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What Business is Wall Street In?

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Re: What Business is Wall Street In?

#131

Post by smoorman1024 »

SilasX wrote: post #116
harryh wrote: post #89

Earlier quoted context omitted.

> it's got the potential to destabilize the entire market. No, it really doesn't. There's not a boogey man hiding under your bed just waiting to get you. You know what would happen if a bunch of computer algorithms went crazy and mispriced a bunch of stocks? The guys running that code would get taken for a bath(1). If a bunch of computers went crazy today and started selling shares of GOOG for $20 then the humans wou…

Well, that or they would go crying to the exchange operators, and if they're influential enough, they'll get their sales of Google at $20/share reversed. We would see a lot less of these disruptions if exchanges would make everyone live with the stupid exchanges their computers made.

They do. Knight didn't get its trades busted.

Re: What Business is Wall Street In?

#132

Post by twoodfin »

rayiner wrote: post #99
twoodfin wrote: post #34

Earlier quoted context omitted.

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 d…

"Forced" is something that has degrees. When we replaced private pensions with 401k's, and when we got rid of the firewall between commercial and investment banks, we made it very difficult for anyone to not invest in Wall Street.

Private pensions didn't invest on Wall St? That's news to me.

Re: What Business is Wall Street In?

#133

Post by smoorman1024 »

lifeisstillgood wrote: post #63
PaulHoule wrote: post #15

Earlier quoted context omitted.

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…

I think everyone supports market making. And market makers should take a reward for holding onto a stock (even for a short period of time) But the benefits of market making tail off with frequency - would you mind waiting another hour for a deal at 518 or even a whole day? To a trader its unacceptable, to an investor, its a coffee break. But what drives HF trading is trading - as markets become more efficient trading…

"as markets become more efficient trading opportunities, as you point out, vanish. So smaller amounts of arbitrage need to be leveraged with larger amounts of cash to get the same return."

This is contradictory. If there is only one offer of 100 shares at an arbitrage price you take it and the arbitrage is gone. You can't leverage more money to get higher returns, you're done. Market=efficient wipe hands and walk away.

Re: What Business is Wall Street In?

#134

Post by FJim »

lifeisstillgood wrote: post #63
PaulHoule wrote: post #15

Earlier quoted context omitted.

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…

I think everyone supports market making. And market makers should take a reward for holding onto a stock (even for a short period of time) But the benefits of market making tail off with frequency - would you mind waiting another hour for a deal at 518 or even a whole day? To a trader its unacceptable, to an investor, its a coffee break. But what drives HF trading is trading - as markets become more efficient trading…

Force quotes to be in sixteenths, the way they used to be and HFT disappears.

Re: What Business is Wall Street In?

#135

Post by chromatic »

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…

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!

Re: What Business is Wall Street In?

#136

Post by brazzy »

smoorman1024 wrote: post #133
lifeisstillgood wrote: post #63

Earlier quoted context omitted.

I think everyone supports market making. And market makers should take a reward for holding onto a stock (even for a short period of time) But the benefits of market making tail off with frequency - would you mind waiting another hour for a deal at 518 or even a whole day? To a trader its unacceptable, to an investor, its a coffee break. But what drives HF trading is trading - as markets become more efficient trading…

"as markets become more efficient trading opportunities, as you point out, vanish. So smaller amounts of arbitrage need to be leveraged with larger amounts of cash to get the same return." This is contradictory. If there is only one offer of 100 shares at an arbitrage price you take it and the arbitrage is gone. You can't leverage more money to get higher returns, you're done. Market=efficient wipe hands and walk awa…

You can leverage more money to do the same arbitrage on more stocks, and to get faster computers and connections to be able to do that arbitrage faster than anyone else.

Re: What Business is Wall Street In?

#137

Post by brazzy »

plc wrote: post #64
crucialfelix wrote: post #38

Earlier quoted context omitted.

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 d…

All right, enough. The amount of ignorance out there about HFT is huge. I developed HFT algorithms in a previous life at a very large, well known bank. The majority of trades out there are in fact market making related. The ones that are market taking are usually at the expense of OTHER HFT algorithms, the ones that are slow and showing out dated prices. And yes, HFT algorithms most DEFINITELY hold inventory. Some do…

> The ones that are market taking are usually at the expense of OTHER HFT algorithms, the ones that are slow and showing out dated prices.

Isn't that exactly the point the GP was making?

Re: What Business is Wall Street In?

#138

Post by plc »

brazzy wrote: post #137
plc wrote: post #64

Earlier quoted context omitted.

All right, enough. The amount of ignorance out there about HFT is huge. I developed HFT algorithms in a previous life at a very large, well known bank. The majority of trades out there are in fact market making related. The ones that are market taking are usually at the expense of OTHER HFT algorithms, the ones that are slow and showing out dated prices. And yes, HFT algorithms most DEFINITELY hold inventory. Some do…

> The ones that are market taking are usually at the expense of OTHER HFT algorithms, the ones that are slow and showing out dated prices. Isn't that exactly the point the GP was making?

How is that even close to the point he was making? HFT vs HFT algo trades happen infrequently. They do happen, but it's rare. But guess what? This forces each other to be better, just like any other competitive industry. The ones that do poorly consistently are just being told by the market that they should leave and go find something else to do, because they're not any good at this.

If it's bad that one firm capitalizing on the situation of another firm making a mistake is the point, then I think he should really rethink his participation in capitalism.

Re: What Business is Wall Street In?

#139

Post by plc »

anon808 wrote: post #65
harryh wrote: post #21

Earlier quoted context omitted.

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 think you missed his main point. His main point: Wall Street doesn’t know what business it is in. Wall Street has nothing to do with creating capital for businesses, its original goal. He's saying wall street should have an incentive to create/raise capital for businesses, not invest in marginally profitable trading strategies like HFT. The opportunity cost of wall street investing in trading is that other pursuits…

Does anyone here even have any experience in NYC, or on Wall Street?

Wall street knows what business it's in...lots of them. It does bond research, equity research, investment management, sales and trading, and yes, investment banking (to raise capital to all these poor companies that can't find anyone to pay millions of dollars in fees to do)

Do people really think that there are no investment bankers who raise capital anymore? That because of HFT, a job that pays 1mm a year when you're 30 has no more interest to anybody? That there are so many humanities majors graduating from princeton and harvard that normally do client relationship investment banking but because of HFT, they are going to write algorithms and optimize OS code for latency instead?

Have people seen how many layoffs are happening in investment banking division on wall street? (where they raise the capital for companies) It is NOT A ZERO SUM GAME. HFT doing well is NOT AT THE EXPENSE OF CAPITAL RAISING.

What kind of point is this? Is it even informed by any facts?

Re: What Business is Wall Street In?

#140

Post by stch »

uptown wrote: post #105
harryh wrote: post #96

Earlier quoted context omitted.

The share price for those 148 companies barely moved.

Yet Knight Capital's share price never recovered. Say instead of KCG it was JPM, operating without the usual risk concerns because they've got assurance from the government of support. Should investors or taxpayers be okay with such an "internal issue" destroying part of their net worth? And wouldn't a too-big-to-fail company have a broader impact on the entire market if such a think were to happen? It's kind of the…

I think your problem is with government bailouts of private companies, not with HFT. The effect of most HFT firms completely blowing out would be completely unnoticed in the market.
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