>there's always $0.005/share to be made on every trade //
I [clearly] don't know enough to know if you're exactly right, but lower the latency and increase the trades and there you have it. Aren't bids and offers listed in pips (like $1.4032).
As I see it production, processing, administration, etc. are the only value inputs. When a 400ms glitch extracts something of the order 1e5 USD the value that money represents comes from those inputs. Yes liquidity is an administrative input but the way the system is set up trades appear to extract far greater amounts of money than their value to society; of course that money comes from other investors, but money is not value, the value the money ineffectively represents is brought to the system by those said inputs.
The problem appears to be that those in a position to rectify the aberration are too busy getting rich off it to care.
Thanks for your input(!) and education.
As an aside, do you [or anyone] know of something along the lines of a (FOSS) toy stock market program, something that allows one to model a market futz with parameters on trades (like changing minimum stock increments, or fixing time periods) and see the effects graphically. Like an ecological modelling program I suppose.
>lower the latency and increase the trades and there you have it
It is true that lowering the latency and more to the point narrowing the spreads increases trade volume, which I kind of glossed over, but again if you lower your margins and sell more of your product you're not extracting value but creating it. Fundamentals traders are (hopefully) buying and selling shares for good reason; helping them do it quicker and more cheaply is a good thing.
>Aren't bids and offers listed in pips (like $1.4032)
AIUI there's an exception for low-value shares, but most are required to be sold in increments of $0.01. (Of course that only applies to stocks traded on public exchanges, which is by no means all or even most HFT activity)
>As I see it production, processing, administration, etc. are the only value inputs. When a 400ms glitch extracts something of the order 1e5 USD the value that money represents comes from those inputs. Yes liquidity is an administrative input but the way the system is set up trades appear to extract far greater amounts of money than their value to society; of course that money comes from other investors, but money is not value, the value the money ineffectively represents is brought to the system by those said inputs.
You're right that there's a kind of "tragedy of the commons" going on; because there's that massive $0.005/share to be made and free competition on latency to be the company to get it, the competing companies naturally push harder and harder until they're all spending $0.004999/share on FPGA programming and the smartest employees they can find to get that $0.005. But it is at least kind of circumscribed; it's that fixed (ish) quantity of money getting wasted, nothing more.
>The problem appears to be that those in a position to rectify the aberration are too busy getting rich off it to care.
Maybe. I've seen elsewhere in these comments that large institutions are now trading directly with HFT players like GETCO and Knight, because they can offer better prices (narrower spreads - less than $0.01) there than they can publicly. These guys are now doing their own trade crossing, effectively acting as a private exchange - and competition between these private exchanges will make the spreads narrower still, and reduce the rents the market makers get. Of course, there are all the downsides of a private exchange - without a public order book it's a shark pool in the same way as the bond market.
>there's always $0.005/share to be made on every trade //
I [clearly] don't know enough to know if you're exactly right, but lower the latency and increase the trades and there you have it. Aren't bids and offers listed in pips (like $1.4032).
As I see it production, processing, administration, etc. are the only value inputs. When a 400ms glitch extracts something of the order 1e5 USD the value that money represents comes from those inputs. Yes liquidity is an administrative input but the way the system is set up trades appear to extract far greater amounts of money than their value to society; of course that money comes from other investors, but money is not value, the value the money ineffectively represents is brought to the system by those said inputs.
The problem appears to be that those in a position to rectify the aberration are too busy getting rich off it to care.
Thanks for your input(!) and education.
As an aside, do you [or anyone] know of something along the lines of a (FOSS) toy stock market program, something that allows one to model a market futz with parameters on trades (like changing minimum stock increments, or fixing time periods) and see the effects graphically. Like an ecological modelling program I suppose.