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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

#211

Post by corporateslave3 »

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.

The proper allocation of capital to working business. Are you arguing against the existence of the investment industry? How would capital move around, how would growth occur?

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

#212

Post by harryh »

r00fus wrote: post #209
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.

Does it dramatically increase costs for investors or speculators? How many times do you trade a year? Actually perform trades? Even including mutual funds, I think it's < 100 yr.

Those mutual funds trade on your behalf every day.

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

#213

Post by JetSpiegel »

jstanley wrote: post #43
Pxtl wrote: post #32

Earlier quoted context omitted.

It's mostly about how skimming a tiny bit of cash off of every trade is perfectly good for the exchanges to do to john Q public, but heaven help us if real traders have to put up with that. I have no idea if Sanders' plan was good or not, I'm more grousing about how critically important principles of how the market is supposed to work seem to vary depending on whether you're talking about consumer-level investments v…

I still don't get what you're trying to say. Who is "skimming a tiny bit of cash off of every trade"? Do you buy into the notion that HFT is somehow so fast that it can travel back in time and jump ahead of orders that have just executed?

Why is it OK for the exchange to charge fees from every trade motivated by profit, but if the government does it to redistribute, it is somehow labelled as "market distortions"?

Either fees on every trade distort the market, and in that case the exchange is distorting the market, or they don't have appreciable effects and the government can levy that tax.

My opinion is that this a political opinion, and pretending that this is an economic concern is just a smokescreen.

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

#214

Post by snark42 »

auntienomen wrote: post #164
snark42 wrote: post #145

Earlier quoted context omitted.

> 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.

> Virtu is making about $2M/day. The value traded on a typical day in US stock markets is north of $100 billion / day.

You can't estimate it that way as they don't win or profit on all their trades. At it's height HFT was estimated to responsible 15-25% of daily volume by best guesses (it's some what obfuscated.) I'd be surprised if it was less than 5% today. Not just Virtu of course - all players big and small.

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

#215

Post by vostok »

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…

This article is a pretty transparent advertisement for IEX.

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

#216

Post by vostok »

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.

Do you think Virtu takes more or less money from the market than the market makers they displaced?

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

#217

Post by vostok »

snark42 wrote: post #214
auntienomen wrote: post #164

Earlier quoted context omitted.

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.

> Virtu is making about $2M/day. The value traded on a typical day in US stock markets is north of $100 billion / day. You can't estimate it that way as they don't win or profit on all their trades. At it's height HFT was estimated to responsible 15-25% of daily volume by best guesses (it's some what obfuscated.) I'd be surprised if it was less than 5% today. Not just Virtu of course - all players big and small.

Why does this change whether or not you can estimate it that way? The tick size in the US is at least $0.01 for reasonably priced names so it's completely unrealistic to expect an HFT to make money on every trade.

When people talk about making $0.0001 per share that's their ex-ante expectation. It accounts for the fact that you're not going to make money on every trade.

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

#218

Post by pishpash »

dsacco wrote: post #181
cwkoss wrote: post #153

Earlier quoted context omitted.

>More importantly, this claim is neither axiomatic nor defended by the article. How precisely do these rebates harm investors? The rebates are effectively being taken out of retail investors' money. If the rebates did not effect brokers' behavior, there would be no point in offering them. If the rebates do effect brokers' behavior, then it means brokers are willing to accept a marginally worse price for their investo…

The money you lose in the cost of rebates being passed on is less than the money you gain through enhanced price discovery (so you overpay for securities less often) and enhanced liquidity (so you can actually fulfill your trades more often).

There is no neutral comparison being run. You should be comparing against a market where every trade is happening on lit exchanges.

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

#219

Post by [deleted] »

dsacco wrote: post #176
cwkoss wrote: post #120

Earlier quoted context omitted.

How is mispriced markets a problem? If institutional investors are buying and selling at roughly the same rate, and the mis-pricing occurs in either direction, there will be more noise, but over time it would balance out. Sometimes you'll pay 1% too much, sometimes 1% too little, but it would balance itself out in the long run. Am I missing something here?

> Am I missing something here? Yes. By paying relatively small amounts to high frequency market makers in return for enhanced liquidity and price discovery, you won't be overpaying by 1% (or more). I also challenge the idea that it would just "balance" itself out, in the absence of evidence supporting that thesis. In actuality you'd likely just amplify the costs you already have and either fill fewer trades or have h…

[deleted]

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

#220

Post by arielb1 »

dsacco wrote: post #162
Chardok wrote: post #154

Earlier quoted context omitted.

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…

The main criticism of HFT I have heard is that it makes life harder for institutional investors, which makes them less likely to take effort to invest well.
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