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What Business is Wall Street In?

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Re: What Business is Wall Street In?

#31

Post by programminggeek »

HFT, brokerage houses, and wall street in general is about providing the service of being a middle man and profiting from standing in the middle of a transaction. Traders via automated machines or human beings facilitate a transaction between a buyer and a seller. That's the business. It's not about providing capital or whatever else people think it is, it's about being basically a sales agent.

Before computers, Wall St. was still largely about trading and standing between people who have money and people are willing to trade ownership for money. That's it.

The problem is that HFT is about profiting on even the smallest trades, but cranking up the volume to 11. It's kind of like what Wal-Mart did to retail, they make less money per item, but they literally make it up in volume.

Algorithmic trading can be slow or fast, but it plays off the fact that machines can compute the data and make a decision faster than humans can, especially on a digital marketplace.

It is unfair to human traders, sure. But, you have a digital trading platform, so at some point it's impossible to stop algorithmic trading.

If you want a market where the purpose is to create capital for businesses without dealing with machine trading, you need to start a new market that is not run by machines and is only operated by human, person to person trades.

Re: What Business is Wall Street In?

#32

Post by JumpCrisscross »

uptown wrote: post #3
dawernik wrote: post #2

Love 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.

The used car market is also terribly inefficient.

Re: What Business is Wall Street In?

#33

Post by djoldman »

larrys wrote: post #30
djoldman wrote: post #20

Earlier quoted context omitted.

>"but rather the price of the stock in relation to the value being manipulated by, as one example, high frequency trading and macro economic conditions." Please explain or expand on how the above occurs.

HFT works to quickly create momentum in pricing (Note: there are alternative theories that this is not the case to be sure) which changes a large quantity of stock prices for the day. And when the market is having a down day other stocks that have nothing to do with the stocks being traded are changed as well. So if the market is down someone's investment in Patrick's BCC will have a large chance of dropping as well.…

Please explain what you mean by "HFT works to quickly create momentum in pricing."

What is bad/wrong/unlawful/unethical about: >"And when the market is having a down day other stocks that have nothing to do with the stocks being traded are changed as well. So if the market is down someone's investment in Patrick's BCC will have a large chance of dropping as well."

And just to check: do you think it would NOT be bad/wrong/unlawful/unethical if one substituted "up day" for "down day" in your sentence?

It seems like you take issue with that fact that stock price changes have become more correlated. Is it bad/wrong/unlawful/unethical that traders may want to sell(buy) stock A when the price of stock B decreases(increases)?

Re: What Business is Wall Street In?

#34

Post by twoodfin »

SeanLuke wrote: post #28
javert wrote: post #19

Mark Cuban, go create your own exchange where you set the rules, or STFU. That's why we live in a free society. There is no valid reason or excuse for putting a gun to someone's head and telling them, "stop trading or else," which is what you keep insisting on.

You're saying that the stock market has no effects on society?

Everything has an effect on others. The question is whether those effects are the result of voluntary actions. As far as I can tell, nobody is being forced to invest on Wall Street. Everyone is free to keep their money in gold or under their mattress.

Now, if everyone chose to do those things, that would have a huge negative effect on society, massively greater than anything Wall Street has ever inflicted. But that doesn't imply we should regulate how much people are allowed to buy gold or stuff their mattresses.

Re: What Business is Wall Street In?

#35

Post by whatshisface »

harryh wrote: post #22
uptown wrote: post #11

Earlier quoted context omitted.

"It is getting increasingly difficult to just invest in companies you believe in." You're interpreting that sentence literally. His point is that investing in a company used to largely be based on how successful you though that company would be. The market has changed in a way that an overwhelming number of external factors can have a negative (or positive) impact on that company's share price, making the evaluation…

"The market has changed in a way that an overwhelming number of external factors can have a negative (or positive) impact on that company's share price" Really? In what way has it changed? External factors have always had a huge impact on businesses. I'm sure there were lots of super well run businesses that went under durring the Great Depression (which was, you know, the mother of "external factors").

By external factors, I think he means factors unrelated (or at least not very related) to the success of the company, like wild stock speculation.

Re: What Business is Wall Street In?

#36

Post by ArchD »

CJefferson wrote: post #18
crntaylor wrote: post #7

A 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…

Except, that isn't all high frequency traders do. They send in tens of thousands of requests a second, many of which they have no interest in ever being forfilled, in the hope of partly fooling other people, who are sending around similar numbers of requests. Stock exchanges have turned into a high-frequency war-ground, which fortunately doesn't appear to spill out and effect the rest of us too often, at least as far…

Many exchanges have limits on the number of order cancellations you can make. You get penalized if you send too many cancels compared to the number of trades you get.

Besides, most retail orders go through brokers, not directly to the exchange, and the brokers can provide their own layer of algorithmic sophistication to help the clients get a better price than if they were to place the orders on the exchange on their own directly. This can be done by internally matching orders on both sides, as well as placing orders at strategic times and prices, also using algorithms.

So, this isn't really about "poor retail investor" against "evil predatory high-frequency trader".

Re: What Business is Wall Street In?

#38

Post by crucialfelix »

PaulHoule wrote: post #15
mej10 wrote: post #10

Earlier quoted context omitted.

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. "

I think it's a miracle that you can ask for $500 dollars of a thinly traded stock and quite quickly get an offer to get it at $515. That's how market makers make money. They match up investors who want to buy and sell the amount they want to sell at the time they want to sell it. Contrast to the private corporation that I own shares in, where it's taken me weeks to broker a deal to buy some more shares from another s…

This really has nothing to do with retail investors. Retail is completely insignificant.

Its about what the bulk of the trading is: robots trading with robots without any regard to the stocks they are trading. The big whales are the mutual funds and they have to execute their buy/sells using special techniques of spacing trades out to try to not show what they are up to. Otherwise the HFT spots it (and they usually do) and then front runs all of the trades, just skimming pennies off. What use are they ?

The majority of the trades are not making markets at all, they are just zipping back and forth to collect pennies. If they were market makers then they would hold inventory, but they never do.

NOBODY believes the "liquidity" story. and what about flooding the market with fake bids to cause opponents to get overloaded ? or running tracer LFOs spitting out strange bid patterns just to see if they can detect another hidden program ? what does that have to with market making ? its just robot games.

Re: What Business is Wall Street In?

#39

Post by Lagged2Death »

dawernik wrote: post #2

Love 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.

Love Cuban, but his target is program trading, not Wall Street.

It is my understanding that program trading and HFT account for 99+ percent of the trade volume at this point; how shall we even distinguish Wall Street from automated trading then?

Re: What Business is Wall Street In?

#40

Post by Tipzntrix »

I gather that Mark is upset that HFTs use stocks as pawns and resale merchandise here. Essentially, HFTs buy stocks just because the supply and demand numbers look right. These algorithms most likely don't do research into the background of a company, they don't do character checks on executives, and they don't look at what kind of expertise the staff or board has. They just look at the buy/sell rates historically and take advantage of good opportunities. They're essentially middlemen in between the buy and the sell rates, and feel a lot like retail stores. You could almost compare them to Wal-Mart. Get whatever the hell goods they can, give a better rate than anyone else, sell to people who actually want the goods. However, they are not buying stocks as a sign of faith in the company, which is what I think Mark Cuban believes is the real point of the stock market.
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