211–220 of 328 posts
Markets around the world are determining prices on a massive variety of instruments that derive value from the current and future value of products such as currencies, interest rates, equities, grains, livestock, metals, oil, gasoline, natural gas, and electricity. These prices allow us to prioritize resources, make fair transactions, and manage risk (i.e. buy insurance on the value of critical products so that we ca…
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I think the question is at what point does liquidity have diminishing returns? If a security could only be traded once per 10 years then it's obvious that its lack of liquidity would make it less valuable. Holding it would tie up your capital quite significantly. However, if you had a turn-based market where every trade got cleared at the top of the minute it's not clear to me at all whether that would effectively be…
In reality the way that markets are cleared wasn't necessarily so much more different than a turn-based one, even in one where the clearing happens by the minute. The issue is, indeed, mostly with HFT. However, you shouldn't consider HFTs to be market participants in the traditional sense. Most of them focus solely on moving stuff around very fast instead of actually trying to purchase or sell things for a separate e…
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We know, empirically, that a lack of liquidity increases trading costs, which in turn is directly channeled to the prices of goods and services that rely on this liquidity (more or less everything in the world, even more indirectly ones like education). It's difficult to say 'things would be X% more expensive' because of the interconnected complexity the GP was talking about, but there is definitely a very apparent b…
I think the question is at what point does liquidity have diminishing returns? If a security could only be traded once per 10 years then it's obvious that its lack of liquidity would make it less valuable. Holding it would tie up your capital quite significantly. However, if you had a turn-based market where every trade got cleared at the top of the minute it's not clear to me at all whether that would effectively be…
The general consensus at this point is - no one actually knows - and it's up for serious debate. We know lack of liquidity absolutely has negative effects (because we've experienced it), but we don't how much liquidity is "too much".
Most exchanges have an auction process that sets opening and closing prices. They let everyone get their orders in and then run an algorithm to find the price that will execute the most volume. They could do the same process every 5 minutes and only allow stocks to trade in the auction. Then all of the resources used on pointless HFT could be used on something economically productive.
MiFID 2 regulation was a real push to move people away from using dark pools.
0 - https://markets.cboe.com/europe/equities/trading/periodic_au... 1 - https://business.nasdaq.com/auction-on-demand/index.html
The real-world impact of increased speed of execution by brokers is less money left on the table for HFTs to snap up and less slippage to the actual economic beneficiary (ie the actual retail investor or pension fund investing people's money gets a better trade).
Earlier quoted context omitted.
I think the question is at what point does liquidity have diminishing returns? If a security could only be traded once per 10 years then it's obvious that its lack of liquidity would make it less valuable. Holding it would tie up your capital quite significantly. However, if you had a turn-based market where every trade got cleared at the top of the minute it's not clear to me at all whether that would effectively be…
> I think the question is at what point does liquidity have diminishing returns? The general consensus at this point is - no one actually knows - and it's up for serious debate. We know lack of liquidity absolutely has negative effects (because we've experienced it), but we don't how much liquidity is "too much".
One day we may decide to turn that knob from the millisecond range to 1 second and see what happens. If it's bad, we can always turn the knob back.
Markets around the world are determining prices on a massive variety of instruments that derive value from the current and future value of products such as currencies, interest rates, equities, grains, livestock, metals, oil, gasoline, natural gas, and electricity. These prices allow us to prioritize resources, make fair transactions, and manage risk (i.e. buy insurance on the value of critical products so that we ca…
To dilate on your feedback loop comment, physical systems may benefit from a higher sampling rate but usually only to a point. This point is often related to the physical dynamics of the system (e.g., natural frequencies). For example, a small thruster may benefit much more from increasing sampling rates from 1000Hz to 10kHz than a large rocket engine. I assume/wonder if there's a similar analogy to diminished returns in stock information systems, like more volatile markets benefiting more from higher frequency of data. It would be interesting to see where the diminishing returns are.
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Is there any empirical evidence that these perceived benefits to society actually ever materialize? It's clear that there is a benefit to a trader from knowing something milliseconds before the rest of the market (otherwise Goldman wouldn't be doing this), but it's not clear at all to me that it helps the rest of us.
We know, empirically, that a lack of liquidity increases trading costs, which in turn is directly channeled to the prices of goods and services that rely on this liquidity (more or less everything in the world, even more indirectly ones like education). It's difficult to say 'things would be X% more expensive' because of the interconnected complexity the GP was talking about, but there is definitely a very apparent b…
For what it's worth, I used to work for GS and was in the algorithmic brokerage business for 2009-2010. One thing a lot of commenters on this thread are missing here is this isn't the same as an HFT or hedge fund, this is the brokerage business - executing orders on behalf of GSs clients, who are largely institutional investors, hedge and pension funds etc. The real-world impact of increased speed of execution by bro…