Think of all the time that could be better appropriated than on fintech in general. Seems like such a waste of resources siccing a bunch of computers against each other in a zero sum game of stock arbitrage. I will admit some of the stuff tech comes out of it is cool on its own at least.
Yeah, they could have been working on something truly valuable like violating people’s privacy with ad-tech. Or maybe sucking millions of hours of people’s lives away with TikTok algo improvements. Maybe they could be working on the next MoviePass!
> zero sum game of stock arbitrage.
By your definition insurance is zero sum as well. But people find that generally useful. Taking risk off of peoples hands has value even if a widget doesn’t come out the other end.
> Yeah, they could have been working on something truly valuable like....
But why not just a reasonable product?
Yes, what could that be, there cannot be something that is fairly priced and people really want, need, what just helps. Not today anymore!
> By your definition insurance
I know what you try there and on a very abstract level you are maybe slightly right, but PLEASE no, high level gambling (==milliseconds&millions) is not at all comparable to the insurance model in many regards, foremost maybe purpose for the community?
(and its pretty clear that fintech here sure doesn't mean the classical bank and modern "normal" payment system... ).
This is a weasel phrase. Insurance is high level gambling as well. They both use risk models to decide at what price they will sit on the opposite side of a trade for.
Decide where you really draw the line and if it’s time horizons that’s pretty arbitrarily stupid. Insurance uses re-insurance quite quickly to de-risk their own books so pretending trading within a minute vs daily/hourly is pretty silly.
Also, most “fintech” is not the “be the fasted to arb 2 exchanges” variety. It’s usually “be a market maker for products that you can relatively quickly price based on proprietary signals”. If speed is your only advantage, the cat and mouse game will wake you up one day getting beat to the order book on every trade.
> and its pretty clear that fintech here sure doesn't mean the classical bank and modern "normal" payment system...
Not sure where you got that from. All of this is interconnected. The “classical banks” are all participating in deep fast moving bond markets. JPM doesn’t send their orders to some old timey trader with a cigar and a bowler hat via telephone. They use fintech like the rest of the industry.
You didn't want to understand me. Sure both use risk models, but exactly this still doesn't make them anyhow relatable?
And sure I know still that everything is interconnected, but it is clear that if someone complains about fintech (but other arguments then immediately go into the "oh you say fintech, but what about .."), he doesn't mean the necessary stuff like payments processing or normal markets.
anyway fine to disagree here ;)
No, I’m saying your hand-wavy “fintech is bad” doesn’t actually point to any thing in particular. Most of HFT is not “do the same thing as the other players, but faster”.
Most HFTs primarily engage in market making (matching buyers and sellers) which absolutely is a very useful and necessary function to society unless your position is that markets should not exist.
I'm against pure speculation, but forbidding futures outright would feel ... wrong. Locking prices for contracts up front is a useful thing.
However, it might be much more interesting, and societally more beneficial, to require that anyone trading in commodities futures must have, at all times, the facility to take delivery of the contracts. The upper limit of exposure for a trading desk would therefore be bound by the capacity of their physical infrastructure.
Eh. I see the downsides of a lot of that HFT stuff, but there are upsides too. Yes a lot of it is zero sum, but not all of it is. Lowering spreads between currencies, say, does materially help non-finance actors. There are other areas of the stock market that are useful too. Ingesting financials and other non-manipulated data to better reflect a company's true worth at any time helps, for example, employee option holders that seek to have a fair renumeration for their labour.
Market makers are always talking about "lowering the spread" being this great thing they're doing to make the world a better place
Yet when I go somewhere with no liquidity and a huge spread like a crypto exchange, a deeply unpopular corner of the stock derivatives market, or a Craigslist used stuff category, the wide spread is just a mild inconvenience at worst. You get to choose between waiting for a better deal and taking a worse deal immediately
A tight spread just means that somebody is getting rich by taking that choice away from me and everyone else on the exchange. It's not the most nefarious thing in the world, but it's not particularly helpful or altruistic either.
"Yet when I go somewhere with no liquidity and a huge spread.."
Someone who wants to buy or sell goes to a market in order execute at the best price achievable, and they may be under time pressure.
If the spreads are wider at one place than another, participants will gravitate to the place with the narrower spreads. If there is better liquidity at one place than another, activity will move to that place.
The purpose of being at the market is that you want to trade.
These qualities that you dismiss, "a mild inconvenience at worst", are the essence and measure of a market's effectiveness.
"A tight spread just means that somebody is getting rich by taking that choice away from me and everyone else on the exchange."
No, it is the opposite of that. It is when spreads are wide that there is easy opportunity for getting rich. Consider: it is more lucrative to buy from one person at 10 and sell to another at 20 then to buy from one at 15.01 and selling to another at 15.02.
"You get to choose between waiting for a better deal and taking a worse deal immediately"
That is not the choice. On a good market you get both a competitive price, and you get to deal immediately.
An order that you rest on the book is called a limit order. You can do limit orders on any market, even those where market makers operate. Creating a market that offers limit orders is easy. The more challenging problem is to create a market where people can come and place market orders that get filled immediately
Four years ago, I wated to sell stock to close a deal to buy a house. I didn't want to sit around for hours or days or weeks or forever tweaking limit orders, hoping the market would move in my direction and that the house would stay on the market. I went to market to execute, got my money, and put down the deposit.
If a company goes to a market to offset risk, they typically want the convenience of getting the deal done immediately. If they have to wait weeks to close the deal, the risk might already have past by the time they could get the deal done. Liquid markets with tight spreads get rid of the workflow and loss of time inherent to haggling whilst giving you justified confidence that you are getting a competitive price.
I feel like you basically rephrased what I said, but added a little terminology around it and said it's a good thing. Market orders taking 1 second to fill instead of 80 milliseconds isn't a meaningful contribution to society.
Imagine a world with no market makers. There would still be plenty of buyers and sellers of SPY shares at any given time to keep a tight spread and fast execution, but people placing market orders would get slightly worse execution and people who can accept the risk of placing a limit order and waiting two seconds would get slighty better execution. The ONLY real difference is that there wouldn't be some market vampires magically extracting tiny bits of profit all day. Your Facebook shares would still move just fine even if nobody front-runs your order and takes a few cents from you.
I get it, market making is profitable and the victims are distributed widely enough/offset enough by trivial benefits that it's not a particularly bad thing to do. But they aren't making ANY positive contribution to society AT ALL by squatting on the exchange and intercepting all the market orders at a profit.
(Full disclosure: this whole argument obviously goes a different direction when you start talking about derivatives, since market makers are mostly the ones who create and offset the derivatives. I could believe an argument that they're making the world a better place by making it quick and cheap to mitigate financial risk)
What is your goal? Is it better markets, or getting rid of market makers?
You seem fixated on the latter, to the extent that you will define away the quality measures of a market to get there.
The vampire/victim labelling you use is unreasonable. Market makers rest liquidity on the book and then other participants choose to interact with them. Both participants have chosen to enter the deal.
You propose a market without market makers. If you set up such a book, I expect you would find that nobody would want to trade there because they will get better prices and more liquidity elsewhere. If it was a good model, then all the exchanges would be doing it.
You misuse the term front-running here. Front running is when a broker has an order from a customer, and places orders on their own behalf before processing the customer order. In doing so they would put their own interest ahead of the customers. Rules about front running are a form of consumer protection. On-exchange market makers do not have customers, so the concept of front running is not relevant there.
Maybe they could be affected and needed plans to avoid the impact as well, but unlike stock markets you can’t say pause payments globally for half an hour just to get through the leap second.
> Seems like such a waste of resources siccing a bunch of computers against each other in a zero sum game of stock arbitrage
Despite the useful service of price discovery (here are so many better ways) it is clear from the EMH that those computers are not doing arbitrage, they are front running trades.
Illegal. Criminal in USA (I think). But makes billions and billions for the already very rich. So that is why there is so much of it
I think it's the other way around. They had a problem which previously only impacted weekends, so it was written off entirely without consideration of whether this was happening by rule or by convention. They knew it would be a concern on any other day and yet did nothing until the day it was announced.
Idle curiosities can lead to their own waste, but the kernel panic was probably worth digging into earlier.
