A good chunk Between 5% to 10% of the increase of the 20% increase can be ascribed to the low treasury rates. Stock prices raise when bond yields fall. A 2% dividend yield looks very attractive against a 0% treasury. (And stocks tend to hold their value better than bonds in inflationary periods – which a lot of people think will be happening.)
None that can afford to spend thousands of euros to produced a high qualify studio album.
Which includes Big business controlled music - and those not, I don't think most pirates differ between independence artists and not.
And none is too strong a word. People who spend money developing new acts (whoever controls them) has fallen off a cliff. I understand those that are left making albums are banking on making their money in Latin America.
The way you structure incentives and how you reward people in society matters.
o.k., digital media is something we pick upon because 1. Something that we come in contact daily and 2. It’s “pure” IP – in the sense that it has a high fixed costs (i.e. cost to make) , low variable costs (i.e. cost to distribute) – unlike some messier things.
South Korea has strict IP laws and has a thriving music industry. Spain has lax IP laws, a thriving pirate music industry – and no new acts recording new albums - neither big nor small. Don’t like entertainment? That’s fine. Society produces what people place value on. If movies don’t have copywrite that means we don’t value them so they won’t be made. (baring other methods to value them.)
However, creative classes and research tend to thrive where IP has better legal protection. IPods are designed in America but built in China It’s an over simplified, I know. And I know that I am blending copy write and parent law under IP. But worldwide it’s suggestive.
Nope, Common Law courts have ruled that you have to refund the money. If you conspire to kill and get cold feet you donâ(TM)t get to keep the money.
The purpose of enforcing illegal contracts is not âoemake people work together.â The purpose is to prevent people from benefiting from illegal activity. To take your case, we would be encouraging a lot of people to enter into âoecontract for killsâ so they could renege on them and keep the money. (Think of a business plan that you only kill 1 out of every 3. Kind of encourages people to sign up on the off chance that you would do it.)
You want to structure the law so there is no benefit to entering a illegal contract â" and sometime that means enforcing â"certain-- provisions.
But the structure of the market dictates the best way to handle this. In industries like this you tend to get monopolies, cartels, collusion, etc.
One choice is to break the company up. Not an option here.
Another choice is to compete head on. In industries like this it will mean years of pouring subsidizes down the new competitor. This “monopoly” (well, “leading oligopoly” would be more correct) can hang on for years until it breaks even without a state subside. It may well be worth it, but don’t kid yourself that it’s going to be a quick battle.
Another choice is to doge the issue. Figure out better ways to recycle. Toyota is figuring out how to make electric motors that don’t require rare earths.etc.
As a counter point, look back to the 80’s when Japanese companies were dumping DRAM onto the market Intel had a choice. They could keep producing their bread and butter, seek US Government subsides, and engage in a very long and expensive fight over a commodity product. Or, they could abandon their main business – which they did – for CPUs. And we know how the battle ended – Intel prospered, Japan stagnated, and South Koreans won.
Now, I do think it’s good to have a supply other than China. It’s not the high prices but forcing companies to relocate to China if they want a supply. But it’s good to know the nature of the fight and to think of other options.
It’s not a matter of enforcing the contract; it’s a matter of benefiting from it. The courts don’t want people entering into illegal contracts, benefiting from them and then disclaiming their reasonability because it’s illegal. That encourages moral hazard.
I can’t pull up the cite right off the top of my head, but the case I am thinking about involved a husband who was in the middle of a divorce proceeding who won a substation lottery prize (100k I think). He did not want to split the prize with his ex-wife, so he “sold” the winning ticket to his mistress for a cut of the future prize money. The mistress then squelch on the deal and the husband sued.
The court ruled that the contract was illegal because the purpose was to defraud the husband’s wife. However, they still enforced the contract, so the mistress got her cut. They restored the wife’s 50% share. The husband, who instigated this fraud, got no benefit from this illegal contract.
I have heard of similar cases involving hourly McDonnalds workers who win big Monopoly prizes – and can’t claim them because they are employees – and the various tactics used to get around this.
IMNAL, Illegal contracts are still contracts. i.e., if you sign an illegal contract, you can’t benefit by squelching on your end after you have received payment. So she committed fraud twice. Once by helping the scammers and then again be defrauding the scammers.
There have been cases where people who have signed illegal contracts have had to uphold their end of the bargain. (But they don’t get their payment, police seize they assets, etc.)
That being said, I don’t think the Australian police are going to try to extradite some quasi-anonymous fraudsters – but they could.
To clarify, it’s not a monopoly per say. It’s the market structure that makes it hard for anybody to enter.
To start a rare earth mine requires long lead times, large up-front capital spending, and high running costs (As have been mentioned, these mines produce a lot of trailings that need special environmental handling).
Any competitor entering the market would face a opponent that has already spent huge amounts on it’s fixed capital (i.e. sunk costs). What normally happens in these situations is a long, brutal price war as the established company lowers it price because it does not have to recoup it’s sunk costs. So anybody who enters the market could not count on today’s high prices.
If the established company want’s it’s monopoly, it can even “dump” product onto the market for years, starving it’s completion.
Factor in that you are going against a state sponsored Chinese company that has access to cheap capital (effectively reducing the cost of it’s fixed capital) and lower requirements to it’s environmental laws.
There in the part of the market that requires a lot of fixed capital equipment that require long lead times and specialization. Deep sea oil wells, refineries, etc. When there is over capacity in these types of industries profit margins are brutalized. DRAM and Chemicals are 2 good recent examples. Oil has not been plagued with that for the past 10 decade. There are few people willing to risk billions on a project that has a 10 year recover time.
I am not sure which was built last, a new nuclear power plant or a new oil refinery. (Not exactly a fair comparison because some oil refineries have been significantly overhauled, but you see where I am going with this.)
Nope, I am not assuming. By the way, a little swearing, asserting that something does not make sense, etc. is not going to improve this site.
Yes, technology and greatly reduced the explicit costs. I have been on projects that reduced the actual cost of executing a trade - and those costs are easy to track.
But then there are the implicit costs. These are harder to quantify, but are just as real. 30 years ago if you were to try to sell 10,000 shares the market maker would pick up $100s of dollars and the market would move against you, probably costing thousands of extras. Today the market maker would pick up a few dollars and the market would barely budge.
So what has shrunk the bid / ask spread by 90% O.K., maybe it was a lot of IT thrown at the back office of the old middle men like Goldman Sachs. And then the traders of GS left to form their own HF. And other traders left to form private trading exchanges. Etc.
And while I can’t say the drop is due solely because of HF, I can say that they have had some impact.
The CEO of Intel always said he wanted to be the McDonalds of CPUs. That is, efficient produce mass quantity of CPUs. They spent far more on the manufacturing facilities then AMD. Whenever you here Intel people speak almost always focus on their Fab plants, not their chips.
So, you are going against the a company that's 10 times your size and can produce large run of chips cheaper then you. Intel could always discount it's chips more then AMD and still have more money then Intel.
The only way AMD could stay ahead of Intel was to always be faster, smarter, more daring. And for a while they were.
Bearer bonds would 1. have a face value (Maybe $1000) and 2. coupons ($50 per year ).
As the coupon and/or bond came due you could take them in the bank, clip the coupons, and hand them over to the bank. The bank would then hand you cash and send in the fraudulent bond for remediation. By the time the bank figured out that they had been had, the fraudster would be long gone.
The Great Gatsby implies that the fortune is from from fraudulent bearer bonds. (The bonds were of a par value that bearer bonds were never issued in. A fine point if you don't know the history.)
Tragedy, you have things slightly backwards on how bid / ask works.
The short answer is the way it works is that the spread narrows – that way both buyer and seller are better off. Back in the 80’s if was common to see a bid / ask spread of $.25. Now it’s common to see spreads of $.001.
There are not middle men who try to broker deals as you are suggesting. A middle man is not going to make much of a living when anybody anywhere can post prices on a electronic market. No room for mark up. (There are expectations when trying to move large or illiquid positions – but that’s a different story.).
Rather, the market makers are sitting in the middle with a small pile of cash and shares. Rarely do buyers and sellers enter the market at exactly the same time for the same quantity. So they sit in the middle, buying low and selling high, earning their fraction of a penny.
And yes, if Mallory knows and acts on Alcie’s or Bob’s action then it illegal.
But if you are just guessing then it’s not – and sometimes that’s just fine.
A example might be FaceBook. About 3 to 6 (the normal delay after a stock goes IPO to be added to a S&P Index) months after to goes public it may be added to the S&P index.
At that point, ever single S&P fund is going to have to buy gobs of the stock, driving up it’s price. (And because their index funds, they can’t buy it ahead of the announcement and they must buy it after.) (Side note, Since FB is only going to float about 5% of it’s shares it’s going to have major float issues – so it may take a while before it gets to the S&P). So a lot of Hedge Funds are going to stock up on the stock before hoping to cash in..
But limit orders don’t solve the problem. If the bid ask spread is $100 / $100.50, the market maker / middle man is going to pick up $.50. Set a limit order to buy for $95 / $95.50 and the market maker is still going to pick up $.50.
It’s not about value – it’s about efficiency. . If you don’t think the market is where it should be – that’s fine – don’t trade. But when you want to trade don’t give away money.
Believe in long term holdings? I do. So does the market. Most of the stock (over 70% depending on how you count it) is own by long term holders. Has been this way for decades. It’s stable. Don’t let the very fast HF trades confuse you.
Rarely do you find 2 long term holders that are willing to exchange the same stock at the same time. It’s good to have lots of people like this. Just cast your eye beyond the stock market to used cars, magic cards on E-Bay, or your local grain market.
As a side note, limit orders are not stupid. A limit order trades the hope of a better price with the certainty of execution.
Interesting talk, but I think you are kind of missing my point – it’s about the implicit cost – the bid/ask spread.
There are explicit costs. When you buy a stock at your broker (say E-Trade) there will be a commission for that trade (say $10).
Then there are implicit costs. When you trade a stock there is a bid / ask spread. For stock X say $100 / $100.25. In this case the market maker basically picks up $.25 per share basically risk free.
You won’t see that cost on your trade ticket – but you want that spread to be as low as possible. So what’s the best way of doing this?
Well, over the past 30 years we have gone from
a single market maker on NYSE stocks who would pick up $12.5 per stock to
a liberalized system with dozens of market makers who would pick up $.05 per stock to
scores of HF trades who pick up $.001 per stock.
If not HF trading, then what? What would be a better configuration in terms of safety / cost. I don’t think a Tobin Tax or trading tax would work – it’s so easy to move your trades overseas that the entire world would have to agree – something that small markets looking for an edge would go for. I have technical issues with HF trading, but not philosophical ones. HF trading has more – and less – affect on the system then you think. The majority of stocks are still held by long term holders – so little affect there. What is happening is that the velocity of shares held by short term holders is radically increasing.
OK – what point are you trying to make? O.k. So where do you want to go from here?
One choice is to go backwards and have a few oligopolies dominate the role of market makes or we could go with the free market idea that anybody with a million dollars and a computer can become a market maker.
Double Plus: On average, the costs are lower. Both explicit and implicit. Do HF trades make gobs of money by being “vultures?” Yes – but a lot less than under the old system with a few chummy opaque market makers.
Minus: “Flash Crashes” – rare and infrequent things.
So, about 99.9% you are better off with HF. I think this is a call for tweaking the system rather than an overhaul of the system.
Side Note - Volatility is up on average. Stock prices swing up & down faster. Hard to pull away all the causes, but I think the HF people are part of the issue.
But it does matter even for low cost long term investing..
Let say you are investing for the long haul in low fee index funds (Mutual for ETF). Take a look at their cost structure for the past 20 years. The annual expense ratio has dropped from 1% to less than.1%. If you tear apart the public disclosures you will see that about 20% of that drop comes from explicate trading costs.
My gut instinct says that another 30% can be attributed to implicit costs.
Unless you count a 90% reduction in trading costs as “nothing”.
Back in the day Market Makers would take $.125 to $.25 for every share traded. And woe to you if you were trying to sell more than 10k because then you would really be scalped. And then you had to add broker commissions on top of that.
I would rather pay high frequency traders $.01 a share and have a deep liquid market then go back to the good old days
Taking a vaccine has a very small, unknown risk. Beyond the tinfoil hats of autistic conspiracy theorists, and the rare people who have known allergies, a few people who have a reaction to the vaccine. Some merely get very sick, other suffer permanent damage or die.
Herd immunization means that I have a very small chance of hitting one of these diseases, so I might rationally chose to forego vaccination.
Of course, if everybody makes that rational choice then herd immunization goes away. So we have a free rider effect. So we should encourage people to have the shots. That is, if one wants to opt out for a legitimate reason (allergies, religion) one can do so – but it should not be easy or the default option.
High maintenance clients may not be worth the burden. I
used to go into offices and review profitability. People would insist that client X was worth the trouble / time because they brought in so much business. We would break down the numbers, and the costs were always greater than people thought. Clients that tie up hours of your staff time – even if it’s “just the technician” are just pricey. About half the time the client was dropped. (Because, while some clients are huge burdens they still are worth it.)
It would be hard. DdoS is a brute force attack, and the markets are fairly resilient when it comes to stuff like this. In the past 30 years there have only been a handful of incidents where the volume has overwhelmed the trading floors – and that involved either a large number of people or 9/11.
Price data is generated by trading activity. i.e. In order to overwhelm the pricing side one would need to generate a lot of offers (i.e., offer to buy/sell the stock – you don’t have to complete the trade.) And the exchanges are well suited for very heavy loads. So it would be hard to do it from the exchange end.
If would be hard to do it from the publishing end because there are a lot of different data sources. Doing it on this side would be easier.
What one wants to do is to create a discontinuity in the market – like the 2010 Flash Crash. Feed the market fake / odd data – small but subtle.
The article syas that trading is unaffected - it's the public facing internet that is getting harmmered - not the internally facing conections that the robotraders use.
And a lot of robotrades don't use NASDAQ or BATs, but use islands (private exchanges) instead.
Slashdot Mirror
A good chunk Between 5% to 10% of the increase of the 20% increase can be ascribed to the low treasury rates. Stock prices raise when bond yields fall. A 2% dividend yield looks very attractive against a 0% treasury. (And stocks tend to hold their value better than bonds in inflationary periods – which a lot of people think will be happening.)
None that can afford to spend thousands of euros to produced a high qualify studio album.
Which includes Big business controlled music - and those not, I don't think most pirates differ between independence artists and not.
And none is too strong a word. People who spend money developing new acts (whoever controls them) has fallen off a cliff. I understand those that are left making albums are banking on making their money in Latin America.
The way you structure incentives and how you reward people in society matters.
o.k., digital media is something we pick upon because 1. Something that we come in contact daily and 2. It’s “pure” IP – in the sense that it has a high fixed costs (i.e. cost to make) , low variable costs (i.e. cost to distribute) – unlike some messier things.
South Korea has strict IP laws and has a thriving music industry. Spain has lax IP laws, a thriving pirate music industry – and no new acts recording new albums - neither big nor small. Don’t like entertainment? That’s fine. Society produces what people place value on. If movies don’t have copywrite that means we don’t value them so they won’t be made. (baring other methods to value them.)
However, creative classes and research tend to thrive where IP has better legal protection. IPods are designed in America but built in China It’s an over simplified, I know. And I know that I am blending copy write and parent law under IP. But worldwide it’s suggestive.
Nope, Common Law courts have ruled that you have to refund the money. If you conspire to kill and get cold feet you donâ(TM)t get to keep the money.
The purpose of enforcing illegal contracts is not âoemake people work together.â The purpose is to prevent people from benefiting from illegal activity. To take your case, we would be encouraging a lot of people to enter into âoecontract for killsâ so they could renege on them and keep the money. (Think of a business plan that you only kill 1 out of every 3. Kind of encourages people to sign up on the off chance that you would do it.)
You want to structure the law so there is no benefit to entering a illegal contract â" and sometime that means enforcing â"certain-- provisions.
But the structure of the market dictates the best way to handle this. In industries like this you tend to get monopolies, cartels, collusion, etc.
One choice is to break the company up. Not an option here.
Another choice is to compete head on. In industries like this it will mean years of pouring subsidizes down the new competitor. This “monopoly” (well, “leading oligopoly” would be more correct) can hang on for years until it breaks even without a state subside. It may well be worth it, but don’t kid yourself that it’s going to be a quick battle.
Another choice is to doge the issue. Figure out better ways to recycle. Toyota is figuring out how to make electric motors that don’t require rare earths.etc.
As a counter point, look back to the 80’s when Japanese companies were dumping DRAM onto the market Intel had a choice. They could keep producing their bread and butter, seek US Government subsides, and engage in a very long and expensive fight over a commodity product. Or, they could abandon their main business – which they did – for CPUs. And we know how the battle ended – Intel prospered, Japan stagnated, and South Koreans won.
Now, I do think it’s good to have a supply other than China. It’s not the high prices but forcing companies to relocate to China if they want a supply. But it’s good to know the nature of the fight and to think of other options.
It’s not a matter of enforcing the contract; it’s a matter of benefiting from it. The courts don’t want people entering into illegal contracts, benefiting from them and then disclaiming their reasonability because it’s illegal. That encourages moral hazard.
I can’t pull up the cite right off the top of my head, but the case I am thinking about involved a husband who was in the middle of a divorce proceeding who won a substation lottery prize (100k I think). He did not want to split the prize with his ex-wife, so he “sold” the winning ticket to his mistress for a cut of the future prize money. The mistress then squelch on the deal and the husband sued.
The court ruled that the contract was illegal because the purpose was to defraud the husband’s wife. However, they still enforced the contract, so the mistress got her cut. They restored the wife’s 50% share. The husband, who instigated this fraud, got no benefit from this illegal contract.
I have heard of similar cases involving hourly McDonnalds workers who win big Monopoly prizes – and can’t claim them because they are employees – and the various tactics used to get around this.
IMNAL, Illegal contracts are still contracts. i.e., if you sign an illegal contract, you can’t benefit by squelching on your end after you have received payment. So she committed fraud twice. Once by helping the scammers and then again be defrauding the scammers.
There have been cases where people who have signed illegal contracts have had to uphold their end of the bargain. (But they don’t get their payment, police seize they assets, etc.)
That being said, I don’t think the Australian police are going to try to extradite some quasi-anonymous fraudsters – but they could.
To clarify, it’s not a monopoly per say. It’s the market structure that makes it hard for anybody to enter.
To start a rare earth mine requires long lead times, large up-front capital spending, and high running costs (As have been mentioned, these mines produce a lot of trailings that need special environmental handling).
Any competitor entering the market would face a opponent that has already spent huge amounts on it’s fixed capital (i.e. sunk costs). What normally happens in these situations is a long, brutal price war as the established company lowers it price because it does not have to recoup it’s sunk costs. So anybody who enters the market could not count on today’s high prices.
If the established company want’s it’s monopoly, it can even “dump” product onto the market for years, starving it’s completion.
Factor in that you are going against a state sponsored Chinese company that has access to cheap capital (effectively reducing the cost of it’s fixed capital) and lower requirements to it’s environmental laws.
Where are you getting your information from? I like doing research on this type of stuff and I have not heard about this. I would appreciate it!
There are some special considerations.
There in the part of the market that requires a lot of fixed capital equipment that require long lead times and specialization. Deep sea oil wells, refineries, etc. When there is over capacity in these types of industries profit margins are brutalized. DRAM and Chemicals are 2 good recent examples. Oil has not been plagued with that for the past 10 decade. There are few people willing to risk billions on a project that has a 10 year recover time.
I am not sure which was built last, a new nuclear power plant or a new oil refinery. (Not exactly a fair comparison because some oil refineries have been significantly overhauled, but you see where I am going with this.)
Now a commodity product with
High Capital Costs
High Fixed Costs
In a market with over capacity.
This is not going to be a fun line of business for the next 10 years.
Nope, I am not assuming. By the way, a little swearing, asserting that something does not make sense, etc. is not going to improve this site.
Yes, technology and greatly reduced the explicit costs. I have been on projects that reduced the actual cost of executing a trade - and those costs are easy to track.
But then there are the implicit costs. These are harder to quantify, but are just as real. 30 years ago if you were to try to sell 10,000 shares the market maker would pick up $100s of dollars and the market would move against you, probably costing thousands of extras. Today the market maker would pick up a few dollars and the market would barely budge.
So what has shrunk the bid / ask spread by 90%
O.K., maybe it was a lot of IT thrown at the back office of the old middle men like Goldman Sachs.
And then the traders of GS left to form their own HF.
And other traders left to form private trading exchanges.
Etc.
And while I can’t say the drop is due solely because of HF, I can say that they have had some impact.
The CEO of Intel always said he wanted to be the McDonalds of CPUs. That is, efficient produce mass quantity of CPUs. They spent far more on the manufacturing facilities then AMD. Whenever you here Intel people speak almost always focus on their Fab plants, not their chips.
So, you are going against the a company that's 10 times your size and can produce large run of chips cheaper then you. Intel could always discount it's chips more then AMD and still have more money then Intel.
The only way AMD could stay ahead of Intel was to always be faster, smarter, more daring. And for a while they were.
Lucas is right, but there is another twist.
Bearer bonds would 1. have a face value (Maybe $1000) and 2. coupons ($50 per year ).
As the coupon and/or bond came due you could take them in the bank, clip the coupons, and hand them over to the bank. The bank would then hand you cash and send in the fraudulent bond for remediation. By the time the bank figured out that they had been had, the fraudster would be long gone.
The Great Gatsby implies that the fortune is from from fraudulent bearer bonds. (The bonds were of a par value that bearer bonds were never issued in. A fine point if you don't know the history.)
Tragedy, you have things slightly backwards on how bid / ask works.
The short answer is the way it works is that the spread narrows – that way both buyer and seller are better off. Back in the 80’s if was common to see a bid / ask spread of $.25. Now it’s common to see spreads of $.001.
There are not middle men who try to broker deals as you are suggesting. A middle man is not going to make much of a living when anybody anywhere can post prices on a electronic market. No room for mark up. (There are expectations when trying to move large or illiquid positions – but that’s a different story.).
Rather, the market makers are sitting in the middle with a small pile of cash and shares. Rarely do buyers and sellers enter the market at exactly the same time for the same quantity. So they sit in the middle, buying low and selling high, earning their fraction of a penny.
The technical term in finance is Front Running.
And yes, if Mallory knows and acts on Alcie’s or Bob’s action then it illegal.
But if you are just guessing then it’s not – and sometimes that’s just fine.
A example might be FaceBook. About 3 to 6 (the normal delay after a stock goes IPO to be added to a S&P Index) months after to goes public it may be added to the S&P index.
At that point, ever single S&P fund is going to have to buy gobs of the stock, driving up it’s price. (And because their index funds, they can’t buy it ahead of the announcement and they must buy it after.) (Side note, Since FB is only going to float about 5% of it’s shares it’s going to have major float issues – so it may take a while before it gets to the S&P). So a lot of Hedge Funds are going to stock up on the stock before hoping to cash in..
But limit orders don’t solve the problem. If the bid ask spread is $100 / $100.50, the market maker / middle man is going to pick up $.50. Set a limit order to buy for $95 / $95.50 and the market maker is still going to pick up $.50.
It’s not about value – it’s about efficiency. . If you don’t think the market is where it should be – that’s fine – don’t trade. But when you want to trade don’t give away money.
Believe in long term holdings? I do. So does the market. Most of the stock (over 70% depending on how you count it) is own by long term holders. Has been this way for decades. It’s stable. Don’t let the very fast HF trades confuse you.
Rarely do you find 2 long term holders that are willing to exchange the same stock at the same time. It’s good to have lots of people like this. Just cast your eye beyond the stock market to used cars, magic cards on E-Bay, or your local grain market.
As a side note, limit orders are not stupid. A limit order trades the hope of a better price with the certainty of execution.
Interesting talk, but I think you are kind of missing my point – it’s about the implicit cost – the bid/ask spread.
There are explicit costs. When you buy a stock at your broker (say E-Trade) there will be a commission for that trade (say $10).
Then there are implicit costs. When you trade a stock there is a bid / ask spread. For stock X say $100 / $100.25. In this case the market maker basically picks up $.25 per share basically risk free.
You won’t see that cost on your trade ticket – but you want that spread to be as low as possible. So what’s the best way of doing this?
Well, over the past 30 years we have gone from
a single market maker on NYSE stocks who would pick up $12.5 per stock to
a liberalized system with dozens of market makers who would pick up $.05 per stock to
scores of HF trades who pick up $.001 per stock.
If not HF trading, then what? What would be a better configuration in terms of safety / cost. I don’t think a Tobin Tax or trading tax would work – it’s so easy to move your trades overseas that the entire world would have to agree – something that small markets looking for an edge would go for.
I have technical issues with HF trading, but not philosophical ones. HF trading has more – and less – affect on the system then you think. The majority of stocks are still held by long term holders – so little affect there. What is happening is that the velocity of shares held by short term holders is radically increasing.
OK – what point are you trying to make? O.k. So where do you want to go from here?
One choice is to go backwards and have a few oligopolies dominate the role of market makes or we could go with the free market idea that anybody with a million dollars and a computer can become a market maker.
Double Plus: On average, the costs are lower. Both explicit and implicit. Do HF trades make gobs of money by being “vultures?” Yes – but a lot less than under the old system with a few chummy opaque market makers.
Minus: “Flash Crashes” – rare and infrequent things.
So, about 99.9% you are better off with HF. I think this is a call for tweaking the system rather than an overhaul of the system.
Side Note - Volatility is up on average. Stock prices swing up & down faster. Hard to pull away all the causes, but I think the HF people are part of the issue.
But it does matter even for low cost long term investing..
Let say you are investing for the long haul in low fee index funds (Mutual for ETF). Take a look at their cost structure for the past 20 years. The annual expense ratio has dropped from 1% to less than .1%. If you tear apart the public disclosures you will see that about 20% of that drop comes from explicate trading costs.
My gut instinct says that another 30% can be attributed to implicit costs.
Unless you count a 90% reduction in trading costs as “nothing”.
Back in the day Market Makers would take $.125 to $.25 for every share traded. And woe to you if you were trying to sell more than 10k because then you would really be scalped. And then you had to add broker commissions on top of that.
I would rather pay high frequency traders $.01 a share and have a deep liquid market then go back to the good old days
Taking a vaccine has a very small, unknown risk. Beyond the tinfoil hats of autistic conspiracy theorists, and the rare people who have known allergies, a few people who have a reaction to the vaccine. Some merely get very sick, other suffer permanent damage or die.
Herd immunization means that I have a very small chance of hitting one of these diseases, so I might rationally chose to forego vaccination.
Of course, if everybody makes that rational choice then herd immunization goes away. So we have a free rider effect. So we should encourage people to have the shots. That is, if one wants to opt out for a legitimate reason (allergies, religion) one can do so – but it should not be easy or the default option.
High maintenance clients may not be worth the burden. I
used to go into offices and review profitability. People would insist that client X was worth the trouble / time because they brought in so much business. We would break down the numbers, and the costs were always greater than people thought. Clients that tie up hours of your staff time – even if it’s “just the technician” are just pricey. About half the time the client was dropped. (Because, while some clients are huge burdens they still are worth it.)
It does not sound like it is.
It would be hard. DdoS is a brute force attack, and the markets are fairly resilient when it comes to stuff like this. In the past 30 years there have only been a handful of incidents where the volume has overwhelmed the trading floors – and that involved either a large number of people or 9/11.
Price data is generated by trading activity. i.e. In order to overwhelm the pricing side one would need to generate a lot of offers (i.e., offer to buy/sell the stock – you don’t have to complete the trade.) And the exchanges are well suited for very heavy loads. So it would be hard to do it from the exchange end.
If would be hard to do it from the publishing end because there are a lot of different data sources. Doing it on this side would be easier.
What one wants to do is to create a discontinuity in the market – like the 2010 Flash Crash. Feed the market fake / odd data – small but subtle.
http://en.wikipedia.org/wiki/2010_Flash_Crash
If you want to know a big, heavy man down, don’t tackle him – trip him.
You would lose.
The article syas that trading is unaffected - it's the public facing internet that is getting harmmered - not the internally facing conections that the robotraders use.
And a lot of robotrades don't use NASDAQ or BATs, but use islands (private exchanges) instead.