgrading a security. Our tra…

Sure, but this is combined with all other information over that minute/hour. Suppose you had exactly 1 price exchange per day, now yes you might gain incite waiting for that last millisecond, but you have to weigh all other information over the day, approximate it's changes in the price, and then make a bid. Further if the ticks are say every 15 minutes it's easy to not disclose information on a tick boundary. (Simply because of relative time frames.)

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

#136

Post by pdeuchler »

lightbyte wrote: post #107
rramdin wrote: post #73

Earlier quoted context omitted.

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 W…

>Second, this is necessarily a regressive tax You're putting your own ideas into his mouth. Nobody said anything about the fee being a flat fee, or that it would apply to every single trade in existence.

I'm saying this as a Sanders supporter, but maybe he should have been more specific and detailed about his proposals then. My two biggest frustrations with Sanders were 1) his inability to understand that it was going to take more than just mere backbone and higher taxes to reform wall street and 2) his foreign policy

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

#137

Post by pishpash »

harryh wrote: post #122
pishpash wrote: post #116

Earlier quoted context omitted.

Sure there is. The idea isn't to quantize to arbitrarily long times, but to make it long enough compared to the time of information generation and more importantly, communication. Otherwise you may as well give up the notion of a common market. The number may not be a minute but it sure as hell ain't a nanosecond.

The real world is continuous. It cannot be quantized.

What a fatuous comment. The real world satisfies laws of physics. Your fantasy of a continuous single market doesn't exist. This (information coherency) problem has been solved many times in engineering and the solution is quantization.

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

#138

Post by [deleted] »

Retric wrote: post #135
sseveran wrote: post #97

Earlier quoted context omitted.

First off a trader with the results of all previous auctions should be able to make some educated estimates about what the auction contains. Secondly prices are formed by incorporating information into the price. Supply and demand information is only one type of information. Say that we have an auction expiring at 10AM. At 9:59:59.500 Goldman's equity research desk announces that it is downgrading a security. Our tra…

Sure, but this is combined with all other information over that minute/hour. Suppose you had exactly 1 price exchange per day, now yes you might gain incite waiting for that last millisecond, but you have to weigh all other information over the day, approximate it's changes in the price, and then make a bid. Further if the ticks are say every 15 minutes it's easy to not disclose information on a tick boundary. (Simpl…

[deleted]

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

#139

Post by djoldman »

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…

> Shortest terms I can put this is: our country needs the money that Wall Street siphons off of the economy. We need more government money to educate, house, feed, and care for people. 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. Thus, we should disincentivize it in order to generate tax revenue and discourage practices that are not accessible to shareholders.

If I understand you correctly, there are a couple issues you're bringing up:

  1. Wall Street "siphons" off money from the economy.
  2. The US government needs higher revenues.
  3. HFT, as distinguished from "traditional investment," only benefits the rich.
  4. 1-3 are problems whose best solution is to tax HFT specifically.
First, I think it's important to distinguish between "Wall Street" and "HFT." "Wall Street" is composed of the largest banks in the world (Goldman Sachs, Morgan Stanley, Bank of America, etc.). Wall Street owns trillions of dollars worth of assets and has income in the 100s of billions of dollars each year. All HFT revenue in the US is estimated at less than $2 billion per year [1].

As for "siphoning" - do you mean to imply that making money by buying and selling a financial asset is somehow cheating someone, unfair, or something else? Or do you think that by sometimes functioning as "middle-men," HFT and Wall Street's are somehow cheating someone, unfair, or some other bad thing?

What is "traditional investment?"

What do you think of the fact that Wall Street and HFT firms combine to pay many billions of dollars in income taxes?

[1] https://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD000...

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

#140

Post by kcorbitt »

> Although the harm suffered on each trade is minuscule — fractions of a cent per share — the aggregate kickbacks amount to billions of dollars a year.

That's the money quote. 99% of retail investors should be buying stock infrequently, maybe once a month when the paycheck comes in. Ideally you're buying one or a few index funds, so the total number of transactions is small. If you're in that boat, this order-of-fulfillment tax really doesn't affect you and can be entirely ignored.

Your returns are really only in danger of being dragged down by this thing if you're executing many trades per day. But if you're doing that, you had better be a sophisticated investor anyway, or else you're definitely losing money.

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