What Business is Wall Street In?
blogmaverick.com
What Business is Wall Street In?
1–10 of 191 posts
Re: What Business is Wall Street In?
#2Love Cuban, but his target is program trading, not Wall Street. And trading serves its purpose as it makes the market more efficient. Arbitrage opportunities will always narrow or close over time.
His argument is like saying that someone that buys and sells used cars has a big advantage over me the consumer, therefore buying a car is rigged. I know that implicitly, it's the friction of low transacting.
Re: What Business is Wall Street In?
#3Love Cuban, but his target is program trading, not Wall Street. And trading serves its purpose as it makes the market more efficient. Arbitrage opportunities will always narrow or close over time. His argument is like saying that someone that buys and sells used cars has a big advantage over me the consumer, therefore buying a car is rigged. I know that implicitly, it's the friction of low transacting.
Someone buying and selling used cars doesn't have the ability to crash the entire car market negatively affecting everyone that currently owns a car in the same way that high-frequency trading can with the stock market. I don't think your analogy works.
Re: What Business is Wall Street In?
#4Love Cuban, but his target is program trading, not Wall Street. And trading serves its purpose as it makes the market more efficient. Arbitrage opportunities will always narrow or close over time. His argument is like saying that someone that buys and sells used cars has a big advantage over me the consumer, therefore buying a car is rigged. I know that implicitly, it's the friction of low transacting.
Someone buying and selling used cars doesn't have the ability to crash the entire car market negatively affecting everyone that currently owns a car in the same way that high-frequency trading can with the stock market. I don't think your analogy works.
Those crashes primarily impact professionals... I'm not familiar with any enduring crash with sustaind impact to retail investors. I'm sure the value created by tightening spreads and creating volume dwarfs the cost of a momentary crash that impacts other professional traders (and a small fraction of retail traders).
I'm not saying that high frequency trading isn't shady, but it also serves a purpose. And I don't think the objective is to crash a market, it's to make money. These traders don't want scrutiny, so they are personally motivated to maintain order.
Re: What Business is Wall Street In?
#5It is getting increasingly difficult to just invest in companies you believe in.
Like how twenty years ago you could buy a stock you believed in for like $4 by using a computer system, paying a fraction-of-a-penny spread on average, to have a trade executed in milliseconds to seconds, but now you have to talk to a human on the phone and pay a $400 commission to pay a fraction-of-an-eighth spread and have the trade execute in minutes or hours? That fact pattern would make this critique make sense.
No, it is fantastically easier to trade the stocks of companies you believe in. If there is a problem with the market, the "problem", and one uses that term loosely, is that people are talking about macroeconomic trends more than individual companies because the observable evidence is overwhelmingly in favor of a conclusion we've pretty much known for decades: seeking alpha is a sucker's bet.
Re: What Business is Wall Street In?
#6There's a difference between retail trader and retail investor. If Joe Schmo is a trader, looking to earn profits in the short term (days, weeks, < 6 months), the odds are heavily stacked again him, with HFT (i am kinda in agreement with Cuban there). If Joe was an investor, seeking out good companies and buying stocks with the intent to hold on to them for the long term (1 yr+) then HFT should have lesser impact. Ofcourse an investor could have made the wrong call, but then the outcome of a stock moving up or down over the long run should be related to the actual performance of the company in the real world, not some alternate universe dominated by hft algos seeking arbitrage opportunities.
Re: What Business is Wall Street In?
#7A high frequency trader wants to jump in front of your trade and then sell that stock to you.
Can he explain exactly how this is supposed to happen? Let's think it through. You see a stock priced at B, and you decide you want to buy it. Cuban is saying that a high frequency trader will see that you want to buy the stock, and he'll buy it for B and then sell it back to you at B+X, making X in the process (any you pay more for the stock). To do that, he'd have to know that you were about to submit an order. But he only finds out about your order after you've submitted the order to the exchange, and the exchange has relayed it to him. He doesn't get the opportunity to "jump in front of you", and I have no idea why Cuban thinks he does.
In actuality, what happens is this. The high frequency trader sees that the stock is priced at B if you want to buy it, and S if you want to tell it (with B > S). He then expresses his willingness to sell you the stock at B-X (by sending a limit order to the exchange). When you come along to buy it, you get it at B-X instead of B, which saves you money. The trader gets a rebate from the exchange for supplying liqudity (which he did, since you got the stock for less than you would have otherwise) and hopefully he is able to buy it back for some price around S (with another limit order), thereby making the difference between B-X and S.
There are dangers with high frequency trading [1] but they are not of the kind that Cuban is describing.
[1] http://en.wikipedia.org/wiki/Knight_capital#2012_stock_tradi...
Re: What Business is Wall Street In?
#8> or changing the capital gains tax structure so that there is no capital gains tax on any shares of stock (private or public company) held for 1 year or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years.
A complex tax structure ignores the bottom (who pay very little tax on income) and only harms the middle. The top earners in any system with a complex tax structure have the capital and the assets to make it worthwhile to design vehicles that shield them by exploiting these complex tax rules.
Re: What Business is Wall Street In?
#9The analogy between hackers and traders is interesting, but the argument would have been even better if the author hadn't assumed that hackers have to be criminals:
"A hacker wants to jump in front of your shopping cart and grab your credit card and then sell it."
On the other hand, looks like we've already lost this fight.
Re: What Business is Wall Street In?
#10It is getting increasingly difficult to just invest in companies you believe in. Like how twenty years ago you could buy a stock you believed in for like $4 by using a computer system, paying a fraction-of-a-penny spread on average, to have a trade executed in milliseconds to seconds, but now you have to talk to a human on the phone and pay a $400 commission to pay a fraction-of-an-eighth spread and have the trade ex…
Trading stocks is fantastically easier, sure. That is obvious. And he says so at the end: "There is value to trading automation. It is here to stay." He never says _trading_ is difficult.
Your comment would be more interesting if it confronted his main point: "There is absolutely NO VALUE to High Frequency Trading. None. We need to bring our markets back to their original goals of creating capital for business. "