His main poing is wrong.
High Frequency Trading makes trading stocks cheaper. There have always been market makers. They used to be expensive humans. Now they are cheap computers. This means that it now costs less for you to trade a stock.
High Frequency Trading makes trading stocks cheaper. There have always been market makers. They used to be expensive humans. Now they are cheap computers. This means that it now costs less for you to trade a stock.
His main point: Wall Street doesn’t know what business it is in. Wall Street has nothing to do with creating capital for businesses, its original goal.
He's saying wall street should have an incentive to create/raise capital for businesses, not invest in marginally profitable trading strategies like HFT.
The opportunity cost of wall street investing in trading is that other pursuits like capital raising get less or no attention.
So it's not that HFT is necessarily good or bad, it's that it's a distraction that's not going away, to the detriment of other potentially more value-creating pursuits, like raising capital for new companies.
Wall street knows what business it's in...lots of them. It does bond research, equity research, investment management, sales and trading, and yes, investment banking (to raise capital to all these poor companies that can't find anyone to pay millions of dollars in fees to do)
Do people really think that there are no investment bankers who raise capital anymore? That because of HFT, a job that pays 1mm a year when you're 30 has no more interest to anybody? That there are so many humanities majors graduating from princeton and harvard that normally do client relationship investment banking but because of HFT, they are going to write algorithms and optimize OS code for latency instead?
Have people seen how many layoffs are happening in investment banking division on wall street? (where they raise the capital for companies) It is NOT A ZERO SUM GAME. HFT doing well is NOT AT THE EXPENSE OF CAPITAL RAISING.
What kind of point is this? Is it even informed by any facts?
Personally, I'm not irritated at the nerds (after all, I'm one of them) so much as I am at places like Zero Hedge and Rolling Stone which prey on the ignorance of nerds to drive up pageviews.
And Matt Taibbi was responsible for the legendary characterization of Goldman Sachs as a "great vampire squid wrapped around the face of humanity."
I get it: people like reading this stuff. That's why they write it that way. But I'm saying, like reading it or don't like reading it, a lot of the underlying facts being reported are laughable.
So instead of being able to compete on price, market-makers compete on latency in order to be the one making all the monies, resulting in the current arms race.
Cf. this blog: http://www.chrisstucchio.com/blog/2012/subpenny_rule_respons...
That is yummifajita's blog, btw.
It does mean the market demands more knowledge; it's more sensitive now, so you can no longer do a buy or sell "at market" and expect a good price. But even if you don't know how to play the market you can go through a broker and still pay far less than you would've in the "good old days".