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What Business is Wall Street In?

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Re: What Business is Wall Street In?

#151

Post by tptacek »

lifeisstillgood wrote: post #150
tptacek wrote: post #126

Earlier quoted context omitted.

A lot of people support "market making", but then talk about frontrunning trades in situations that are morally and technically equivalent to market making. Computer nerds tend to assume the role of "market maker" is more formally defined than it really is. Really, there are just liquidity sellers and liquidity buyers.

Firstly I am not a fan of the term buying liquidity - I prefer injecting liquidity or extracting liquidity. In exact also but at least gives the one sided nature of the deal secondly I also dislike the justification that HFT is ok be ause it is Market making. I see it as a form of Market making trying to capture the equivalent of the consumer surplus - I was quite happy to sell my shares at 505 and old boring mRket m…

Liquidity costs money. It has buyers and sellers. Obviously, those aren't terms I'm making up. I know you're not making up "injector" either, but that term is less precise.

If you want to sell at 505, an HFT can't change that. Place a limit sell at 505.

If you're not willing to hold out for 505 and want to sell at the market price, you're a liquidity buyer paying a premium (of some sort) for getting out of the market right now.

People love to point out this scenario where the HFT buys something at $9 that a human would have paid $10 for. They never acknowledge the fact that by doing that, the HFT assumed the downside risk; the HFT is now to some extent illiquid and exposed to the market. If the price goes to $11, the HFT wins, sure. But if the price goes to $8 --- which should be equally likely, else why sell --- the HFT is fucked.

Broccoli is delicious. Here's what you do: blanch it in boiling water, just like 20-30 sec, shock it in ice water, and then dry it off. Put it in a bowl, douse it in olive oil, shake some fish sauce into it, cumin, chili flakes, maybe a little sriracha or maybe some lemon juice. Shake the bowl up. Now grill it. Yum. Eat it with sriracha mayonnaise, which is the highest calling of mayonnaise.

Re: What Business is Wall Street In?

#152

Post by richardjordan »

ypeterholmes wrote: post #115
Retric wrote: post #97

Earlier quoted context omitted.

What a lot of people are missing is "the market" can't grow faster than "the economy" over the long term. There has been a huge influx of money into the stock market as an increasing percentage of people hoping for historical returns. Causing people to chase after ever lower returns. It's gotten so distorted that the 'smart money' practically ignores growth in favor of other games. HFT is the perfect example of this…

I disagree that the market can't grow faster than the economy. Derivative markets for example.

In terms of overall capital - money - this should be self evident. Money is a proxy for resources. Resources including labor are finite. There are only so many resources to chase. Even if the market extends control to all the world's resources there is a limit on its growth. Any numerical growth after that means nothing but inflation.

Re: What Business is Wall Street In?

#153

Post by paulsutter »

patio11 wrote: post #5

It 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…

He's making a distinction between trading and investment. The purpose of the stock market is raising capital to start/grow/sell companies (investment). The technical term for high frequency trading is "scalping" (yes, exactly the same word and meaning as ticket scalping). HFT traders like to think they "create liquidity", but I haven't heard a credible argument to support that.

Divide the market into three categories of participants:

A. Holding period less than one minute (high frequency traders)

B. Holding period greater than one month (entrepreneurs, companies, value investors)

C. Everyone else (noise)

Question: Does category A really create any useful liquidity for category B? Category B is the economic purpose and intent of the stock market. He's saying: that the HFT guys are like trolls living under a bridge stealing a shoelace from each person who crosses the bridge. He's saying that doesn't fulfill an economic purpose.

I'd love to hear a counterargument. I don't know enough to have a firm position.

Re: What Business is Wall Street In?

#154

Post by lifeisstillgood »

tptacek wrote: post #151
lifeisstillgood wrote: post #150

Earlier quoted context omitted.

Firstly I am not a fan of the term buying liquidity - I prefer injecting liquidity or extracting liquidity. In exact also but at least gives the one sided nature of the deal secondly I also dislike the justification that HFT is ok be ause it is Market making. I see it as a form of Market making trying to capture the equivalent of the consumer surplus - I was quite happy to sell my shares at 505 and old boring mRket m…

Liquidity costs money. It has buyers and sellers. Obviously, those aren't terms I'm making up. I know you're not making up "injector" either, but that term is less precise. If you want to sell at 505, an HFT can't change that. Place a limit sell at 505. If you're not willing to hold out for 505 and want to sell at the market price, you're a liquidity buyer paying a premium (of some sort) for getting out of the market…

Yes, the HFT assumes the risk, for it is acting as a Market maker. My point was that there already was a Market maker there - another is not more liquidity. Liquidity is a binary term IMO. Having two Market makers in same product does not make more liquidity it just makes liquidity cheaper. That might benefit the seller but makes no difference to the exchange function

in the comics, when Superman is protecting Metropolis and Supergirl turns up, she cannot do anything the Man of Steel could not do - she just looks better in tight blue Lycra.

Kudos for your recipie.

Edit removed my dumb, knee jerk, unappetising broccolli recipie/comment on state of English cooking in my childhood. Nevermind.

Re: What Business is Wall Street In?

#155

Post by lifeisstillgood »

paulsutter wrote: post #153
patio11 wrote: post #5

It 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…

He's making a distinction between trading and investment. The purpose of the stock market is raising capital to start/grow/sell companies (investment). The technical term for high frequency trading is "scalping" (yes, exactly the same word and meaning as ticket scalping). HFT traders like to think they "create liquidity", but I haven't heard a credible argument to support that. Divide the market into three categories…

My view (possibly wrong, it has been known) is that liquidity need only be provided by one party. A competitive Market in liquidity has minimal benefits

it is unimportant if the Market maker holds for 1 pixo second or one month - what matters is that someone is there to trade. Now HFT is at a disadvantage as they have less scope to make their spread (essentially the other side must already be in the Market) but that's where if all other Market makers disappeared (and the stock slowed down) HFTs must become LFTs and hey presto are indistinguishable from the old style Market maker

yes there is a price point issue but most buyers really have a range they will buy at so more precisely I am conjecturing that there are minimal benefits to an exchange to having more than one Market maker at a given stock within a given price range.

How to provethat - not sure

Re: What Business is Wall Street In?

#156

Post by nancyhua »

nirvana wrote: post #146
ChuckMcM wrote: post #143

Sigh, I like Mark Cuban, its fun to watch him on Shark Tank but I don't think he makes a good case here. The financial markets have several ways in which people use and/or exploit them. One of the ways people use the stock market is for investing, one of the ways they use the market is for 'trading' which for all intents is extracting value out of the first (or second) derivative of market trades. An analogy (weak bu…

My opinion is that Mark Cuban works hard, but he's opinionated most in the areas where he knows the least. He is not an authority on anything, except maybe sports team management. He got lucky selling a shell of company to Yahoo (a fool of a buyer) in the dotcom boom.... but his performance on shark tank and on his blog tell me that, he's confused his luck with talent.

Agreed. He's entertaining and probably smarter and more focused than 99% of people but his poor arguments make me think he's not a precise thinker and isn't mentally flexible. I wonder if he'd be able to answer this question: What would he have to be persuaded of to change his mind on this topic? (I wonder what everyone including myself would answer to this question.)

I wonder what his motivation is. Is he upset by poor performance in his personal account and wants to blame someone? Does he buy the shockingly confused media hype? Is he threatened by something he incompletely understands? Is he doing it to get even more attention? Is he trying to seem intelligent or gain even more status by jumping on a bandwagon to criticize a popular scapegoat?

Re: What Business is Wall Street In?

#157

Post by lifeisstillgood »

nirvana wrote: post #145
chromatic wrote: post #135

Earlier quoted context omitted.

Better than that, an irrational dip in a stock's price due to an analyst recommendation or another factor may represent a good opportunity for a value investor!

Exactly. And we should just stop calling them "Value" investors. This is true for growth investors, any kind of investors, in fact all investors. Investing is about knowing the difference between value and the price. When you can do that-- and when I say "knowing" I mean it, and I have a spreadsheet to calculate it-- then you can buy low and sell high. The problem is wall street is in the business of managing other p…

If you walking into the saloon ready to play poker the proper way (you know, 5 cards, held in your hand) and every game at every table is mucking around with Texas Hold 'em, it's no good saying you know the real value of poker - even if you are right, and value is written into your spreadsheet.

Never ignore Keynes' rule - the markets can stay irrational longer than you can stay solvent.

Re: What Business is Wall Street In?

#158

Post by corwinstephen »

btilly wrote: post #52
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…

If that is really his point, then he does not understand value investing. From the point of view of a value investor, the numbers that you care about are the current price, and how successful you think that company will be. If the current price is below that benchmark, you buy and hold. If the current price is above that benchmark then maybe you want to sell short. (The reason for the maybe is that, the market can st…

I'm sure Mark Cuban understands value investing. That's not the issue here. He's not saying you can't still make bets on the future of a company. What he's saying is that because of the high frequency trading, it has become largely more DIFFICULT to be a value investor due to the fact that investing in a company no longer depends solely on said company's success.

When high frequency trading is allowed, the price of a stock becomes influenced by the simple act of trading itself, and while it is true (as @btilly mentioned) that this enables other methods of trading like benchmarking, it discourages investing purely for the sake of supporting the company's growth. THAT was Mark's point. Wall Street's purpose is to INVEST in companies, not to microtrade the crap out of their shares until the stock price is so volatile you'd think the CEO was schizophrenic.

Re: What Business is Wall Street In?

#159

Post by wglb »

ChuckMcM wrote: post #143

Sigh, I like Mark Cuban, its fun to watch him on Shark Tank but I don't think he makes a good case here. The financial markets have several ways in which people use and/or exploit them. One of the ways people use the stock market is for investing, one of the ways they use the market is for 'trading' which for all intents is extracting value out of the first (or second) derivative of market trades. An analogy (weak bu…

I think he knows as much about this subject as he does about managing Dennis Rodman.

Re: What Business is Wall Street In?

#160

Post by dchichkov »

lifeisstillgood wrote: post #154
tptacek wrote: post #151

Earlier quoted context omitted.

Liquidity costs money. It has buyers and sellers. Obviously, those aren't terms I'm making up. I know you're not making up "injector" either, but that term is less precise. If you want to sell at 505, an HFT can't change that. Place a limit sell at 505. If you're not willing to hold out for 505 and want to sell at the market price, you're a liquidity buyer paying a premium (of some sort) for getting out of the market…

Yes, the HFT assumes the risk, for it is acting as a Market maker. My point was that there already was a Market maker there - another is not more liquidity. Liquidity is a binary term IMO. Having two Market makers in same product does not make more liquidity it just makes liquidity cheaper. That might benefit the seller but makes no difference to the exchange function in the comics, when Superman is protecting Metrop…

Actually having two (or more) market makers benefits the market. Because a single market maker can pause or quit at any moment in time.
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