That ETF that you should have your roll in? It's buying and selling securities all the time, and encountering friction along the way. And whether people have ETFs or individual equities in their (hopefully tax-advantaged) retirement account, across everyone with a retirement account it adds up.
I know that people often have a low-key axe to grind about advanced market actors being "bad", and I know that politicians go to the well with this narrative all the time, but it's misleading at best and usually just demonstrably wrong. And with nothing but respect, I tend to bow out of conversations where people push the issue past a comment or two.
There are exceptions: Citadel paying 2x for PFOF on Robinhood vs. Schwab to get optionality on internalizing against dumb flow? Yeah, that's pretty iffy. But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere.
I really hope it isn’t, or it would be making lots of tax events! I hope it’s doing in-kind transactions like all the normal ETFs.
> Citadel paying 2x for PFOF on Robinhood vs. Schwab to get optionality on internalizing against dumb flow? Yeah, that's pretty iffy. But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere.
No, robinhood average order is just smaller so less risk of adverse selection.
As for your second point, I guess neither of us works at Citadel so we're both guessing, but if you agree that there is a market for order flow and that the most charitable interpretation of why that would be the case is because of the attached optionality for internal netting, then you're sort of making the assertion that all PFOF is equally valuable, which would be a hell of a coincidence.
As a sort of side note, I regard the cherry-pick the parent with ">" prefixes and go after snippets of what they posted as basically the lowest form of discourse on HN in spite of how popular it is, and I would encourage anyone to try to reply to someone's entire comment rather than just trying to find the weld points and lean on those spots. It's pretty weak.
I am not sure I understand. That would mean that the number of advanced actors would stay stable or go down over time (generally much research shows that markets tend to concentrate even in pure random trading, so the number of advanced actors should go down). Is that actually the case?
To wildly oversimplify, market makers will tend to drive the spread down to the tick size, and arbitrageurs will tend to put themselves out of a job.
For the industry as a whole to be growing either in distinct actors or cumulative top-line, the number of markets and instruments and general financial activity has to be growing faster than the big dogs are eating each other. This is my (semi-informed) guess.
Nitpick: that’s 10 to 37 days for Google or FB. 2B for Google is ~10 days, 4B for Meta is 37 days. Alphabet net income for 2021 was $76.033B, Meta Net income $39.370B.
Morbidly funny anecdote: when I first moved to the NYC office I obviously didn't have many friends, let alone a significant other. Myself and a few of the other sad saps who failed to notice the office clearing out a bit early around us were borderline freaking out over what looked like very anomalous behavior in the IG ranking system.
It wasn't until we raised it in a slack group that included some coupled folks that we realized it was Valentines day. Womp Womp. ;)
That is, in my view, at best an ancillary goal (notice that most money in the markets doesn’t participate in buying shares from the company itself).
That may be what you want the markets to be about but every other participant has other desires from the markets and the great thing is they can all get what they want from them.
It's also true there are many other participants with many other strategies to extract that value created by the companies from acquiring and merging them to collecting dividends from a balanced portfolio to day trading, but the reason the market exists in the first place is because companies that create value need their capital in order to do it. As you correctly point out, most of the actual trades are secondary market ones involving companies not in the process of fundraising, but those trades are still positive sum inasmuch as without liquid secondary markets, companies that create the actual value might have found it too hard to raise funding. The difference between being able to sell TWTR on IPO day or shortly afterwards and being forced to hold it until an Elon Musk comes along and follows through with its existence has a huge impact on its ability to raise funds and grow. On the other hand reducing the time between trades down to smaller sub-second microsecond intervals is - whilst useful to people trying to win at essentially zero-sum trading games and inflating asset prices very slightly - going to have a pretty minimal impact on whether companies create more value by raising more funds.
Equities markets are a piece of the pie. The largest, by far, for the kind of HFT we’re talking about, but a fraction of financial activity.
The core goal of financial markets is to gather and match prospective buyers and sellers so that trading can occur.
Obviously true that financial markets for commodity futures etc have different functions, though a similar logic applies to them (the extra liquidity in commodities futures markets is useful to the extent it facilitates real world production decisions)
Sooner or later (spoiler alert: sooner) someone would put it on the Internet, and it would be unregulated, at least at first, and the insiders would do even better than they are now.
You should read up on the early days of ECNs, Island and Archipelago and what not. Alternatively, you could look at this exact script being played out in crypto right now.
You are begging the question. Why should a market reflect that? Why is that preferable to a daily auction (throw in a stochastic cut-off time to thwart HFT even more)?
I understand that (as the article mentions) these folks clean up when the wheels have already come off anyways, but day-in-day-out, the spread on AAPL is one tick ($0.01) nowadays, rather than the 1/8ths that you'd get quoted by some loud guy from Jersey 30 years ago.
Citations on this stuff are hard to come by, but it does seem at least directionally true that these advanced actors are making less money over time even as the problem becomes harder. If that's true, it's money not going into the pocket of a middle-man somewhere. Multiply that by everyone's retirement account and we're talking real money.