How can shares of a particular security have two different prices on two exchanges without a horde of very smart people rushing in to arbitrage?
I can't see how they can.
New stock market for long-term investors/reducing high-frequency trading
11–20 of 68 posts
Re: New stock market for long-term investors/reducing high-frequency trading
#12Earlier quoted context omitted.
IMO this is a ridiculous solution to the problem - rather than creating a market that's set up in a way so that high frequency traders can't get an edge (for instance, creating a market structured so that money/speed/location/regulatory status doesn't actually give you any advantage in trading), they're just banning anyone that doesn't fit their definition of "value trader" from the market. It will be interesting to…
I honestly didn't read it closely, but apparently you didn't either. Your assertion: Given that the only difference between this and a normal market is that a bunch of people offering to buy and/or sell at prices more favorable than the current inside bid/ask are banned from the market, I'm going to go out on a limb and say that no, it won't help pricing very much. compare that with: Since trading on Light Pool will…
You: "They are trying to get incentives right, rather than outright banning HFTs."
Article: "Firms that fail to meet standards aimed at protecting long- term investors won’t be allowed directly on the Credit Suisse venue"
So it's both: They are outright banning AND adjusting incentives.
Re: New stock market for long-term investors/reducing high-frequency trading
#13I like that this innovation is market-driven and introduced as a competing alternative, rather than imposed on existing markets in the form of regulation. It will be interesting to see if this market provides better pricing for non-HFT participants. The HFT outfits claim they net out to better pricing for all ("liquidity benefits"), but that's somewhat hard to swallow given that they're acting as giant money sinks on…
I don't understand that last sentence at all. HFTs demonstrably are liquidity providers. That's a technical term with a real meaning: liquidity is the ability to trade when you want to trade in the quantity you want to trade it, and it most certainly is not a natural property of the market; in order to buy an instrument, someone has to be willing to sell it. Meanwhile, what is a "giant money sink", and how is that wh…
My take on the money sink comment:
If there are n people in the market moving money around in a closed system then the combined wealth of those n people is constant.
If another person joins in and is making a net profit then it must be the case that the combined wealth of the original n is decreasing.
Admittedly this relies on money not being created or destroyed, which may cause the model to be a poor approximation of reality.
Re: New stock market for long-term investors/reducing high-frequency trading
#14Earlier quoted context omitted.
I honestly didn't read it closely, but apparently you didn't either. Your assertion: Given that the only difference between this and a normal market is that a bunch of people offering to buy and/or sell at prices more favorable than the current inside bid/ask are banned from the market, I'm going to go out on a limb and say that no, it won't help pricing very much. compare that with: Since trading on Light Pool will…
You: "They are trying to get incentives right, rather than outright banning HFTs." Article: "Firms that fail to meet standards aimed at protecting long- term investors won’t be allowed directly on the Credit Suisse venue" So it's both: They are outright banning AND adjusting incentives.
I think banning is a little strong, article:
Opportunistic firms, which Galinov says include some high- frequency trading companies, will be kicked off the platform and prevented from providing orders or executing against bids and offers directly through Light Pool. They’ll instead have to go through the Jersey City, New Jersey-based National Stock Exchange, where Light Pool will also publish its quotes.
so they can participate, but they get penalized.
Re: New stock market for long-term investors/reducing high-frequency trading
#15Earlier quoted context omitted.
I don't understand that last sentence at all. HFTs demonstrably are liquidity providers. That's a technical term with a real meaning: liquidity is the ability to trade when you want to trade in the quantity you want to trade it, and it most certainly is not a natural property of the market; in order to buy an instrument, someone has to be willing to sell it. Meanwhile, what is a "giant money sink", and how is that wh…
My take on the money sink comment: If there are n people in the market moving money around in a closed system then the combined wealth of those n people is constant. If another person joins in and is making a net profit then it must be the case that the combined wealth of the original n is decreasing. Admittedly this relies on money not being created or destroyed, which may cause the model to be a poor approximation…
The stock market is not a closed system. The total value contained in the markets rises over time.
Re: New stock market for long-term investors/reducing high-frequency trading
#16Earlier quoted context omitted.
I don't understand that last sentence at all. HFTs demonstrably are liquidity providers. That's a technical term with a real meaning: liquidity is the ability to trade when you want to trade in the quantity you want to trade it, and it most certainly is not a natural property of the market; in order to buy an instrument, someone has to be willing to sell it. Meanwhile, what is a "giant money sink", and how is that wh…
My take on the money sink comment: If there are n people in the market moving money around in a closed system then the combined wealth of those n people is constant. If another person joins in and is making a net profit then it must be the case that the combined wealth of the original n is decreasing. Admittedly this relies on money not being created or destroyed, which may cause the model to be a poor approximation…
> If there are n people in the market moving money around in a closed system then the combined wealth of those n people is constant.
> Admittedly this relies on money not being created or destroyed, which may cause the model to be a poor approximation of reality.
What investment markets provide is a way for firms to increase their productivity. Think of the farmer who has a bucket, a stream, and an acre of land. The economic pie gets a lot bigger if the farmer can secure an irrigation system.
The farmer can solicit the banker in town for a loan, or he can enter a debt offering into large market or exchange. Investors are more likely to invest if they know that they can exit their investment freely. i.e. there is liquidity, so they can sell their investment as their own needs dictate.
Re: New stock market for long-term investors/reducing high-frequency trading
#17Re: New stock market for long-term investors/reducing high-frequency trading
#18How can shares of a particular security have two different prices on two exchanges without a horde of very smart people rushing in to arbitrage?
I can't see how they can.
Near as I can tell, fees will be high enough so as to make the arbitrage unprofitable.
I believe the mechanism going on here is this:
Big Traders offer to buy at $10.00 on Light Pool. Their offer sits there, and gets filled slowly over time. Then, for whatever reason the price moves, and a bunch of speed traders try to sell on INET/ARCA/BATS at $9.99 (perhaps in anticipation of the market moving down to $9.90). Due to the high fees, they don't place those orders on Light Pool. The market crosses for a little while, no trades occur, and Big Traders get the opportunity to pull their $10.00 order from light pool.
However, the article wasn't clear enough for me to be certain.
Re: New stock market for long-term investors/reducing high-frequency trading
#19I wonder how this is different from, say, Posit?
Re: New stock market for long-term investors/reducing high-frequency trading
#20Earlier quoted context omitted.
My take on the money sink comment: If there are n people in the market moving money around in a closed system then the combined wealth of those n people is constant. If another person joins in and is making a net profit then it must be the case that the combined wealth of the original n is decreasing. Admittedly this relies on money not being created or destroyed, which may cause the model to be a poor approximation…
The stock market is not a closed system. The total value contained in the markets rises over time.
Not as a result of trading.
You can argue that getting equity pricing right helps companies with their access to capital, but once you have the pricing right at 100ms I don't understand what value HFT firms are adding by pouring money and talent into getting the pricing right at 10ns.
It seems like such an obvious win for society to mitigate the winner-take-all incentive of being first to market on a pricing disparity.