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What Business is Wall Street In?

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Re: What Business is Wall Street In?

#21

Post by harryh »

mej10 wrote: post #10
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…

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.

Re: What Business is Wall Street In?

#22

Post by harryh »

uptown wrote: post #11
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…

"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").

Re: What Business is Wall Street In?

#23

Post by [deleted] »

larrys wrote: post #14
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…

First let me say that I agree with most of Cuban's thoughts in general. But by "invest" he is not talking about the friction out there (paraphrase as "having to spend $400 and talk to a human") to purchase a stock but rather the price of the stock in relation to the value being manipulated by, as one example, high frequency trading and macro economic conditions. Let's say someone decides to invest in Bingo Card Creat…

[deleted]

Re: What Business is Wall Street In?

#24

Post by bearmf »

mayukh wrote: post #6

There's a difference between retail trader and retail investor. If Joe Schmo is a trader, looking to earn profits in the short term (days, weeks, < 6 months), the odds are heavily stacked again him, with HFT (i am kinda in agreement with Cuban there). If Joe was an investor, seeking out good companies and buying stocks with the intent to hold on to them for the long term (1 yr+) then HFT should have lesser impact. Of…

HFT happens on millisecond scale. That is what they mean by "short term" now.

If you are going to hold a stock for weeks it will probably not affect you at all. Even if your holding period is several hours you are not really competing with HFT.

Re: What Business is Wall Street In?

#25

Post by JumpCrisscross »

mayukh wrote: post #6

There's a difference between retail trader and retail investor. If Joe Schmo is a trader, looking to earn profits in the short term (days, weeks, < 6 months), the odds are heavily stacked again him, with HFT (i am kinda in agreement with Cuban there). If Joe was an investor, seeking out good companies and buying stocks with the intent to hold on to them for the long term (1 yr+) then HFT should have lesser impact. Of…

Individual investors outperform the market over a 20 day holding period and that "these patterns are consistent with the idea that risk-averse individuals provide liquidity to meet institutional demand for immediacy." The expected return for an individual investor deteriorates as time horizons get shorter and longer than 20 days, with professional traders dominating individuals at the shorter end and professional investors at the longer.

http://archive.nyu.edu/bitstream/2451/26930/3/CFE-04-04.pdf....

Re: What Business is Wall Street In?

#27

Post by adambyrtek »

dawernik wrote: post #16
adambyrtek wrote: post #12

Earlier quoted context omitted.

Individuals are also affected by decisions made by professional traders (e.g. mutual or retirement funds). Maybe crashing the market is not the objective, but it could be an unintended consequence, and the only real motivation is short-term profit, not "maintaining order" in fear of some hypothetical future regulation.

When did the length of the period of speculation become the moral compass for whether someone should be allowed to put their capital at risk. I still think that everyone is missing a key point. There is huge value in programatic trading. The frequency of a crash with impact to retail investors (not traders willingly risking money speculatively) relative to the volume of spread tightening trading approaches zero.

It was not my intention to claim whether high-frequency trading is "good" or "bad". To be honest I don't think I have enough information to judge that. I just replied to your specific arguments which I considered wrong.

That said, I agree that rejecting algorithmic trading just because it's new, different, and scary doesn't seem like the best approach. Computers have disrupted most industries, and the financial industry is just one of them.

Re: What Business is Wall Street In?

#28

Post by SeanLuke »

javert wrote: post #19

Mark Cuban, go create your own exchange where you set the rules, or STFU. That's why we live in a free society. There is no valid reason or excuse for putting a gun to someone's head and telling them, "stop trading or else," which is what you keep insisting on.

You're saying that the stock market has no effects on society?

Re: What Business is Wall Street In?

#29

Post by jackgavigan »

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.

There are still human market makers on the NYSE and some argue that their presence in that market makes it more stable.

Re: What Business is Wall Street In?

#30

Post by larrys »

djoldman wrote: post #20
larrys wrote: post #14

Earlier quoted context omitted.

First let me say that I agree with most of Cuban's thoughts in general. But by "invest" he is not talking about the friction out there (paraphrase as "having to spend $400 and talk to a human") to purchase a stock but rather the price of the stock in relation to the value being manipulated by, as one example, high frequency trading and macro economic conditions. Let's say someone decides to invest in Bingo Card Creat…

>"but rather the price of the stock in relation to the value being manipulated by, as one example, high frequency trading and macro economic conditions." Please explain or expand on how the above occurs.

HFT works to quickly create momentum in pricing (Note: there are alternative theories that this is not the case to be sure) which changes a large quantity of stock prices for the day. And when the market is having a down day other stocks that have nothing to do with the stocks being traded are changed as well. So if the market is down someone's investment in Patrick's BCC will have a large chance of dropping as well.

As far as macro economic conditions same thing. A report comes out that Fedex has shipped less packages or ADP reports that there are less people using their payroll service (bellwethers). So stocks start to drop and the market goes down because people anticipate it will effect earnings of all companies. Even though it has nothing to do with what is going on specifically with BCC or with a company whose business it is is to create the washers that are used in pumps in sewer systems.

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