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What Business is Wall Street In?

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Re: What Business is Wall Street In?

#41

Post by debacle »

whatshisface wrote: post #35
harryh wrote: post #22

Earlier quoted context omitted.

"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.

As someone who invests in small caps almost exclusively, I can tell you that 99.99% of the companies in existence today don't suffer from wild stock speculation.

Re: What Business is Wall Street In?

#42

Post by uptown »

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").

"In what way has it changed?"

Two examples:

1. High-frequency algorithmic trading.

http://blogs.reuters.com/felix-salmon/2012/08/06/chart-of-th...

3. Repeal of the Glass–Steagall Act, giving government-protected 'too-big-to-fail' commercial banks the ability to incur risks traditionally reserved for investment banks.

Re: What Business is Wall Street In?

#44

Post by kingcub »

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…

>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.

That's called gaming, and is illegal.

Re: What Business is Wall Street In?

#45

Post by crntaylor »

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…

Most exchanges that I have experience of have a minimum trade-to-quote ratio, i.e. at least a certain proportion of your quotes have to turn into trades, or you'll be warned and eventually kicked off the exchange.

In any case, to the 'end user' (a regular stock investor like you or me) the continual jockeying for position among HFTs doesn't matter - all we notice is that we pay smaller spreads and get our orders filled more quickly.

Sometimes the trading games spill out into the 'real world' with unpleasant consequences, but those instances appear (so far) to be rare. I think there needs to be tight regulation on HFTs to limit behaviour like quote stuffing, spoofing and other forms of gaming, but I don't agree with the argument that they are a net bad thing.

Re: What Business is Wall Street In?

#46

Post by platz »

adambyrtek wrote: post #9

The 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.

Yep, I came here to post this exact sentiment.

Re: What Business is Wall Street In?

#47

Post by fennecfoxen »

harryh wrote: post #21
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. "

His main poing is wrong. High Frequency Trading makes trading stocks cheaper. There have always been market makers. They used to be expensive humans. Now they are cheap computers. This means that it now costs less for you to trade a stock.

I'm given to understand that the reason we have high-frequency traders being as crazy as they are is that there's a (government-mandated) rule where you can't price anything in increments of less than $0.01. 1 penny times hundreds or thousands of shares starts a minute starts to add up.

So instead of being able to compete on price, market-makers compete on latency in order to be the one making all the monies, resulting in the current arms race.

Cf. this blog: http://www.chrisstucchio.com/blog/2012/subpenny_rule_respons...

Re: What Business is Wall Street In?

#48

Post by hodder »

Why is there such a witch hunt against high frequency traders? I understand the brain-drain argument, but I fail to see a direct negative impact on regular investors.

-High frequency traders provide liquidity enabling me to transact with slightly lower spreads. While narrow spreads may only provide a marginal benefit to the markets, how is it harming you or I?

-High frequency traders hardly impact my investing decisions. Has anyone here been burned by a high frequency trader? If so, please share your experience.

-I am unaware of any academic research concluding high frequency trading has caused harm to individual investors.

-The flash crashes that have occured, appear to have been temporary in nature, and therefore have had zero impact on real investors.

-Don't use market orders if you are afraid of getting a trade executed at an irrational price.

-if PG, KO, or similar crashes for a few milliseconds as a result of high frequency trading (which may be a dubious claim) how does that hurt you? You may have the opportunity to temporarily exploit a mispriced security and buy shares of a company at a lower price.

Re: What Business is Wall Street In?

#49

Post by harryh »

uptown wrote: post #42
harryh wrote: post #22

Earlier quoted context omitted.

"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").

"In what way has it changed?" Two examples: 1. High-frequency algorithmic trading. http://blogs.reuters.com/felix-salmon/2012/08/06/chart-of-th... 3. Repeal of the Glass–Steagall Act, giving government-protected 'too-big-to-fail' commercial banks the ability to incur risks traditionally reserved for investment banks.

And how do those changes (especially #2) "have a negative (or positive) impact on that company's share price" ?

Re: What Business is Wall Street In?

#50

Post by lifeisstillgood » 

   However we need to do it, we need to get the smart money
   on Wall Street back to thinking about ways to use their  
   capital to help start and grow companies.
This is the meat and potatoes quote. Founder Visas, Ycombinator, Disrupt, the death of VCs, the new VCs, all of these do shout that someone has dropped the ball, and a new breed of investors have picked it up.

I still look at Prof. Sadoway and think how will he get the investment he wants from US markets. Its either VCs, Green Funds or soverign funds making all the running - the business of creating new businesses seems to have fallen out of favour.

Proof - none that you can speak of, except for my bones.

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