Speculators don't define prices. They may have an effect on the price, but that's information that informs the price. E.g. some speculators think the price will rise, some think it will fall. The first group buy the second group sell. So it's the balance that moves the price - and in that is the wisdom of the crowd. This is how markets incorporate all kinds of information into pricing.
It's a good thing. It improves efficiency.
Why do you think people by the future rather than the underlying?
If the speculators are pulling money out of the market, why would someone pay the extra to buy the future?
They do so because there is value there, and they're willing to pay for it.
You realize that dividends push the stock price around by exactly the amount of the dividend, right?
There is hardly a difference between stocks with and without dividends.
So long as the contracts are similar their prices will be highly correlated. At that point there really isn't any difference between that and a commodity.
Commodities are directly fungible, and these will, for many purposes, likely be almost interchangeable.
For other purposes, not so much, but I'd wager that most uses don't have exotic requirements.
That's exactly what we do have. You can own a portion of a publicly traded company. And you can earn dividends and growth with that.
You want to take away people's ability to trade out if that position. That makes the whole thing more risky, and hence both more expensive and more inefficient.
You want to get rid of the secondary market, but you haven't established that there is any benefit from so doing. I contend that there is only serious downside and no benefit whatsoever.
The same applies to futures.
You just have to write contracts that buyers and sellers find valuable.
Contracts that offer similar levels of service will be similarly priced.
There will likely be more variety than in most commodities, but that's not a preclusion.
You're getting lost in details and forgetting basic laws of conservation. Where does all the money that HFTs make come from? It comes from investors. Yes, market makers are basically the same as HFTs, but operating at a slower rate. Because they operate at a slower rate, it's possible to avoid using them and trade directly with other investors, thereby eliminating the middle man. This is not feasible with HFT.
I'm not lost in details. I understand it very well. The only reason you don't want to examine the details is because they contradict your position.
The money HFT firms make does not all come solely, or even mostly, from investors. There are many kinds of traders. HFT makes money from active markets... someone who buys and holds (investors) will have contributed less than 1c per share in total to all HFT firms. Clearly that's not where HFT makes its money.
In the *details* that you're trying to avoid is the fact that investors have a choice. They can avoid the market maker - either by joining the bid or ask, or by only buying original issues - then they are really benefiting the issuing company! There is a reason people go to market makers - they have the best prices and provide the best execution. Unsurprisingly since they are the expertise.
Yes, market makers are basically the same as HFTs, but operating at a slower rate. Because they operate at a slower rate, it's possible to avoid using them and trade directly with other investors, thereby eliminating the middle man. This is not feasible with HFT.
This is just plain wrong. Anyone *can* avoid trading with HFT. Join the bid or ask. Actually, going thru a broker means you won't even need to hit an exchange: brokers often match internally.
I agree that there can be a very large number of actual influences on the actual value of a stock However, even if there are 10,000 influences with a mean time between significant changes of 1 week (10,000 minutes), a minimum holding time of 1 min would still be reasonable and not affect actual investors. And the preceding is likely an overly conservative estimate for most stocks.
Your are underestimating by orders of magnitude. What constitutes a *significant* change? If that change causes my holding to change, you better bet I'm going to adjust my positions. A significant change is any change in value. You've also shown just how arbitrary your 24 hours was. Now you're content with 1 min. You learned something and changed your opinion. I applaud that - most here on Slashdot don't.
Back to the example of milk... the price changes throughout each day: as demand goes up prices go down and vice versa. Also, we're talking milk futures. This means that things like weather affect the price, because it affects the price of future feed, which affects the dairy farmer and the supply. The price of antibiotics. All these things will be rolled into the price of Kraft Foods. Some things more than others, obviously, but this was a question of how frequently an underlying value can change. It's party the complexity of these relations that makes HFT useful and profitable. In a perfectly efficient market HFT couldn't exist. An inefficient market is bad overall, by definition (it can be good for a few).
The stock price absolutely affects the amount actually invested in a company because companies are continually acquiring more investment capital, and the market cap determines the price of such investments. You are technically right that the purpose of the stock market is to connect buyers and sellers, but I was referring more to the purpose of stock in the first place, without which there would be no stock market.
After IPO any reissue is at the current price. If the company wants to raise $1MM and the price is at $10, they'll issue 100,000 shares.
You're saying that HFT is bad because it doesn't help the company the shares are in. But that's true of *ALL* exchange trading, not
HFT actually takes volatility out of the markets... most such strategies make money from volatility.
Most HFT makes money by simply being a middle man. Day trading and the remainder of HFT increases volatility by producing positive feedback loops between the prices of various market valuations. They then profit from the increased volatility by getting between the actual investors.
You don't actually know how HFT makes money - that's part of the reason you assume it's bad.
Middle men can be useful. In this case market making is the closes HFT strategy to "middle man". Market making has been around a lot longer than HFT (perhaps going back to 1871 and the NYSE specialist). So here you're not even arguing against HFT.
Unfortunately (for your argument) I can easily demonstrate that market making is good and that HFT has made it better:
1. People don't have to pay the spread (unlike taxes). If buying you can join the bid, or if selling you can join the sell. So IF they trade with the market maker it's because they *choose* to and must see benefit.
2. People trade with market makers because they get the best execution. Fastest and within 1c of the best price (for liquid stocks). Joining the bid or ask doesn't guarantee you a match. This can be risky, since the price can move before you get execution - and it's not always in your favor. Indeed, if your buying it's because you think the price will rise - if you don't get execution quickly, and the price does rise, you've lost some of your earnings.
3. Market makers have the best prices. This is guaranteed because exchanges can only match at the best price. If they weren't at the best bid or ask they wouldn't get trades. No trades means no profit. Note this is best prices *across all exchanges*. See NBBO
4. Before HFT, market makers kept the spreads at 10c or 25c. HFT has (thru simple competition - the specialists had almost no competition) significantly improved this - by 10 to 25 times! Your broker charges more!
Stock prices are affected by many many things, and these things are indeed changing multiple times per second. Interest rates, currencies futures options... even things like changes in liquidity and volatility have an affect on prices. Other stocks... commodities.
All of the examples you just named as "changing multiple times per second" do so because of the existence of day trading and HFT. Really, it's just the markets valuation of these things that change this rapidly.
Nonsense. My example about currencies changing is one clear example of how 1 stock can be affected externally. But there are literally thousands of things in hundreds of markets that affect individual stocks. Just because you could control how quickly a price could be affected (thru regulations like the one you suggested) doesn't mean that the *value* is unaffected. If you *do* implement such regulations, you necessarily make the markets less efficient. Less efficient means globally worse. You can't prevent the value of something from changing. And the markets tend to work around regulations that harm efficiency - either deliberately or not.
It's easy to see some of these... e.g. the price of Kraft Foods is affected by the supply of milk and pork belly futures. Since those things directly affect the profitability of the company. Other things are harder to trace out... there may be many steps involved. Practically speaking, everything of value can affect the price of other things of value.
Supply of milk - a real example. Futures are again the market's valuation of something, but supply of milk is actually something real. So, how often is data released on the supply of milk? How much do the estimates change in a day? What about in a week, or a month? Sure, in any given day there could be a significant change in estimates, but how often do such large ch
You completely missed the main points: 1. Bob shouldn't be penalized if Andy isn't. 2. Due to the increased risk, the cost to investing is higher. This *harms* the issuing company you are supposedly trying to help.
You say there is a positive effect to a holding time - that it eliminates short term holding. But that's predicated on your *assumption* that eliminating short term trading is a positive effect. You also say that some traders are a tax on "actual" investors. This isn't even clearly defined. What's the difference between "actual investors" and "short term traders"? You already agreed that the 24 hour term you suggested for holding times is arbitrary.
This "tax" you talk about is one market participant earning money that another wouldn't. Why do you care? I suggest it's only because it's not you.
The real effect here is that added risk increases the cost of trading, and therefore the cost of investing, and this slows growth. Slowed growth is bad for everyone.
An example might help: WidgetCo has a great product which has been selling well. Projections are good. Growth expected. Investor Andy buys 10000 shares, now he has to hold them for at least 24hrs. Investor Bob bought WidgetCo 3 days ago. Suddenly, there is bad news out of Europe, and the Euro takes a bug hit. Since the currencies now favor the Euro, a competitor of WidgetCo, LeWidget out of France can undercut widget prices. Neither company has had any product or company changes, but now WidgetCo has less value and LeWidget has more. What happens next? Bob sells on the announcement, making a profit. The price is falling, but Andy isn't allowed to sell. What's the important difference between Andy and Bob that means Andy should be penalized and Bob shouldn't? There is none. This is pure inefficiency and has no positive effect. This is just one example to highlight a general point. External changes greatly affect stock valuations. Locking in investors only makes the investment more risky and necessarily more costly. This impacts the amount a company can raise during an IPO, and therefore has the reverse effect than you ostensibly intended - the protection of the issuing company.
HFT actually takes volatility out of the markets... most such strategies make money from volatility. Stock prices are affected by many many things, and these things are indeed changing multiple times per second. Interest rates, currencies futures options... even things like changes in liquidity and volatility have an affect on prices. Other stocks... commodities. It's easy to see some of these... e.g. the price of Kraft Foods is affected by the supply of milk and pork belly futures. Since those things directly affect the profitability of the company. Other things are harder to trace out... there may be many steps involved. Practically speaking, everything of value can affect the price of other things of value. So yeah, the value of things change all the time. As for your underlying premise, that stocks are somehow "meant" to be held on to, it's totally false. You already admitted that the term was arbitrary. Further, there is no benefit. Forcing a third party to hold on to a falling stock is pointless: 1 selling doesn't affect the company 2 to sell there must be a willing buyer. Worse, it slows the market, and increases risk. Increased risk increases the cost of buying and selling and investing. Such artificial inefficiencies harm the market overall. Your trying to solve a problem that doesn't exist with a rule that would be only harmful.
It does. You implied (I said asserted, and I stand by that) that we disrupt the communication channels of other market participants. This is a lie that you made up. You have no evidence whatsoever for it, yet you keep asserting it. How does what I said defend using scripts to disrupt financial markets? I've said no such thing. I challenge you to quote me on this. In fact, I claim that what we do lowers volatility, increases liquidity, reduces spreads and aids price discovery... All these things are good for the markets. HFT does not drive up prices. It's neutral to prices. HFT works best when there is high volatility, and it essentially feeds off the volatility, thereby reducing it and extracting a profit. Market makers and arbitrageurs are not parasites. Both of these things are a natural result of free markets. HFT makes these things more efficient. That's all there is to it. Where is your evidence? I called you an idiot, not for honest questions, but for ridiculous false accusations.
I'm not going to claim this guy is clinically homophobic, but the term, for good or bad, has entered common usage in a watered down form. Why does a ceo or chairman (or whatever) think it's okay to make public statements as a representative of his company relating to how his comers should acceptably fuck?
Choosing to single someone out based on their color, creed, or choice of who to fuck is morally wrong, and it's also illegal for a reason. People can't be free if people are allowed to infringe on the freedom of others. And that extends to who you employ.
Being bigoted isn't worthy of much protection, except in ones speech. The guy can say what he likes, its protected, and that's his choice. If he pisses people off, it's their choice not to buy his products. This is all how it should be.
I explained all this Ask Pete. And Paul, for that matter, since it's their choice. If either avoids the market maker one will very likely pay more or receive less. It will also take longer.
How is it taking advantage? Pete wants to by MSFT. He can pay the market maker (likely, but not necessarily - any trader could have an order at the best price) $33.28. Or he can stick to his price of $33.27 and wait... but he might not get matched immediately. Indeed he might not get matched at all. The price could shoot up... HE chooses whether to pay the market maker. He does so because the market maker guarantees a level of service - you'll not get a price further that 1c from the actual value, and you'll get immediate execution - your price is locked in. This is the best possible deal anyone can offer (since there is always at least a 1c spread in equities)! Again - since it's Pete's choice, how is that taking advantage?
It's easy to prove that market makers offer the best prices.
If market makers didn't offer the best prices, THEY WOULDN'T GET MATCHED. By matching rules and by law (see NBBO) exchanges are only allowed to match at the best price. No matches means no trades means no profit - the market maker couldn't exist. QED
For another angle, just look at the spreads, noting that they keep buys and sells on the book almost all the time.
Take Microsoft. Suppose the best bid is at $33.27 and the best offer is at $33.28. If someone buys and sells at these prices they only lose 1c per share. That's the least possible.
Note that if you don't want to pay the spread to the market maker (most people don't care about that 1c...) YOU DON'T HAVE TO. You can simply join the bid... e.g. submit a limit order to buy @ $33.27 in the preceding example.
If you make a mistake, and submit your limit order to buy at $34.50, you'll get price improved and match the best offer of $33.28. (I don't complain about getting shafted when this happens...)
Lastly, realize that before HFT the spreads were much wider - as much at 25 times. Market makers (the "specialist") in the past had colluded to keep the spreads wide so they could make more profit. Competition with HFT has ended the reign of the specialist. Do we get any thanks??
On the subject of risk and profit that would go to the investor, HFT is profiting from tiny fluctuations that occur in subsecond durations. No investor can hope to profit from such. Suppose you want to buy a bunch of Microsoft. The price is going to bounce around... 33.27/33.28, 33.26/33.39, 33.27/33.28, 33.28/33.39... and so on. The investor has no guarantee of getting any particular price. They can submit a limit order, say buy for no more than 33.28, but by the time the order gets into the marketplace the price may have increased, resulting in no match. Instead, most investors will submit a market order and accept that they will be paying part of the spread, but they're (almost) guaranteed immediate execution.
For the market maker it's the opposite. If they're very good they make a mean of 0.5c per trade for long periods. BUT, when there is a big event that moves the price dramatically they risk being swept. E.g. Suppose MSFT jumps to 33.35. Some other HFT trader will submit a sweep order to buy a large volume at, say, 33.34. The exchange will match all the market makers quotes (all the volume) at all the prices from 33.28 thru 33.34. The market maker sold large volume at prices between 33.28 and 33.34, but now the best bid is at 33.35. The market maker has lost big time... and this happens all the time. To mitigate this, the market maker tries to move his mispriced quotes to the new offer of 33.36 and above. But this takes time, and the quotes are at the exchange like sitting ducks. Market making is very difficult to make profitable. They make small consistent gains, interrupted by big losses. Hopefully in aggregate they profit. Otherwise they go out of business.
Now take the same example, but with no market makers. Without market makers, there isn't any reason for the spreads to be so narrow... narrow spreads (as I've just explained) are very risky. So you can safely assume a bigger spread - call it 10c for simplicity. Say then that MSFT is at 33.22/33.32. The investor is now paying 10 times as much (on average). Who ever is at top of book is still in a risky position, but they mitigate it by keeping the spreads wide - now if the value of MSFT jumps up to 33.355 (between 33.35 and 33.36), only a couple of price levels are at risk of being swept, so there is less risk.
Here's an example of why arguing with you is futile.
You said: "Prove me wrong then. Describe how preventing the buyer and seller from communicating with each other and getting in first to screw both over is not an exploit - and don't give me that shit about doing such a thing not being a form of manipulating prices - that is a very blatant lie and you know it."
"Buyer" and "Seller" communicate with the exchange. There isn't any way an HFT firm can get in the middle. If Buyer and Seller have the same price and that happens to be the best price, the exchange will match those orders. There isn't anything any third party can do to prevent this. Your underlying assumption is just plain untrue. How can I prove it? You won't accept my word. You won't research it. You carefully maintain your ignorance.
If buyer or seller submit market orders, for example, then they will be matched with the best bid or the best ask. These are usually market makers, because market makers provide the best prices. By definition, since the exchange will only match at the best price.
If buyer submits an order to buy *higher* than the best ask (i.e. they offer to pay too much), they will be "price improved" and still get the best price (which is the HFTs worst price) - even though their price was less than optimal. Similarly for sells.
You keep claiming that the HFT firm is interfering - preventing the communication, or utilizing exploits or something. That's just a lie. You have no evidence of this (which I know for certain since it's impossible), you don't know how it works, and yet you keep stating the lie.
Sticking with market making for a moment, if buyer or seller doesn't want to pay the market maker, THEY DON'T HAVE TOO. E.g. Suppose Microsoft has best bid/offer of 33.27/33.28 Buyer doesn't want to pay 33.28, he can simply submit a limit order at $33.27 (called joining the bid). He is now at the best bid. He isn't first in line, but after all the earlier orders at $33.27 are matched, he'll be next. Seller sold at $33.27, buyer bought at $33.27 and there isn't anything the HFT firms can do about it.
Most people don't care about the fraction of a penny extra they pay and simply submit market orders. That will guarantee they get to withing 1c of the best price. In fact, you'll pay more to your broker in fees than you'll pay to the market maker.
The real character flaw here is you keep lying about my business without actually knowing anything at all about it. I'll happily debate anyone who is interested in a honest debate. But you bring nothing to the table, except accusations. Perhaps you're just trolling... if so I totally fell for it. If not, then I'm at a complete loss. You just keep repeating the same lie with nothing to back it up, and expect me to come up with proof that I'm benefiting society - which I never claimed, btw. I claimed that market making and arbitrage are good for the markets. Nothing more.
It's clear that you aren't even reading my responses. This is about as clear as I can make it: We connect to exchanges over exchange provided networks using exchange provided protocols or APIs, just like any other exchange trader. We send orders, modifies and cancels, just like any other exchange trader.
There isn't any way for a trading company to get in between a buyer and seller. All three parties are submitting orders to an exchange, and the exchange (equity exchanges anyway, others have some more complex matching) matches on strict price, time priority. The HFT company is never in the middle. The buyers and sellers can communicate with each other, and there isn't any way for an HFT firm to get in the middle. Your whole underlying assumption is just plain wrong, so every conclusion you've based on it is in doubt. HFT is, very simply, the result of traders competing with each other on time. Understanding how liquidity and quicker price discovery requires a knowledge of how markets function, which you clearly don't have. So explaining it would be an exercise in futility. You really want to know (probably not - it was merely rhetoric) you can easily find materials on economics. Why do you think it's ok to make wild untrue claims, when you must be aware that you actually know nothing about the subject at all? If you are truly interested, go learn how trading on an exchange works. Then I'll be more inclined to answer questions about HFT.
Slashdot Mirror
Speculators don't define prices. They may have an effect on the price, but that's information that informs the price. E.g. some speculators think the price will rise, some think it will fall. The first group buy the second group sell. So it's the balance that moves the price - and in that is the wisdom of the crowd. This is how markets incorporate all kinds of information into pricing. It's a good thing. It improves efficiency.
Why do you think people by the future rather than the underlying? If the speculators are pulling money out of the market, why would someone pay the extra to buy the future? They do so because there is value there, and they're willing to pay for it.
You realize that dividends push the stock price around by exactly the amount of the dividend, right? There is hardly a difference between stocks with and without dividends.
So long as the contracts are similar their prices will be highly correlated. At that point there really isn't any difference between that and a commodity. Commodities are directly fungible, and these will, for many purposes, likely be almost interchangeable. For other purposes, not so much, but I'd wager that most uses don't have exotic requirements.
Nope, fundamentals are still hugely important. What makes you think otherwise?
Just because you lack the imagination to see why there is benefit to that doesn't meab there isn't any.
That's exactly what we do have. You can own a portion of a publicly traded company. And you can earn dividends and growth with that. You want to take away people's ability to trade out if that position. That makes the whole thing more risky, and hence both more expensive and more inefficient. You want to get rid of the secondary market, but you haven't established that there is any benefit from so doing. I contend that there is only serious downside and no benefit whatsoever.
The same applies to futures. You just have to write contracts that buyers and sellers find valuable. Contracts that offer similar levels of service will be similarly priced. There will likely be more variety than in most commodities, but that's not a preclusion.
How can you choose which service to buy if you can't compare them?
You're getting lost in details and forgetting basic laws of conservation. Where does all the money that HFTs make come from? It comes from investors. Yes, market makers are basically the same as HFTs, but operating at a slower rate. Because they operate at a slower rate, it's possible to avoid using them and trade directly with other investors, thereby eliminating the middle man. This is not feasible with HFT.
I'm not lost in details. I understand it very well. The only reason you don't want to examine the details is because they contradict your position.
The money HFT firms make does not all come solely, or even mostly, from investors. There are many kinds of traders. HFT makes money from active markets... someone who buys and holds (investors) will have contributed less than 1c per share in total to all HFT firms. Clearly that's not where HFT makes its money.
In the *details* that you're trying to avoid is the fact that investors have a choice. They can avoid the market maker - either by joining the bid or ask, or by only buying original issues - then they are really benefiting the issuing company! There is a reason people go to market makers - they have the best prices and provide the best execution. Unsurprisingly since they are the expertise.
Yes, market makers are basically the same as HFTs, but operating at a slower rate. Because they operate at a slower rate, it's possible to avoid using them and trade directly with other investors, thereby eliminating the middle man. This is not feasible with HFT.
This is just plain wrong. Anyone *can* avoid trading with HFT. Join the bid or ask. Actually, going thru a broker means you won't even need to hit an exchange: brokers often match internally.
I agree that there can be a very large number of actual influences on the actual value of a stock However, even if there are 10,000 influences with a mean time between significant changes of 1 week (10,000 minutes), a minimum holding time of 1 min would still be reasonable and not affect actual investors. And the preceding is likely an overly conservative estimate for most stocks.
Your are underestimating by orders of magnitude. What constitutes a *significant* change? If that change causes my holding to change, you better bet I'm going to adjust my positions. A significant change is any change in value. You've also shown just how arbitrary your 24 hours was. Now you're content with 1 min. You learned something and changed your opinion. I applaud that - most here on Slashdot don't.
Back to the example of milk... the price changes throughout each day: as demand goes up prices go down and vice versa. Also, we're talking milk futures. This means that things like weather affect the price, because it affects the price of future feed, which affects the dairy farmer and the supply. The price of antibiotics. All these things will be rolled into the price of Kraft Foods. Some things more than others, obviously, but this was a question of how frequently an underlying value can change. It's party the complexity of these relations that makes HFT useful and profitable. In a perfectly efficient market HFT couldn't exist. An inefficient market is bad overall, by definition (it can be good for a few).
The stock price absolutely affects the amount actually invested in a company because companies are continually acquiring more investment capital, and the market cap determines the price of such investments. You are technically right that the purpose of the stock market is to connect buyers and sellers, but I was referring more to the purpose of stock in the first place, without which there would be no stock market.
After IPO any reissue is at the current price. If the company wants to raise $1MM and the price is at $10, they'll issue 100,000 shares.
You're saying that HFT is bad because it doesn't help the company the shares are in. But that's true of *ALL* exchange trading, not
HFT actually takes volatility out of the markets... most such strategies make money from volatility.
Most HFT makes money by simply being a middle man. Day trading and the remainder of HFT increases volatility by producing positive feedback loops between the prices of various market valuations. They then profit from the increased volatility by getting between the actual investors.
You don't actually know how HFT makes money - that's part of the reason you assume it's bad.
Middle men can be useful. In this case market making is the closes HFT strategy to "middle man". Market making has been around a lot longer than HFT (perhaps going back to 1871 and the NYSE specialist). So here you're not even arguing against HFT.
Unfortunately (for your argument) I can easily demonstrate that market making is good and that HFT has made it better:
1. People don't have to pay the spread (unlike taxes). If buying you can join the bid, or if selling you can join the sell. So IF they trade with the market maker it's because they *choose* to and must see benefit.
2. People trade with market makers because they get the best execution. Fastest and within 1c of the best price (for liquid stocks). Joining the bid or ask doesn't guarantee you a match. This can be risky, since the price can move before you get execution - and it's not always in your favor. Indeed, if your buying it's because you think the price will rise - if you don't get execution quickly, and the price does rise, you've lost some of your earnings.
3. Market makers have the best prices. This is guaranteed because exchanges can only match at the best price. If they weren't at the best bid or ask they wouldn't get trades. No trades means no profit. Note this is best prices *across all exchanges*. See NBBO
4. Before HFT, market makers kept the spreads at 10c or 25c. HFT has (thru simple competition - the specialists had almost no competition) significantly improved this - by 10 to 25 times! Your broker charges more!
Stock prices are affected by many many things, and these things are indeed changing multiple times per second. Interest rates, currencies futures options. .. even things like changes in liquidity and volatility have an affect on prices. Other stocks... commodities.
All of the examples you just named as "changing multiple times per second" do so because of the existence of day trading and HFT. Really, it's just the markets valuation of these things that change this rapidly.
Nonsense. My example about currencies changing is one clear example of how 1 stock can be affected externally. But there are literally thousands of things in hundreds of markets that affect individual stocks. Just because you could control how quickly a price could be affected (thru regulations like the one you suggested) doesn't mean that the *value* is unaffected. If you *do* implement such regulations, you necessarily make the markets less efficient. Less efficient means globally worse. You can't prevent the value of something from changing. And the markets tend to work around regulations that harm efficiency - either deliberately or not.
It's easy to see some of these... e.g. the price of Kraft Foods is affected by the supply of milk and pork belly futures. Since those things directly affect the profitability of the company. Other things are harder to trace out... there may be many steps involved. Practically speaking, everything of value can affect the price of other things of value.
Supply of milk - a real example. Futures are again the market's valuation of something, but supply of milk is actually something real. So, how often is data released on the supply of milk? How much do the estimates change in a day? What about in a week, or a month? Sure, in any given day there could be a significant change in estimates, but how often do such large ch
You completely missed the main points:
1. Bob shouldn't be penalized if Andy isn't.
2. Due to the increased risk, the cost to investing is higher. This *harms* the issuing company you are supposedly trying to help.
You say there is a positive effect to a holding time - that it eliminates short term holding. But that's predicated on your *assumption* that eliminating short term trading is a positive effect. You also say that some traders are a tax on "actual" investors. This isn't even clearly defined. What's the difference between "actual investors" and "short term traders"? You already agreed that the 24 hour term you suggested for holding times is arbitrary.
This "tax" you talk about is one market participant earning money that another wouldn't. Why do you care? I suggest it's only because it's not you.
The real effect here is that added risk increases the cost of trading, and therefore the cost of investing, and this slows growth. Slowed growth is bad for everyone.
An example might help:
WidgetCo has a great product which has been selling well. Projections are good. Growth expected. Investor Andy buys 10000 shares, now he has to hold them for at least 24hrs.
Investor Bob bought WidgetCo 3 days ago.
Suddenly, there is bad news out of Europe, and the Euro takes a bug hit.
Since the currencies now favor the Euro, a competitor of WidgetCo, LeWidget out of France can undercut widget prices. Neither company has had any product or company changes, but now WidgetCo has less value and LeWidget has more.
What happens next?
Bob sells on the announcement, making a profit.
The price is falling, but Andy isn't allowed to sell.
What's the important difference between Andy and Bob that means Andy should be penalized and Bob shouldn't?
There is none. This is pure inefficiency and has no positive effect.
This is just one example to highlight a general point. External changes greatly affect stock valuations. Locking in investors only makes the investment more risky and necessarily more costly. This impacts the amount a company can raise during an IPO, and therefore has the reverse effect than you ostensibly intended - the protection of the issuing company.
HFT actually takes volatility out of the markets... most such strategies make money from volatility. .. even things like changes in liquidity and volatility have an affect on prices. Other stocks... commodities. It's easy to see some of these... e.g. the price of Kraft Foods is affected by the supply of milk and pork belly futures. Since those things directly affect the profitability of the company. Other things are harder to trace out... there may be many steps involved. Practically speaking, everything of value can affect the price of other things of value.
Stock prices are affected by many many things, and these things are indeed changing multiple times per second. Interest rates, currencies futures options.
So yeah, the value of things change all the time.
As for your underlying premise, that stocks are somehow "meant" to be held on to, it's totally false. You already admitted that the term was arbitrary. Further, there is no benefit. Forcing a third party to hold on to a falling stock is pointless: 1 selling doesn't affect the company 2 to sell there must be a willing buyer. Worse, it slows the market, and increases risk. Increased risk increases the cost of buying and selling and investing.
Such artificial inefficiencies harm the market overall.
Your trying to solve a problem that doesn't exist with a rule that would be only harmful.
It does. You implied (I said asserted, and I stand by that) that we disrupt the communication channels of other market participants. This is a lie that you made up. You have no evidence whatsoever for it, yet you keep asserting it.
How does what I said defend using scripts to disrupt financial markets? I've said no such thing. I challenge you to quote me on this. In fact, I claim that what we do lowers volatility, increases liquidity, reduces spreads and aids price discovery... All these things are good for the markets.
HFT does not drive up prices. It's neutral to prices. HFT works best when there is high volatility, and it essentially feeds off the volatility, thereby reducing it and extracting a profit.
Market makers and arbitrageurs are not parasites. Both of these things are a natural result of free markets. HFT makes these things more efficient. That's all there is to it.
Where is your evidence? I called you an idiot, not for honest questions, but for ridiculous false accusations.
There you go again, asserting lies with no evidence. Is this what gets you off?
I'm not going to claim this guy is clinically homophobic, but the term, for good or bad, has entered common usage in a watered down form.
Why does a ceo or chairman (or whatever) think it's okay to make public statements as a representative of his company relating to how his comers should acceptably fuck?
Choosing to single someone out based on their color, creed, or choice of who to fuck is morally wrong, and it's also illegal for a reason. People can't be free if people are allowed to infringe on the freedom of others. And that extends to who you employ.
Being bigoted isn't worthy of much protection, except in ones speech. The guy can say what he likes, its protected, and that's his choice. If he pisses people off, it's their choice not to buy his products. This is all how it should be.
I explained all this
Ask Pete. And Paul, for that matter, since it's their choice.
If either avoids the market maker one will very likely pay more or receive less. It will also take longer.
How is it taking advantage?
Pete wants to by MSFT. He can pay the market maker (likely, but not necessarily - any trader could have an order at the best price) $33.28. Or he can stick to his price of $33.27 and wait... but he might not get matched immediately. Indeed he might not get matched at all. The price could shoot up...
HE chooses whether to pay the market maker. He does so because the market maker guarantees a level of service - you'll not get a price further that 1c from the actual value, and you'll get immediate execution - your price is locked in. This is the best possible deal anyone can offer (since there is always at least a 1c spread in equities)!
Again - since it's Pete's choice, how is that taking advantage?
It's easy to prove that market makers offer the best prices.
If market makers didn't offer the best prices, THEY WOULDN'T GET MATCHED. By matching rules and by law (see NBBO) exchanges are only allowed to match at the best price. No matches means no trades means no profit - the market maker couldn't exist. QED
For another angle, just look at the spreads, noting that they keep buys and sells on the book almost all the time.
Take Microsoft. Suppose the best bid is at $33.27 and the best offer is at $33.28. If someone buys and sells at these prices they only lose 1c per share. That's the least possible.
Note that if you don't want to pay the spread to the market maker (most people don't care about that 1c...) YOU DON'T HAVE TO. You can simply join the bid... e.g. submit a limit order to buy @ $33.27 in the preceding example.
If you make a mistake, and submit your limit order to buy at $34.50, you'll get price improved and match the best offer of $33.28. (I don't complain about getting shafted when this happens...)
Lastly, realize that before HFT the spreads were much wider - as much at 25 times. Market makers (the "specialist") in the past had colluded to keep the spreads wide so they could make more profit. Competition with HFT has ended the reign of the specialist. Do we get any thanks??
On the subject of risk and profit that would go to the investor, HFT is profiting from tiny fluctuations that occur in subsecond durations. No investor can hope to profit from such. Suppose you want to buy a bunch of Microsoft. The price is going to bounce around... 33.27/33.28, 33.26/33.39, 33.27/33.28, 33.28/33.39... and so on. The investor has no guarantee of getting any particular price. They can submit a limit order, say buy for no more than 33.28, but by the time the order gets into the marketplace the price may have increased, resulting in no match. Instead, most investors will submit a market order and accept that they will be paying part of the spread, but they're (almost) guaranteed immediate execution.
For the market maker it's the opposite. If they're very good they make a mean of 0.5c per trade for long periods. BUT, when there is a big event that moves the price dramatically they risk being swept. E.g. Suppose MSFT jumps to 33.35. Some other HFT trader will submit a sweep order to buy a large volume at, say, 33.34. The exchange will match all the market makers quotes (all the volume) at all the prices from 33.28 thru 33.34. The market maker sold large volume at prices between 33.28 and 33.34, but now the best bid is at 33.35. The market maker has lost big time... and this happens all the time. To mitigate this, the market maker tries to move his mispriced quotes to the new offer of 33.36 and above. But this takes time, and the quotes are at the exchange like sitting ducks.
Market making is very difficult to make profitable. They make small consistent gains, interrupted by big losses. Hopefully in aggregate they profit. Otherwise they go out of business.
Now take the same example, but with no market makers. Without market makers, there isn't any reason for the spreads to be so narrow... narrow spreads (as I've just explained) are very risky. So you can safely assume a bigger spread - call it 10c for simplicity. Say then that MSFT is at 33.22/33.32. The investor is now paying 10 times as much (on average). Who ever is at top of book is still in a risky position, but they mitigate it by keeping the spreads wide - now if the value of MSFT jumps up to 33.355 (between 33.35 and 33.36), only a couple of price levels are at risk of being swept, so there is less risk.
Here's an example of why arguing with you is futile.
You said: "Prove me wrong then. Describe how preventing the buyer and seller from communicating with each other and getting in first to screw both over is not an exploit - and don't give me that shit about doing such a thing not being a form of manipulating prices - that is a very blatant lie and you know it."
"Buyer" and "Seller" communicate with the exchange. There isn't any way an HFT firm can get in the middle. If Buyer and Seller have the same price and that happens to be the best price, the exchange will match those orders. There isn't anything any third party can do to prevent this. Your underlying assumption is just plain untrue. How can I prove it? You won't accept my word. You won't research it. You carefully maintain your ignorance.
If buyer or seller submit market orders, for example, then they will be matched with the best bid or the best ask. These are usually market makers, because market makers provide the best prices. By definition, since the exchange will only match at the best price.
If buyer submits an order to buy *higher* than the best ask (i.e. they offer to pay too much), they will be "price improved" and still get the best price (which is the HFTs worst price) - even though their price was less than optimal. Similarly for sells.
You keep claiming that the HFT firm is interfering - preventing the communication, or utilizing exploits or something. That's just a lie. You have no evidence of this (which I know for certain since it's impossible), you don't know how it works, and yet you keep stating the lie.
Sticking with market making for a moment, if buyer or seller doesn't want to pay the market maker, THEY DON'T HAVE TOO.
E.g. Suppose Microsoft has best bid/offer of 33.27/33.28
Buyer doesn't want to pay 33.28, he can simply submit a limit order at $33.27 (called joining the bid). He is now at the best bid. He isn't first in line, but after all the earlier orders at $33.27 are matched, he'll be next. Seller sold at $33.27, buyer bought at $33.27 and there isn't anything the HFT firms can do about it.
Most people don't care about the fraction of a penny extra they pay and simply submit market orders. That will guarantee they get to withing 1c of the best price.
In fact, you'll pay more to your broker in fees than you'll pay to the market maker.
The real character flaw here is you keep lying about my business without actually knowing anything at all about it. I'll happily debate anyone who is interested in a honest debate. But you bring nothing to the table, except accusations. Perhaps you're just trolling... if so I totally fell for it. If not, then I'm at a complete loss. You just keep repeating the same lie with nothing to back it up, and expect me to come up with proof that I'm benefiting society - which I never claimed, btw. I claimed that market making and arbitrage are good for the markets. Nothing more.
I've explained well enough. It's not my fault you can't or won't understand.
It's clear that you aren't even reading my responses.
This is about as clear as I can make it:
We connect to exchanges over exchange provided networks using exchange provided protocols or APIs, just like any other exchange trader. We send orders, modifies and cancels, just like any other exchange trader.
There isn't any way for a trading company to get in between a buyer and seller. All three parties are submitting orders to an exchange, and the exchange (equity exchanges anyway, others have some more complex matching) matches on strict price, time priority.
The HFT company is never in the middle. The buyers and sellers can communicate with each other, and there isn't any way for an HFT firm to get in the middle.
Your whole underlying assumption is just plain wrong, so every conclusion you've based on it is in doubt.
HFT is, very simply, the result of traders competing with each other on time.
Understanding how liquidity and quicker price discovery requires a knowledge of how markets function, which you clearly don't have.
So explaining it would be an exercise in futility. You really want to know (probably not - it was merely rhetoric) you can easily find materials on economics.
Why do you think it's ok to make wild untrue claims, when you must be aware that you actually know nothing about the subject at all?
If you are truly interested, go learn how trading on an exchange works. Then I'll be more inclined to answer questions about HFT.