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Re: High frequency trading and a 4ms faster cable

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On 2014-04-09, Dave Garland wrote:
> On 4/9/2014 12:51 AM, Randy Westlund wrote:
>> On 2014-04-08, Dave Garland wrote:
>>> Put a 0.1% transaction tax on every completed transaction, and the
>>> problem would cure itself. And probably solve the national deficit in
>>> the process.
>>>
>>> Putting a 5s delay between bid and acceptance (or not) would probably
>>> do the trick, too. (I'm guessing that would make it comparable to
>>> manual floor trading.)
>>>
>>> I don't see why either could be considered "unjust".
>> 
>> I don't see anything necessarily unjust about that, but I don't
>> think it would solve the problem -- it would just change the time
>> scale.
>> 
>> In either case, algorithms would have to wait longer between trades,
>> either because they needed the share value to increase more to cover
>> the cost of the tax, or because of the hard limit caused by the
>> delay.  
>
> I posit that it would make algorithm trading far less attractive,
> because it would increase the chances of a bad outcome. With the
> transaction tax, you need to be confident that the price will change
> (in the direction you want) by enough to at least cover the tax. With
> the delay, you need to be confident that the price will continue to
> change in your direction during the delay.
>
> But we'd still have thousands of algorithms interacting in
>> nondeterministic ways and inexplicable share values that don't
>> reflect market conditions, which I think is the real problem.
>
> Indeed. But how do you make algorithm trading unattractive? Right now,
> for smaller investors (everybody except the 1%) it's a shell game, an
> unregulated gambling device. Some friction needs to be introduced into
> the system to damp wild oscillations.
>
>> 
>> Come to think of it... By skimming some off the top, the tax would
>> reduce the total amount of money invested in the market and reduce
>> the returns each person gets from investing in companies, which is
>> not what we want.
>
> If _my_ return was reduced by 0.1%, I wouldn't notice.  Now, if I was
> trading in and out of that stock 50 times during the course of a day,
> I'd notice. But those are the people who are causing the problems, not
> the ones like Warren Buffet who are soberly researching a company and
> then buying or selling it. In that case, 0.1% more or less probably
> doesn't make much difference to them, either.

You make good points.  My fiancee and I discussed it over breakfast
and couldn't come up with a better idea.  It would be nice if we
could test these ideas out before committing to them, though.
Anything implemented here could have drastic and far-reaching
consequences and lawmakers would have trouble agreeing on anything
without something to back it up.

Maybe what we need is a comprehensive simulation of the stock
market, complete with replicas of these algorithms, all interacting
in a sandbox (a dissertation in itself).  Then we could play around
with enacting various solutions and watch what they do.  A nonlinear
stochastic controls person might have fun with that.

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High frequency trading and a 4ms faster cable RS Wood <rsw@therandymon.com> - 2014-04-06 19:20 +0000
  Re: High frequency trading and a 4ms faster cable Randy Westlund <Vorzakir@invalid.invalid> - 2014-04-06 19:44 +0000
    Re: High frequency trading and a 4ms faster cable Dag-Erling Smørgrav <des@des.no> - 2014-04-06 22:21 +0200
      Re: High frequency trading and a 4ms faster cable Randy Westlund <Vorzakir@invalid.invalid> - 2014-04-07 01:11 +0000
    Re: High frequency trading and a 4ms faster cable Hils <hils@saynotospam.net> - 2014-04-06 21:23 +0100
      Re: High frequency trading and a 4ms faster cable Randy Westlund <Vorzakir@invalid.invalid> - 2014-04-07 01:05 +0000
        Re: High frequency trading and a 4ms faster cable Dave Garland <dave.garland@wizinfo.com> - 2014-04-08 15:36 -0500
          Re: High frequency trading and a 4ms faster cable Randy Westlund <Vorzakir@invalid.invalid> - 2014-04-09 05:51 +0000
            Re: High frequency trading and a 4ms faster cable Dave Garland <dave.garland@wizinfo.com> - 2014-04-09 16:24 -0500
              Re: High frequency trading and a 4ms faster cable Randy Westlund <Vorzakir@invalid.invalid> - 2014-04-10 17:40 +0000
    Re: High frequency trading and a 4ms faster cable Hils <hils@saynotospam.net> - 2014-04-06 21:39 +0100
    Re: High frequency trading and a 4ms faster cable Hils <hils@saynotospam.net> - 2014-04-06 21:39 +0100
      Re: High frequency trading and a 4ms faster cable RS Wood <rsw@therandymon.com> - 2014-04-07 08:57 +0000

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