Re:A High Frequency Trader's Apology, Pt 2
by wtvanhest on Friday April 27, 2012 @10:52AM
(#3899291)
The macro case is as follows:
HFTs will not net positive out over the long term so they are not taking away from other investors. (this is based on what I said in another comment above).
Mutual funds trade huge volume and need liquidity to take advantage of market research. Without liquidity their size would require them to stay smaller and require more investment professionals for any dollar amount they have under management. Without liquidity you would see smaller and smaller mutual funds as their capacity got capped which would lead to higher expense structures for investors.
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As far as the arms race, I agree with you.
But the arms race to ever lower latencies just seems useless from the point of view of society.
5 years ago it made sense and helped investors, now or at some point in the future the market will reach the point of dimishing returns from incremental small gains in hardware. At the same time HFTs will be investing more in hardware than they will be netting out of the system. Soon, if not already the HFT business will be mature and they will net negative and become consolidated. At that point (if it hasn't happened already) HFTs will have benefited the market with additional liquidity but any profitability long term will be negative.
HFTs will not net positive out over the long term so they are not taking away from other investors. (this is based on what I said in another comment above).
Mutual funds trade huge volume and need liquidity to take advantage of market research. Without liquidity their size would require them to stay smaller and require more investment professionals for any dollar amount they have under management. Without liquidity you would see smaller and smaller mutual funds as their capacity got capped which would lead to higher expense structures for investors.
--- As far as the arms race, I agree with you.
But the arms race to ever lower latencies just seems useless from the point of view of society.
5 years ago it made sense and helped investors, now or at some point in the future the market will reach the point of dimishing returns from incremental small gains in hardware. At the same time HFTs will be investing more in hardware than they will be netting out of the system. Soon, if not already the HFT business will be mature and they will net negative and become consolidated. At that point (if it hasn't happened already) HFTs will have benefited the market with additional liquidity but any profitability long term will be negative.