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Comment by lordnacho | Hacker News Reader

I've got a friend who used to work in quant hedge funds. He's moved to a company that exclusively trades sports. There's a lot of interesting alpha in there, and you don't get the same portfolio effects (market up/down) that you get in finance.

One thing that juices returns is access. If you know about the new markets opening you run your arbs on them and make good money.

Hours are weird.

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I can't help but be reminded of that Taibbi quote about Wall Street being a vampire squid plunging its blood funnel into anything that smells like money. It's a living, I suppose, but does "running your arbs" create anything of value?

>It's a living, I suppose, but does "running your arbs" create anything of value?

Something similar could be said of the people chasing the ball around the field.

Entertainment has value.

"Running arbs" is fine and definitely creates value. The problem with vampire squids is their parasitic relationship with govt, i.e. the people with the guns.

Arbitrage definitely adds value to society. Without arbitrage, traded assets could exist with arbitrary values.

The process of arbitrage involves observing a mis-priced asset and then making a profit from that observation. By doing so, you push the asset towards its correct value. This kind of activity maintains the integrity of a market.

It does up to a point. I think we're well beyond that point, when people pay for microwave relays to get a few milliseconds of arbitrage, because light is faster in air than in fiber. If someone ever drills a hole through the earth's core, it will be traders looking to save latency between New York and Hong Kong (kidding, I hope).

Yes I absolutely believe that there are diminishing returns associated with arbitrage. I would personally think that exchanges should put some lower limit on the 'time resolution' of their markets to prevent HFT investment beyond a certain point.

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