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New stock market for long-term investors/reducing high-frequency trading

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Re: New stock market for long-term investors/reducing high-frequency trading

#21

Post by asmithmd1 »

tptacek wrote: post #11
tastybites wrote: post #10

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.

Whenever you see a stock price it is always the price where the stock last changed hands. If the stock is lightly traded then the last trade may have been for as few as 100 shares. So what is the price if you want to buy or sell 200,000 shares of that stock? I am sure it is not the last quoted price. They are setting-up a market where slower and bigger trades can take place

Re: New stock market for long-term investors/reducing high-frequency trading

#22

Post by AndyParkinson »

Am I the only one who thinks this is pointless? I don't trade billions of dollars of equities, but I am a long-term investor.

One of my big rules as a long-term investor is that I can't sweat the 1/8ths and 1/4ths (borrowed from Philip Fisher). The time I spend worrying about these high frequency traders getting a few extra cents out of me is time wasted finding great companies that are selling at a discount.

Sure... Its annoying, but if you really are a long-term investor a few tenths of a percent won't kill you.

Re: New stock market for long-term investors/reducing high-frequency trading

#24

Post by tptacek »

klochner wrote: post #20
tptacek wrote: post #15

Earlier quoted context omitted.

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 disparit…

That's slippery slope logic. If the pricing is right at 1s, why pour money and talent into getting it right at 100ms?

What's the win to society to "mitigate" an "incentive"? Is the problem volatility? Other forces create huge volatility. Should we penalize anything that creates volatility? Maybe we should end all program trading?

Meanwhile, you're effectively vouching for a comment that models the markets as a closed system of people dividing up a single pot of money. Isn't it plain that such a model is wrongheaded?

Re: New stock market for long-term investors/reducing high-frequency trading

#25

Post by tptacek »

AndyParkinson wrote: post #22

Am I the only one who thinks this is pointless? I don't trade billions of dollars of equities, but I am a long-term investor. One of my big rules as a long-term investor is that I can't sweat the 1/8ths and 1/4ths (borrowed from Philip Fisher). The time I spend worrying about these high frequency traders getting a few extra cents out of me is time wasted finding great companies that are selling at a discount. Sure...…

Who's to say you're on the wrong side of that 1/8th? HFTs have downside risk too.

Re: New stock market for long-term investors/reducing high-frequency trading

#26

Post by AndyParkinson »

tptacek wrote: post #25
AndyParkinson wrote: post #22

Am I the only one who thinks this is pointless? I don't trade billions of dollars of equities, but I am a long-term investor. One of my big rules as a long-term investor is that I can't sweat the 1/8ths and 1/4ths (borrowed from Philip Fisher). The time I spend worrying about these high frequency traders getting a few extra cents out of me is time wasted finding great companies that are selling at a discount. Sure...…

Who's to say you're on the wrong side of that 1/8th? HFTs have downside risk too.

Well, thats true. And humans are loss-hating creatures, so we tend to worry about that side of things.

I guess what I'm saying is that I don't care either way.

Re: New stock market for long-term investors/reducing high-frequency trading

#27

Post by _delirium »

tptacek wrote: post #9
klochner wrote: post #2

I 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…

> I see how HFTs cut out the middlemen who used to profit from volatility

One current big controversy among economists is whether the HFTs themselves have an effect on volatility (there are studies claiming all of "increases", "decreases", and "have little effect", but the evidence for any of those conclusions is weak, and it depends on exactly how you define volatility). A liquidity provider who provided added liquidity on very short time scales, but at the expense of increased volatility at longer time scales, wouldn't necessarily be advantageous for longer-term market participants. That'd be essentially trading one kind of noise for another one--- less millisecond variation, and more occasional giant aberrations, if indeed things like the May '10 "flash crash" were caused by HFTs.

Re: New stock market for long-term investors/reducing high-frequency trading

#28

Post by andrew1 »

tastybites wrote: post #10

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?

Well, here's a situation where it can't happen:

    Exchange A: Price you can BUY  ACME Co. = $34.50       
    Exchange B: Price you can BUY  ACME Co. = $34.45    
    Exchange B: Price you can SELL ACME Co. = $34.40    
    Exchange A: Price you can SELL ACME Co. = $34.35

Re: New stock market for long-term investors/reducing high-frequency trading

#29

Post by Symmetry »

klochner wrote: post #20
tptacek wrote: post #15

Earlier quoted context omitted.

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 disparit…

I'll agree that 100ms to 10ms difference probably isn't a social good, but if a certain amount of money is due to a group of people for their role in providing liquidity and they choose to collectively wast a fraction of it on cutthroat zero-sum competition with each other I'll say thats sort of a shame, but I don't really think its anything I need to worry about.

Re: New stock market for long-term investors/reducing high-frequency trading

#30

Post by tptacek »

_delirium wrote: post #27
tptacek wrote: post #9

Earlier 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…

> I see how HFTs cut out the middlemen who used to profit from volatility One current big controversy among economists is whether the HFTs themselves have an effect on volatility (there are studies claiming all of "increases", "decreases", and "have little effect", but the evidence for any of those conclusions is weak, and it depends on exactly how you define volatility). A liquidity provider who provided added liqui…

Haven't the CFTC, the SEC, and the exchanges all basically absolved high-frequency traders at this point?
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