I think it is generally accepted that society does benefit from a modern and efficiently run market. Whether or not automated market makers contribute to this could be up for debate, I guess.
Are these "market makers" working behind the scenes to facilitate the operation of those retail facing companies? Is Black Rock buying all the real estate also good for (potential) retail investors like me? Because it's starting to feel like we're being told to cheer for those faciliting the ever-increasing wealth disparity of society.
Yes. Brokers like Fidelity have no idea how to price things, and even when they do, they don't know know how to manage the risk. Marker makers quote at the tightest prices they can offer and you trade against them, through your broker, on or off-exchange.
Market makers are often much more efficient and automated than brokers, but have similar or lower margins as a business and take a lot more risk. There's a misguided anger directed to electronic market makers, but it's in fact brokers that've been ripping you off all along.
You probably do, indirectly through an agency agreement, for example a pension fund that manages your money. Or even whenever you just buy an ETF to invest. The costs you're indirectly paying are lower due to the newer generation of market makers that have reduced transaction costs for you.
> Is Black Rock buying all the real estate also good for (potential) retail investors like me?
Investing in real estate for years is not related to market making stocks with a holding period of 5 minutes.
Sorry I'm not in the elite income class, I'm not directly familiar with the nuances of all these financial companies, or what they do. I understand risk. I understand lending money to pursue a risky venture. I understand time-value of money. I don't understand higher-order financial engineering except as presented in pop culture references such as wolf of wallstreet which I initially referenced, or the big short. I understand many machinations of society aren't directly visible as a "product" to the "average joe" of society but their ultimate benefit to society can usually be explained in a way I can understand, such as insurance, loans, industrial manufacturing, and such. These financial companies, as well as lobbyists, seem to just be skilled at manipulating a system and converting it into money.
Probably by your value system I am irrational, I don't chase money as an ends unto itself. I'm trying to understand Jane Street.
The Wolf of Wall Street wasn't doing any sort of financial engineering in the real sense of the term. They were just committing fraud with pump and dump schemes. These guys had no actual quantitative or mathematical modeling abilities whatsoever that would be required for financial engineering and modeling. They were salesmen who swindled a lot of clueless people out of their money through illegal means.
Business loans, your savings account, your employer’s (or contractor’s if you’re freelance) line of credit, the global currency system, the prices of commodities that get turned into the physical products that we consume, etc.
Well, that’s the idea anyways. Whether or not the snake has consumed it’s own tail is a whole different discussion, but the stated value of stuff like this is to create efficient markets with correct price/price discovery aka make sure no one is paying too much or selling for too little.
- Special case of the above: They allow people who have want to trade huge amounts of a commodity a way to efficiently do so (no need to talk with multiple people; can do the trade all in one place).
- By making trading more efficient, society can get a better idea of the "true" price of things. Extremely important because prices guide investment. For example, if you're a farmer, and you're thinking about what crops to plant or a research lab thinking about where to focus your research. Having an efficient market with accurate prices ensures the economy grows at max speed.
“We don't demand that chess champions use their skills in something with more real-world applications, or that concert pianists find a more practical outlet for their manual dexterity and attention to detail.”
Maybe because chess champions and concert pianists don't hoard a significant amount of resources, depriving the rest of society of the means to thrive.
Evidence: the extinction of manual market makers, and the observed reductions in transaction costs, by virtue of increases in liquidity and reductions in bid-offer spreads.