I don't understand how decreasing the time period involved fundamentally changes the nature of the act?

Lots and lots and lots of people trade things with the intent of reselling them for a profit. That's pretty much most business models. Virtually everyone here participates it in that. Do you think your supermarket buys meat with the intention of watching it age? No. They buy it to sell it to someone else.

Trading 'fast' doesn't remove any uncertainty from the market. If you buy X *really* fast; there is no promise that X will be worth more than you paid.

Fark_Guy_Rob: Trading 'fast' doesn't remove any uncertainty from the market. If you buy X *really* fast; there is no promise that X will be worth more than you paid.

Except that the way these groups operate trading fast does remove a lot of the risk that you're going to lose money. These places literally buy 100,000 shares of something that's going up and then selling it seconds later at a .1% profit. It doesn't matter if the ultimate result is down, the only place they'll lose is if they buy at the peak. When you can pull that off a couple thousand times a day you can make big bucks without ever participating in the market in any externally useful way.

Which is really the problem. People like this jerkoff treat the market like a video game and act like power gamers. It's one thing when somebody figures out how to speed run through a really hard dungeon in WoW and farm it, but the consequences are a little more serious when somebody applies that thinking to a marketplace that affects the entire economy.

On a more serious note; can someone explain *who* loses when people are engaged in high speed trading? I'm not being snarky, I really don't understand.

Let's say I buy stock in X because I think X is great. 25 years later I go to sell X. I put an ask up....and someone buys....I certainly don't care who buys it. It's not like regular Joe's ever had a chance at first-run for under-priced stocks, right? So, it's the next slowest buyer who doesn't get to buy the stock. That's the guy who gets hurt....and only if his intent is to immediately sell.

To me, this is just old rich guys who are pissed off at young rich guys because they're using technology *and* their unfair advantage; instead of just the unfair advantage the old guys are used to having.

We don't need a new tax to curb high frequency/computerized trading. Just introduce a randomized delay of between one and sixty seconds on every trade. Problem solved.

Fark_Guy_Rob: On a more serious note; can someone explain *who* loses when people are engaged in high speed trading? I'm not being snarky, I really don't understand.

It really depends on what your view is of the purpose of the market. If you believe the market is a free-for-all where people trade and sell stock solely for the purpose of personal gain, then nobody except anybody who loses or wins because of the influence the buying and selling has on the stock's price.

However, if you believe the purpose of the market is to connect capital to businesses for the purpose of growth and security, it hurts everybody. It's an extreme form of day trading by people who have no intentions of actually investing in any of the companies. It increases volatility without reason, it alters the price of the stock and it makes it that much more difficult to accurately value a company.

It's a philosophical argument. Do you believe the market exists solely as a mechanism to enable vicious financial anarchy or do you believe the market exists for the purpose of connecting capital and business?

Fark_Guy_Rob: On a more serious note; can someone explain *who* loses when people are engaged in high speed trading? I'm not being snarky, I really don't understand.

Let's say I buy stock in X because I think X is great. 25 years later I go to sell X. I put an ask up....and someone buys....I certainly don't care who buys it. It's not like regular Joe's ever had a chance at first-run for under-priced stocks, right? So, it's the next slowest buyer who doesn't get to buy the stock. That's the guy who gets hurt....and only if his intent is to immediately sell.

To me, this is just old rich guys who are pissed off at young rich guys because they're using technology *and* their unfair advantage; instead of just the unfair advantage the old guys are used to having.

Somewhat. The HFTs are picking up fractions of pennies that would have gone to the longer term buyers/sellers of securities. Their business is extremely complex, but my admittedly limited understanding would be that they're the equivalent of the computer program in Superman 3 (referenced in office space) that picks up fractions of a penny and rounds down. It's invisible to the individual other buyers and sellers but in aggregate it can add up to a great deal.

The concern is not that they're scooping up those fractions of a penny - why shouldn't they be able to do that if their risking their capital, but that something can go wrong with their computer systems or trading algorithms and seriously destabilize the market. Kind of a 'known unknown' risk.

Paktu: We don't need a new tax to curb high frequency/computerized trading. Just introduce a randomized delay of between one and sixty seconds on every trade. Problem solved.

That may, in fact, be the worst idea I have ever heard out of anybody in any situation ever. If I execute a trade because I have reason to believe I've come to hold stock that may be about to go down in flames, I'd really rather not be left holding it after there no more buyers and the price is collapsing solely because a computer somewhere put me on a 40 second delay and 3 million other people got out before me.

Cythraul: "Click 'sell,' Mortimer, click 'sell!'"

Splinshints: Paktu: We don't need a new tax to curb high frequency/computerized trading. Just introduce a randomized delay of between one and sixty seconds on every trade. Problem solved.

That may, in fact, be the worst idea I have ever heard out of anybody in any situation ever. If I execute a trade because I have reason to believe I've come to hold stock that may be about to go down in flames, I'd really rather not be left holding it after there no more buyers and the price is collapsing solely because a computer somewhere put me on a 40 second delay and 3 million other people got out before me.

Dude, any stocks that could be affected by a one-minute delay are totally farked anyway.

Not sure I like the randomization idea, I'd prefer a uniform "you must hold stocks for x minutes" setup.

This is a solution in need of a problem. We didn't have a financial crisis because people were trading super liquid stuff super fast. We had a financial crisis because people were buying super illiquid stuff and held on to it for too long.

Anyway, I dont really see what harm high frequency trading does do mom and pop investors. Bid/ask spreads are so much narrower than they used to be. It's cheaper for doofuses like me to trade now than it ever has been.

gtp123: This is a solution in need of a problem. We didn't have a financial crisis because people were trading super liquid stuff super fast. We had a financial crisis because people were buying super illiquid stuff and held on to it for too long.

Anyway, I dont really see what harm high frequency trading does do mom and pop investors. Bid/ask spreads are so much narrower than they used to be. It's cheaper for doofuses like me to trade now than it ever has been.

Also, the guys who I hear complaining about this the most are the day-trader etrade-using hotshots who are mad that their limit orders get adverse selected (they put out a lot of "buy at x, sell at y" orders out there and the only ones that end up getting filled are the ones that end up being losing trades ex-post) They're not investors, they're trying (maybe not explicitly) to get paid to provide liquidity. I'm sorry that Goldman is better at this than you. I don't complain that Toyota can do a better at manufacturing and selling cars than I can do from my basement.

tl;dr: this hurts day traders that etrade tricked into trying to "play the markets," not actual investors.

TAX ALL TRANSACTIONS.

Snarcoleptic_Hoosier: Just add a 2% sales tax on any transaction. Buying 1 share or 100,000,000 shares is 2% tax. That would drastically cut down on high frequency, low margin hypertrading.

I guess I agree in principal, but 2% is extremely high. If you want to target HFTs, you could probably put them out of business with a .01% tax.

Snarcoleptic_Hoosier: Just add a 2% sales tax on any transaction. Buying 1 share or 100,000,000 shares is 2% tax. That would drastically cut down on high frequency, low margin hypertrading.

It would, but what about people with 401ks who are mostly trading things like mutual funds? Every thousands dollars of movement is another $20 in fees they eat in their retirement account.

Rincewind53: Computerized high speed trades should be banned. They go against the underlying concept of a stock market system (access to capital, financial security for companies, loss and profit sharing, etc....) by making it even easier for a big company like Goldman Sachs to literally suck money out of the system to the benefit of no-one but the trader. Basic human limitations used to prevent the greatest excesses of this system, but computer high-speed trading is no different than the program the guys in Office Space wrote, and should be just as illegal.

If it could be proven to you that HFTs increased liquidity and lowered market operational costs would you change your position?

Once again, the SEC is pretending like it's doing something by created laws to pound the little guys while their masters at Goldman pull the strings.

I've started to think that people who treat the stock market as a bunch of numbers going up and down are doing it incorrectly. The numbers represent actual tangible things. They represent ideas, jobs, values, and most importantly people. Back when stocks were new a business owner had to go to people and convince them that their business idea was sound. Good businesses, business ideas, and business practices were generally rewarded. Now though those things don't matter. All that matters is whether or not the number is going up or down. It is dehumanizing.

/this post would be better thought out if I wasn't on the toilet right now

Rincewind53: You're the jerk... jerk: Rincewind53: Computerized high speed trades should be banned. They go against the underlying concept of a stock market system (access to capital, financial security for companies, loss and profit sharing, etc....) by making it even easier for a big company like Goldman Sachs to literally suck money out of the system to the benefit of no-one but the trader. Basic human limitations used to prevent the greatest excesses of this system, but computer high-speed trading is no different than the program the guys in Office Space wrote, and should be just as illegal.

If it could be proven to you that HFTs increased liquidity and lowered market operational costs would you change your position?

Possibly. I'm of the view that there is such a thing as too much liquidity (and that we crossed that boundary a long time ago), so that's not necessarily a good thing. But if HFT lowered overall market operation costs... I mean, I'd find that a bit hard to believe, considering that HFT siphons off of normal profits and can act like an overall tax on normal market transactions. I'd be interested in seeing good data on it though, there may be third party effects and other things that make it better than it seems. I'd just be very skeptical.

I think there is a difference between too much artificial credit and too much liquidity. I don't see how more liquidity can be a problem.

I ask those issues because there are a lot of experts who think that is the result of the process. Citations provided: http://en.wikipedia.org/wiki/High-frequency_trading#Effects

I don't really have an issue as they only have an effect on other sophisticated parties. Many of the proposed solutions (tax on trades) basically are asking international firms to relist and others would be implemented if the exchange themselves thought it mattered (delays).

Foxxinnia: I've started to think that people who treat the stock market as a bunch of numbers going up and down are doing it incorrectly. The numbers represent actual tangible things. They represent ideas, jobs, values, and most importantly people. Back when stocks were new a business owner had to go to people and convince them that their business idea was sound. Good businesses, business ideas, and business practices were generally rewarded. Now though those things don't matter. All that matters is whether or not the number is going up or down. It is dehumanizing.

/this post would be better thought out if I wasn't on the toilet right now

Rincewind53: That's why I like the 60 second delay. It does absolutely nothing to normal traders and only penalizes high frequency/low margin trading. It also provides built-in safeguards against a flash crash.

No, it doesn't. The flash crash will still happen, it will just start anywhere from 1 to 60 seconds later and the losers will not be in any particular order instead of being roughly in line according to when their orders were received.

And it can hurt normal traders, especially if you're trading something volatile. Trades don't necessarily happen when you say they should happen. Being delayed by any arbitrary amount of time can change the price you sell or buy at. If you trade 10,000 shares of something and that changes the price by only 1 cent a share, that's $100 you lose for no reason other than a random number generator.

Rincewind53: You're the jerk... jerk:
I think there is a difference between too much artificial credit and too much liquidity. I don't see how more liquidity can be a problem.

I ask those issues because there are a lot of experts who think that is the result of the process. Citations provided: http://en.wikipedia.org/wiki/High-frequency_trading#Effects

I don't really have an issue as they only have an effect on other sophisticated parties. Many of the proposed solutions (tax on trades) basically are asking international firms to relist and others would be implemented if the exchange themselves thought it mattered (delays).

I guess it depends on what you think the market is for. If the market's primary goal is short-term profit margins, then possibly HFT may be a good thing. If, instead, the market's primary goal is a more 19th century idea of producing capital and minimizing loss, then HFT just exacerbates an already broken system.

Personally, I tend to view a lot of what goes on at the stock markets as money generation with no corresponding social gains at all; money for money's sake. But I get your point.

Rincewind53: You're the jerk... jerk:
I think there is a difference between too much artificial credit and too much liquidity. I don't see how more liquidity can be a problem.

I ask those issues because there are a lot of experts who think that is the result of the process. Citations provided: http://en.wikipedia.org/wiki/High-frequency_trading#Effects

I don't really have an issue as they only have an effect on other sophisticated parties. Many of the proposed solutions (tax on trades) basically are asking international firms to relist and others would be implemented if the exchange themselves thought it mattered (delays).

I guess it depends on what you think the market is for. If the market's primary goal is short-term profit margins, then possibly HFT may be a good thing. If, instead, the market's primary goal is a more 19th century idea of producing capital and minimizing loss, then HFT just exacerbates an already broken system.

Personally, I tend to view a lot of what goes on at the stock markets as money generation with no corresponding social gains at all; money for money's sake. But I get your point.

Do you have a source for your view of 19th century markets? I assume they have always been sources of raising capital and providing liquidity.

Nothing is going to change. This is just another warning that you will not win at day trading. Buy and hold.

I, for one, am looking forward to the day we can create accelerate high speed market inefficiencies. Should be entertaining to see what our computer overlords value our companies at.

How do you enforce all your plans here to stop it (taxes, delays etc). The NYSE is not the only stock exchange on the planet.

If you were to put , say a 2% tax on every transaction at the NYSE, the traders and their multi-national trading firms would simply move their business to some place else like Singapore.

Typical Lib Fakrer:

Screams
"Digitized trading should be illegal because some people have more money than i do!"

Then opens new window in web browser to check his S&P 500 ETF

/you'll get those evil rich people some day

Rincewind53: Fark_Guy_Rob: I don't understand how decreasing the time period involved fundamentally changes the nature of the act?

Lots and lots and lots of people trade things with the intent of reselling them for a profit. That's pretty much most business models. Virtually everyone here participates it in that. Do you think your supermarket buys meat with the intention of watching it age? No. They buy it to sell it to someone else.

Trading 'fast' doesn't remove any uncertainty from the market. If you buy X *really* fast; there is no promise that X will be worth more than you paid.

Much of it is done at microsecond level, which means that ultra-fast supercomputers have a competitive advantage. This is compounded by the fact that the big firms and players can actually buy access to the data on trades coming from the NYSE and get it tenths of a second faster. So, say Trader A wants to buy one thousand shares of stock that is trading at $10.0000 per share. Normally this would cost him $10,000. He sends a buy order to NYSE. Goldman's computers see this buy order .5 seconds before anyone else's computers, instantly buy 10,000 shares themselves at $10.00 a share, which raises the price to $10.10, and then respond to Trader A's buy order by selling him 10,000 shares at $10.01, netting themselves a profit of $1,000 and effectively taxing Trader A to make a trade. All of this is done faster than you can blink.

That is substantively different that traditional trading.

Yes, in traditional trading, the order would go across a specialist desk and the specialist would buy from one entity at 9 & 7/8ths and sell to Trader A at 10 & 1/8th while pocketing the 1/4 point difference. That was soooo much better.

OptionC: Yes, in traditional trading, the order would go across a specialist desk and the specialist would buy from one entity at 9 & 7/8ths and sell to Trader A at 10 & 1/8th while pocketing the 1/4 point difference. That was soooo much better.

BUT HE IS A PEOPLE PERSON GOD DAMN IT!!! WHAT IS WRONG WITH YOU PEOPLE???

i worry about increased risk.

i do think that HFT and programmed trading has the potential to make large market moves much more dramatic, please see the flash crash as a prime example of this.

i'm not sure that investors really learned their lesson from LTCM. when you have hundreds of investors performing LTCM-like strategies tied to program trading....well, that can cause bouts of insomnia.

I don't understand the stock market. There, I said it.

gtp123: tl;dr: this hurts day traders that etrade tricked into trying to "play the markets," not actual investors.

I knew a guy who inherited $40,000, and while he was doing OK, he really didn't need to blow his entire inheritance trying to learn how to day trade. Needless to say, he had poor impulse control in some other areas too.