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View Diary: "79% of investors have no trust in the financial system." (154 comments)

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  •  Precisely. A large fraction of investment 'profit' (15+ / 0-)

    ...nowadays represents the exploitation of miniscule price differentials in lightning fast computerized trading, driven by sophisticated algorithms and facilitated by the unique access giant investment banks have to very high speed data connections required to exploit these tiny differentials.

    Sort of a license to drain money out of the 'real economy' by drilling a hole in its fuel tank and siphoning off all the gains.

    •  This is a tax (17+ / 0-)

      on all investors. People don't seem to realize it, but they are already paying this high-speed computerized trading tax on every transaction they make.

      The banksters oppose transaction taxes on the markets because it would ruin their scam and take the money that they are currently skimming from everyone who buys or sells in the market.

      •  High Speed Trading actually gives better prices (4+ / 0-)
        Recommended by:
        Kickemout, Contra, Sparhawk, FG

        to investors, and investors are better off.

        Part of the cost in trading is the difference between the bid price and the ask price.  Most investors tend to buy at the higher ask price and sell at the lower bid price, so these spreads are a real cost to investors - that are generally much larger than broker fees.  The more narrow the difference between these two prices the better off the investor is.

        A very large part of HST bids away this difference in prices.  That is why we see spreads of just a few pennies in stocks actively traded by HST while the stocks they do not do this are dimes and quarters apart.

        HST has however removed the profit potential for small day traders to make money off the bid/ask spread.

        The most important way to protect the environment is not to have more than one child.

        by nextstep on Wed Jan 16, 2013 at 07:49:59 AM PST

        [ Parent ]

        •  Maybe. At cost of vastly higher volatility and.. (4+ / 0-)
          Recommended by:
          conniptionfit, CFAmick, shaharazade, corvo

          brainless computerized trading 'runs' that threaten to explode the entire system in an instant.

          •  Where is the evidence for higher volatility? (2+ / 0-)
            Recommended by:
            Sparhawk, FG

            If HFT increased volatility, then stocks favored by HST firms should be more volatile than those they don't favor.  I have not seen anything to indicate that they are more volatile - they may even be less volatile.

            The most important way to protect the environment is not to have more than one child.

            by nextstep on Wed Jan 16, 2013 at 08:32:49 AM PST

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            •  I guess you haven't seen all the flash crashes (0+ / 0-)

              that have happened simply because of an unexpected 10 to 100 millisecond delay then.  I would call the Down dropping 600 points simply due to panic over an extra 10-100ms considerably increased volatility, wouldn't you?

              You have watched Faux News, now lose 2d10 SAN.

              by Throw The Bums Out on Wed Jan 16, 2013 at 10:50:22 PM PST

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              •  Origin of the big flash crash in May 2010 still (0+ / 0-)

                being studied, and some exchange fixes have occurred since then.  The delays you reference are not generally accepted as the cause.

                Looking at what happened recently to Knight and BATS, the damage was largely concentrated into these firms.  

                I am ok with the rule change requiring an order to be outstanding for at least 1 sec before cancelation.

                I don't believe that HFT is the first perfect system ever created by people.

                The most important way to protect the environment is not to have more than one child.

                by nextstep on Thu Jan 17, 2013 at 12:30:56 AM PST

                [ Parent ]

        •  The money they make (4+ / 0-)
          Recommended by:
          shaharazade, EthrDemon, Nailbanger, Jim P

          with their high-speed computerized trading algorithms doesn't just magically appear. It comes out of someone's pocket. You say the market makers are giving it away for the increase in volume, but I don't buy that. Oh, I'm sure it does reduce the spread. But the way I understand it, the programs look at the bid/ask numbers and jumps in and out almost instantaneously when the numbers are right, essentially front-running all the other trades and driving the price for others up or down by small fractions. For a guy like me who doesn't really do much, that amounts to very little, but I read Goldman Sachs and others have made billions from HST. And I don't think it is the market-makers who are losing that money.  

          •  The money HST makes, once went to market makers (0+ / 0-)

            both those who officially had that role on the NYSE as well as those who did so on their own.  Simply put, they would hold an inventory of shares and sell at the ask price and buy at the bid.

            HST and other computers have largely taken away these profits from market makers and given the bulk of the money to investors in the form of lower spreads.

            The people who most hate HST are those who previously made money as a market maker.

            As I write this comment, the difference between the bid and ask price on the SPY ($146.97/share) is one penny - a spread of less than one on hundredth of 1%.  Very different than the days when the minimum spread was $.25.

            The most important way to protect the environment is not to have more than one child.

            by nextstep on Wed Jan 16, 2013 at 10:12:31 AM PST

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            •  We're talking two different things. (0+ / 0-)

              There are the high-speed computerized trading systems that have largely replaced the old-time market makers and then there are the sophisticated high-speed trading programs designed to skim money from that system.  

    •  Profits from high speed trading is tiny share of (0+ / 0-)

      all the profits from investing.

      The most important way to protect the environment is not to have more than one child.

      by nextstep on Wed Jan 16, 2013 at 07:35:25 AM PST

      [ Parent ]

    •  HFT should not matter to Joe Sixpack. (1+ / 0-)
      Recommended by:

      If you buy and intend to hold for months or years, HFT has no bearing whatsoever on your trades.  HFT means that computers are screwing day traders - people who hold positions for hours.

      -7.75 -4.67

      "Freedom's just another word for nothing left to lose."

      There are no Christians in foxholes.

      by Odysseus on Wed Jan 16, 2013 at 09:52:33 AM PST

      [ Parent ]

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