adios_logic wrote:
Gus Sauter said this a couple years ago “We’ve measured our transaction costs and over the past 15 years, they’ve been cut by about 60 percent,” Sauter said. “That results in hundreds of millions of dollars a year in savings to investors in our funds.”
http://www.forbes.com/sites/alexandraze ... y-traders/
Nice, but I think it may miss the point.
Here is what Gus says:
“But in fact, the 50 different venues we have to trade on, without high-frequency traders, there’s nothing to knit them back together again… Otherwise you’ll see a stock trading on a certain exchange at one price and trading on another at a different price. It’s the high-frequency guys who are looking across all of the exchanges saying that doesn’t make sense and they bring all the exchanges together at one point in time.”
OK so high-frequency traders unite the market and we have seen lower costs.
Can't these goals be realized without:
1)HFT pumping out millions of orders in a matter of seconds, only to reverse the majority of them so as to gain information not available to other market participants
2)the practice of selling preferential access or data feeds
3)eliminate order types that allow high-frequency traders to jump ahead of legitimate order flow.
Yes, computers have replaced humans in trading over the last 15 years and costs have fallen. We can see that in Goldmans Sachs 2000 purchase of a trading floor unit for $5.4 billion. Human did most of the trading then and now that unit is worth like $300 million. So yes times have changed.
Is Gus Sauter asserting that these technological changes could not reduce costs without giving the HFT an advantage? Merely noting that falling costs are associated with the rise of HFT does in no way testify to there being a necessity for HFT to have an advantage. If you and Gus are asserting that the advantage HFTs have is the cause of the falling costs, then please show me how costs would not have fallen were that advantage not conferred.
How do HFT firms manage to be profitable 99 percent of their trading days? It's called by having access to information that no-one else has.
I guess your case is that we benefit by allowing differential access to information, but I do not view your case as proven and that the truth is cost would have fallen even without HFT firms being conferred an advantage.