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High-Speed Firms Now Oversee Almost All Stocks At NYSE Floor (bloomberg.com)
An anonymous reader writes: Barclays, one of the biggest banking and financial services firms in the world, has sold its business on the floor of the New York Stock Exchange to Global Trading Systems. This is significant because it marks a transition between human-based trading and high-speed trading. Now, humans on the NYSE floor have more of a supervisory role, making sure the automated systems don't go haywire. Barclays has been around for hundreds of years; GTS was founded in 2006. "There used to be dozens of specialist firms, as designated market makers were once known, at the NYSE floor. But profits from trading U.S. stocks dwindled, making it difficult to serve as market makers without automation. Although GTS, Virtu, IMC and KCG employ human traders at the floor, their businesses are driven by some of the industry's most sophisticated computer systems."
This is why we need someone like Bernie sanders. Gotta stand up to these horrible practices instead of encouraging, protecting, and bailing them out.
Unfortunately, "market" price does not mean what it sounds like (ie, the value of something _right now_); it includes future speculation. This introduces a positive feedback into the system, with a time constant related to the delay in trading action. So the random non-trivial delay in trading that humans provides is good for preventing huge swings. The faster the trading, the worse the swings will get.
Honestly, they might as well replace all the workers in the trading system with robots. None of this produce real wealth anymore. The original idea of the stock exchange was to allocate capital efficiently from savers to businesses that could use it to create productivity growth. But we haven't had a capital constrained economy for almost two decades now. Banks can create whatever capital they want (or can fool you into believing in) using debt-equity fudges, and current negative real interest rates on cash indicate that the problem is not capital availability but consumer demand.
When you have no capital constraints the stock market 'value' is determined almost entirely by hype. Even worse, private equity funds are so big now that they can ensure the public exchanges never see any of the juiciest profit making companies until they are fully asset stripped and ready to pump and dump.
Well, when the computers completely wipe out the financial system or go hysterical with automated trading it will be further proof that the market is already so far removed from reality as to be dangerous.
This is just another example in a long line of hubris by the idiots who think they run the financial system, but who otherwise don't really know what the fuck it's doing.
I predict within a year at least one trading halt/panic, and a massive government sponsored do-over to undo what this stuff screws up.
High frequency trading is little more than theft by entities who feel entitled to a cut of everything. It's bound to fail, it's only a matter of how long.
Lost at C:>. Found at C.
I'd be fine with this, if they weren't allowed to unwind transactions because of "computer glitches". If they wanna automate trading, they should have to take the good and the bad. But now, if their software does something stupid (like repeatedly buying at 25.01, and selling at 25 even) and you take advantage of it, they sue you and get the trades reversed.
Your ad here. Ask me how!
There are two kinds of investors:
1. People who trade on the ups and downs, hoping to outsmart the market. If you're in this game, the computers will always win. They can do it much faster, and much more accurately, than you can.
2. People who buy stocks because they want to own a piece of a company they believe in. These kinds of investors are in it for the long haul, and if they do their homework, they will beat the computers every time.
Computers, may trade faster, smarter, whatever, the question is do they actually add any real value to the economy, or just skim off the top from the actual people that produce the goods and services. I think it is the latter, like human stock brokers, but much better at it. Do we really need a better parasite?
Okay, but can you provide evidence they were wrong about this?
Of course not. He cannot even provide a theoretical reason why faster transactions would lead to instability. Systems with hysteresis, or lag, tend to have less stability (ask any helicopter pilot). In theory, faster transactions should lead to more stability, and this is true in practice as well.
HFT is good for market stability, good for retail investors (far lower transaction costs), and, by making capital markets more efficient, good for the overall economy. The only losers are the old inefficient and expensive brokerages, which mostly no longer exist. Good riddance.