Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Wall Street Profits by Putting Investors in the Slow Lane

nytimes.com

Post reply on HN
Print view View original

161–170 of 238 posts

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

#161

Post by stcredzero »

jorjordandan wrote: post #34
stcredzero wrote: post #9

Earlier quoted context omitted.

would put a dent in the profits of some of the wealthiest, most powerful, This is most certainly factual. and most soulless people in the world. This is a factually unsupportable adhominem. Sentiment that contributes to outrage on social media is a form of cultural pollution. People use it for short term gain, but it's a kind of externality which is tearing society apart. (FWIW, I dislike this situation as well.) (Ye…

Outrage is a form of cultural pollution? So no one should ever be outraged by peoples actions? Or only in the right circumstances? Who gets to say when its justified, if ever?

Outrage is a form of cultural pollution?

On the 21st century internet, an alarmingly large portion of it is. Some outrage is justified, clearly. However, the incentive structures online are so extremely skewed in favor of producing outrage, we need a new form of skepticism. I was once outraged by the notion, "Pics, or it didn't happen!" But on reflection, I realized that the new incentive structures made the rewarding of internet fakery far too likely. Young people, realizing this, reacted in a rational way!

As with "pics or it didn't happen" this is going to be hard for many to hear, but there needs to be a more rational approach online. As it is, the lowered bar for producing online commentary and media has meant a general drop in quality, and this extends to commentary and media produced for activism and activism itself.

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

#162

Post by dsacco »

Chardok wrote: post #154
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…

Your reasoning seems to ignore the evidence in this article; there does seem to be a business model of fraud and, even if he did lack a fundamental understanding of the stock market, I would hope we could all agree that action needs to be taken to regulate and restrict these illegal practices. Perhaps it would not be the specific terms Sanders was describing, but unfortunately he was the only viable candidate that os…

> Your reasoning seems to ignore the evidence in this article; there does seem to be a business model of fraud

What evidence? Specifically, where do you see any evidence?

The article is filled with emotional appeals, doesn't quantify its "calculations", conflates queue size with a lack of liquidity, professes obvious and heavy-handed hero worship for Brad Katsuyama and IEX, and (to top it all off), claims that high frequency trading is front running.

Frankly, I'm shocked it was even published, even as far as op eds go. The article perpetuates the same tired FUD about high frequency trading that IEX continues to push out, and in doing so preempts reasonable discussion about the real negative externalities caused by HFT. The author either doesn't understand, or willfully misconstrues the way in which HFT operates.

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

#163

Post by jcfrei »

harryh wrote: post #24
osrec wrote: post #19

Earlier quoted context omitted.

Also, there is an argument for more time controlled auctions rather than giving everyone a continuous look at the order book. Much like the start of day auction, you could have something similar every minute, where traders submit prices but matching only occurs at the end of each minute. This would certainly put an end to the annoying high/low ticking that happens all too often.

There is no good argument for this. The problems you think it might solve...it doesn't solve. Hint: if the minute long auction closes at precisely the minute boundary at what time do you want to put your orders in?

There are some good economic arguments to be made in favor of frequent batch auctions. Check out the following presentation by Eric Budish from the University of Chicago ( https://simons.berkeley.edu/talks/eric-budish-2015-11-19 ).

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

#164

Post by auntienomen »

snark42 wrote: post #145
harryh wrote: post #90

Earlier quoted context omitted.

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.

> earns about 100 million a year. They made 147M in the first quarter of this year. 197M in the first quarter of last year. They might only make 100M/year after costs, but that doesn't represent the 600-900M they take from the market.

OK, so gross-not-net, Virtu is making about $2M/day. The value traded on a typical day in US stock markets is north of $100 billion / day.

HFT is rounding error.

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

#165

Post by daodedickinson »

osrec wrote: post #13

I think this is well known. The real problem is that the traders are much smarter than the regulators, and their ability to obscure far exceeds the regulators' ability to untangle. Incentivise your regulators better and you might end up attracting some real talent who can unearth the tricks the crafty traders pull every day (I am an ex trader, from a bulge bracket IB, and trust me, what some of these guys do is not a…

Eh, somebody in their spare time figured out Bernie Madoff's scheme in the 90's and wrote them an explanation such that ignorance was no excuse. The SEC regulator marrying Madoff's daughter seems relevant.

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

#166

Post by daodedickinson »

osrec wrote: post #13

I think this is well known. The real problem is that the traders are much smarter than the regulators, and their ability to obscure far exceeds the regulators' ability to untangle. Incentivise your regulators better and you might end up attracting some real talent who can unearth the tricks the crafty traders pull every day (I am an ex trader, from a bulge bracket IB, and trust me, what some of these guys do is not a…

Eh, somebody in their spare time figured out Bernie Madoff's scheme in the 90's and wrote them an explanation such that ignorance was no excuse. The SEC regulator marrying Madoff's daughter seems relevant.

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

#167

Post by daodedickinson »

osrec wrote: post #13

I think this is well known. The real problem is that the traders are much smarter than the regulators, and their ability to obscure far exceeds the regulators' ability to untangle. Incentivise your regulators better and you might end up attracting some real talent who can unearth the tricks the crafty traders pull every day (I am an ex trader, from a bulge bracket IB, and trust me, what some of these guys do is not a…

Eh, somebody in their spare time figured out Bernie Madoff's scheme in the 90's and wrote them an explanation such that ignorance was no excuse. The SEC regulator marrying Madoff's daughter seems relevant.

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

#168

Post by nostrademons »

Heh. My second project at my first employer out of college (back in 2006) was building a system to detect violations of this rule (Reg NMS, if you're curious). We found that there were trade-throughs happening on a daily basis, it was so common that it appeared to be just how the markets worked.

Tried to sell it to the SEC and they weren't interested.

Then we pivoted to try to sell to traders, so they could prove to clients that they were getting the best execution possible (or occasionally better than the best possible, but that gets washed out of the aggregate stats). They were very interested, until the data showed that most of the ones who don't already have a proprietary version of this were actually doing terribly on their trade executions. Then they weren't interested at all.

I ended up leaving the company - and the financial industry - at that point. My take-away from the whole experience is that the game really is rigged. I remember reading a non-mainstream economics paper in college that modeled the world not in terms of price equilibria or value-add, but assumed that all actors were basically bandits who would try to take whatever they could by force or deceit. It was horribly depressing at the time, but it actually seems like a more accurate model of how the world really works, the remarkable part being that democratic capitalism has managed to channel the impulses of those bandits (while still being utterly crooked) into a system that on a macro-level basically kinda/sorta works.

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

#169

Post by dsacco »

snark42 wrote: post #145
harryh wrote: post #90

Earlier quoted context omitted.

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.

> earns about 100 million a year. They made 147M in the first quarter of this year. 197M in the first quarter of last year. They might only make 100M/year after costs, but that doesn't represent the 600-900M they take from the market.

That's not the point. The point is that the industry is vanishingly small compared to Wall Street proper, yet it has an outsize target on its head due to FUD and emotional appeals like the ones presented in the article.

Furthermore, in exchange for "taking" that money from the market, they enhance liquidity, which is directly helpful for price discovery and facilitating trading among both retail and institutional investors.

People are continually moving the goalposts in this thread and others like it. If you're going to talk about Wall Street and fraud, high frequency trading is not the place to start. All of the legitimate arguments against high frequency trading have nothing to do with fraud, they have to do with the dangers of runaway algorithmic trading that coalesces into the same market movements.

But we can't reason about that issue while half the people talking about HFT (almost none of whom actually have experience with trading whatsoever) still think it's front running, or believe it constitutes some sort of fraudulent con over "the little guy."

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

#170

Post by stcredzero »

jorjordandan wrote: post #159
thanatropism wrote: post #125

Earlier quoted context omitted.

All of those questions apply to air pollution.

That's true. I guess the difference is that outrage has a function, and can have a utility, so I don't think it's a good metaphor. Viewing it as just 'pollution' implies that it has no value. It's only 'pollution' to those who don't agree with the outrage.

That's true. I guess the difference is that outrage has a function, and can have a utility, so I don't think it's a good metaphor

CO2 is the best analogy. There needs to be a certain amount for the utility. Too much and too little are detrimental.

Viewing it as just 'pollution' implies that it has no value.

This is an all-or-nothing fallacy. It's the amount produced which is the issue in the analogy. In reality, there are also finer grained quality issues.

To further demonstrate the application of your fallacy, I would agree that there are problems with under-prosecution of certain crimes.

https://www.youtube.com/watch?v=rHMGbtGGdbQ

However, when the outrage which has reached a fever pitch such that people start calling for abrogation of Innocent Until Proven Guilty based on inherent characteristics, something has gone wrong. Our culture has known, since the times in which the Magna Carta was written, that the protection of the individual from arbitrary imprisonment and prosecution is essential to prevent totalitarian abuses of power.

Outrage is easy to over use, its over-use is readily rewarded and such over-use is clearly everywhere, even despite the fact that it's only the excesses of the "other side" that are easily discerned.

Post reply on HN