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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

#221

Post by gnaritas »

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.

Market efficiency means everyone gets cheaper trades with less slippage and less money going to middle men. All of society benefits from market efficiency. If you have a 401k or any stocks of any kind, you benefit from a more efficient market. Efficient means less money is lost in the transaction to middle men like traders. HFT make less per trade than old school manual traders did because they've out competed them and lowered the spread which means you get a better deal when buying and selling stock.

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

#222

Post by [deleted] »

dsacco wrote: post #203
concede_pluto wrote: post #191

Earlier quoted context omitted.

Liquidity is willingness to make a trade others aren't. To be useful, it has to linger in the order book for a long time. If you're winning a race by milliseconds , you are trying to interpose yourself into a trade that was already going to happen that day.

> If you're winning a race by milliseconds, you are trying to interpose yourself into a trade that was already going to happen that day. This is an inaccurate framing of how high frequency trading propagates liquidity in an otherwise illiquid (or strictly less liquid ) market. The claim is not that liquidity is contributed on a strictly trade by trade basis, but rather than the low-latency activity has meta-reactive…

[deleted]

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

#223

Post by dgudkov »

aphextron wrote: post #105

More generally, consumers have been fleeced and left out to dry over the past 10 year economic cycle. Take a look at a graph of the S&P500 from 2009-2017, then look at consumer interest rates of 0.5% (in a 'high yield' savings or CD account). It simply makes no sense. We simply cannot build wealth any longer. Baby boomers had CD rates of >10% [0]. Think about that for a moment. [0] http://www.forecast-chart.com/rate-…

This is one of the most disturbing charts I've seen recently. Especially with the 45yr history.

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

#224

Post by sseveran »

osrec wrote: post #106
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.

You seem to be describing a standard, continuous auction. Consider a more discrete time auction, like the opening auction described here: https://uk.advfn.com/Help/the-opening-auction-68.html - I'm not saying this format is perfect, but with modification, it may be reasonable

Actually the continuous cross is the special one from strictly the auction design perspective. I am very familiar with discrete auctions and their advantages and drawbacks. It turns out there there are many times to participate in such discrete crosses. Nasdaq for instance runs 3 or 4 every day in addition to the opening and closing crosses.

Just remember that from a market structure perspective, the continuous cross is the best for liquidity. All markets for things like derivatives try to move in the direction of a continuous cross over time.

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

#225

Post by keenerd »

gnaritas wrote: post #221
keenerd wrote: post #118

Earlier quoted context omitted.

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.

Market efficiency means everyone gets cheaper trades with less slippage and less money going to middle men. All of society benefits from market efficiency. If you have a 401k or any stocks of any kind, you benefit from a more efficient market. Efficient means less money is lost in the transaction to middle men like traders. HFT make less per trade than old school manual traders did because they've out competed them a…

This is more specific and useful. But it is still fairly hand-wavy. How is this efficiency measured? Is "market efficiency" really nothing more than the average USD to conduct a trade? Or the number of microseconds? (In either case it isn't an efficiency, efficiency is always a unitless number between 0 and 1.)

401k is a great indicator, but I'm not sure it makes HFT look very good. The median trade time is more than 1000x faster than in 1990. But people's 401ks are not doing 1000x better. Did we hit a point of diminishing returns long ago? If so, is HFT pointless?

I feel like you are conflating HFT with electronic trading. Electronic trading can be HFT or slow, either way it is cheap and cuts the middleman out.

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

#226

Post by keenerd »

corporateslave3 wrote: post #211
keenerd wrote: post #118

Earlier quoted context omitted.

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?

I'm arguing against the existence of things that can't be measured. How is "market efficiency" different from Carl Sagan's "Dragon in my Garage"?

It sounds like you saying that private companies that don't participate in the stock market are incapable of managing capital or achieving growth.

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

#227

Post by stouset »

rramdin wrote: post #133
stouset wrote: post #82

Earlier quoted context omitted.

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 marke…

> ...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

The average retail investor should not be making enough trades for this to matter.

Bringing down the price of trades like this only makes it cheaper for the suckers — day traders — to think they're playing the game. It is of marginal utility for the average retail investor.

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

#228

Post by URSpider94 »

osrec wrote: post #113
harryh wrote: post #80

Earlier quoted context omitted.

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.

Your definition of a quantised auction is a bit different to mine. In my definition, you submit at the start and get an outcome at the end. You have no ability to modify the contents of the auction during the auction itself. I feel what you're describing is still a continuous auction... I mean if you can continually modify your order, or indeed submit at different times, at which point in time do you do your matching…

There always has to be a moment when you lock in the bids, and a non-infinitescimal window before that time when bids are accepted. As long as that window has a start and an end, there will still be traders who write algorithms to deliver their orders at the final microsecond the window is open. 99.999999% of the time, nothing happens. But, in that one case where the articles of impeachment are released just before the window closes, those algos will pay for themselves a billion times over.

Separating the last moment when bids are accepted from the time when the auction closes has no practical effect, other than just a simple time delay.

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

#229

Post by URSpider94 »

stouset wrote: post #227
rramdin wrote: post #133

Earlier quoted context omitted.

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 marke…

> ...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 The average retail investor should not be making enough trades for this to matter . Bringing down the price of trades like this only makes it cheaper for the suckers — day traders — to think they're playing the game. It is of marginal util…

That's not a fair assessment. Let's say you are doing well and actually investing $1000 per month into the market. Now let's say you are diversifying into three index ETF's, and you buy those quarterly, so that's three trades a quarter on a total of $3,000. If the commission is $35/trade, you are being taxed 3.5% of your investment up-front to get into the market. If the commission is $4/trade (a more typical fee these days), then the up-front loss is 0.4%. You'll pay those same fees again on the way out, and assuming that you sell on the same schedule, that's now 7% vs. 0.8%.

Yes, there's some nice compounding in between, assuming that you buy and hold with no further trades. But, there's a wide gulf between "day trading" and active stock-picking. Assuming that your average hold time is 5 years per stock, you're still going to rack up a lot of commission costs at $35 per trade.

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

#230

Post by jstanley »

JetSpiegel wrote: post #213
jstanley wrote: post #43

Earlier quoted context omitted.

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 th…

The exchange owns the exchange, and provides the service of running the exchange, and can set whatever fees they like, and people are free to use other exchanges that set different fees.

The government already takes (more than) its fair share, from existing taxes. It has no right to also levy a tax on every trade on every exchange.

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