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More Warnings About High-Frequency Trading
bfwebster writes "From The Big Picture (a great finance/econ blog) comes a link to this New York Times article on some of the risks and problems of high-frequency trading on financial markets and a couple of 'gadflies' who are pushing hard to get some changes and reforms in how Wall Street handles HFT. Key question: when is fast trading too fast?"
Key question: when is fast trading too fast?
Trading is too fast when it ceases to mean anything. The rate at which these decisions are being made indicates that it is not going through a human mind. The stock market is about people being able to buy and sell securities that allows businesses to raise additional capital. It was originally a very social thing so much so that it could reflect the mood of the populace's strength and development.
Many ordinary Americans have grown wary of the stock market ...
Right you are! It's no longer about humans making decisions. It no longer reflects social aspects of a sector or country or world market. It's more and more about what algorithms your "opponents" are using and what your algorithms are set at. And that's where it ceases to make sense. I'm okay with some guy waking up at 3am and reading every newspaper in the world and beating me at stock trading. I'm not okay when the name of the game today is who can pay tons of money to have their own servers set up across the street from a major exchange with a special dedicated fiber going straight to them as they pay off said exchange. That's starting to become so abstracted from the initial concept of a stock exchange that these big firms have walled everyone else out.
... which they see as the playground of Google-esque algorithms, powerful banks and secretive, fast-money trading firms.
If only they were Google-esque algorithms, they'd at least be innovative. SNAFUs have shown they're far from complex and often so stupid they loose hundreds of millions. But, yeah, who in their right mind would play a game like that?
What the algorithms are buying and selling no longer make any sense, the turn around is so insanely quick on these trades that there is no point at which a normal human can say "Oh, that algorithm thinks that Microsoft stock is going up and will hold it for some amount of time." No, instead what's going on is someone put out a big pre-order for Microsoft stock and so the HFT guys are buying stocks at a lower price than that only to turn over and dump them almost instantly as the order actually comes through netting fractions of a penny.
My work here is dung.
when your average investor is having an unseen tax applied to his transactions
which is what HFT is: an unfair tax by those who can afford the screamiest servers, the closest fibre optic connection, and the scariest code. it renders the idea of a fair marketplace a lie
the solution is easy: queue all trades on a heart beat
once every second, once ever three seconds, once a millisecond... whatever is agreed upon, all trades are queued up and then released on this schedule, and no one or nothing can surpass it
there are many complex unfair problems in life. but this is one with an easy solution. the problem is no finding the willpower to enact the change. as with many problems in american civil and political life, the will to do the right thing is polluted by the plutocrat's money
intellectual property law is philosophically incoherent. it is your moral duty to ignore it or sabotage it
The speed of trading is irrelevant to the serious investor. Speculators will always make trades as quickly as possible to make a quick buck regardless of the fundamentals; investors will buy and hold based on the fundamentals, buying and selling after months, not fractions of a second. Prices will always revert to a more "intrinsic" value, regardless of any skewing by speculators.
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Key question: when is fast trading too fast?
When it ceases to be trading and becomes gambling instead.
Basically, if you are looking at numbers and not meaning, you aren't trading anymore. Here's a suggestion for a totally impractical test: If you call up the trader in question and ask him what the company behind the shares does (i.e. which business it is in) and he has no clue, then he's not a trader, he's a gambler.
Assorted stuff I do sometimes: Lemuria.org
The function of the stock market is not to make you able to buy and sell stocks based on what other people might pay for them. That is an unfortunate side effect.
Some people like you have long since abandoned stocks as a way to distribute risk and capital investment among more than one investor. Instead you view it as a game where its all about tricking some poor sod out of their money. Where the fuck do this contribute in any way to anything? Personally i would be all over a stock market that was regulated back to what it was first meant to be, somewhere i could invest in good ideas and ventures based on how much they would pay off in dividends, not inflated stock prices.
HTTP/1.1 400
pause. think. then post
intellectual property law is philosophically incoherent. it is your moral duty to ignore it or sabotage it
Nonsense. No one is against technology here. What is being decried is the unregulated use of technology to enable profit-taking by an elite class of investors who contribute nothing through their market manipulation, and instead have caused multiple "flash crashes" through their incompetence.
Just because we have the technology to do something, doesn't mean we should just do it, or allow it because it is possible. That our laws haven't caught up to this sort of thing doesn't mean it's perfectly fine.
Check out my world simulator thingy.
I've never understood why they needed a response time faster than a day. Seriously, set it up so you can only trade shares once a day. It wouldn't change a thing for normal investors but it would obliterate this algorithmic crap.