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Comment by fzeroracer | Hacker News Reader

Running a business is less and less about actual business outcomes and more about juicing stock. And the stock market itself is divorced from reality as companies whose output has gone down over time sees higher valuations because the owner has cult appeal. So everything gets worse and more expensive year over year while feckless suits get sloshed over company dinners.

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The stock market is like a sports betting pool where the players are allowed to bet on themselves

The stock market is just a predictions market, and any predictions market at scale destroys the subject of its prediction.

Can we have a different kind of stock market which forces participants to consider long term outcomes more? E.g. no HFT firm should be able to make a profit from such a stock market. Selling stocks earlier and often should result in a penalty or percentage being taken away as a fee. As a retail investor I would love to use invest and forget strategy based on trends observed in such a stock market.

>forces participants to consider long term outcomes more

I remember many years ago telling a senior executive that I had concerns that some of the steps we were taking to boost current quarter financials would negatively impact business performance in the long term. He just chuckled and said, "there's no such thing as the long term, only a never ending series of current quarters".

>E.g. no HFT firm should be able to make a profit from such a stock market. Selling stocks earlier and often should result in a penalty or percentage being taken away as a fee.

Maybe by "HFT" you only mean "those evil hedge funds that are pushing companies to chase next quarters' earnings", but there's nothing fundamentally wrong with high frequency trading. Market making[1] is high frequency trading, and basically involves offering to both buy and sell and given stock, and pocketing the spread. That increases liquidity, making it easier for other traders to buy/sell stock without taking a huge loss. It's unclear why you'd want to ban this, or how you'd distinguish this from whatever evil HFT you actually want to ban.

[1] https://en.wikipedia.org/wiki/Market_maker

I am not saying HFTs can't sell but there should be penalty for higher frequency. It means they have to craft algorithms which will take longer term view of stocks (and their fundamentals) rather than ignorance of other participants

Market makers make fractions of a percent per trade. How will your "penalty for higher frequency" deter traders that prey on "ignorance of other participants" or whatever, but don't put market makers out of business?

Easy, bye market makers! It's like a layoff, some good will end up getting culled with the bad.

Unfortunately, if you don't have people to make a market, it's not going to be a very good market for a bunch of important values of good.

All these HFT stuff reminds me of chinese event where people send each other gift money as a good will gesture. Revenue is high but no meaningful transaction has happened. The money is just being exchanged between the same top HFT firms. And the best of our minds are fighting it out in the arena of algorithms rather than creating real world value.

>Revenue is high but no meaningful transaction has happened. The money is just being exchanged between the same top HFT firms. And the best of our minds are fighting it out in the arena of algorithms rather than creating real world value.

Liquidity is "real world value". Being able to buy/sell a stock instantly without a massive premium/discount makes stock ownership for the average person possible. Contrast this to an liquid market, like buying houses, where you need to spend months house hunting, and pay a 6% commission on top.

https://www.ecb.europa.eu/press/research-publications/resbul...

Conclusions and policy implications

To return to our initial question: does stock market liquidity deteriorate when HFTs compete? The results suggest that competition among HFTs increases speculative high-frequency trades, which could lead to a deterioration in market liquidity.

Taking the study at face value, it only says that competition among HFT is bad. It also specifically admits that "As market-makers, they can update their price quotes fast when news arrives and provide liquidity to the market. In this case, the low-frequency traders in the market – the investors – benefit from lower transaction costs". In other words, at best it's advocating for some sort of monopoly for HFT, rather than getting rid of HFTs entirely.

Consider no stock market. Just keep the company private.

Honest question, why do so many companies strive to go public?

Access to large pool of capital

There are other places where people can gamble

It's not really high frequency trading in the sense of day trading, it's a bit of a misnomer. I would say it's actually low latency trading, the number of trades isn't huge. It ensures that linkages in the market operate quickly. Linkages between a stock price and its respective options. Or linkages between an index ETF and its components. The price discovery process should be fast, it benefits all of the market participants.

https://www.ecb.europa.eu/press/research-publications/resbul...

High-frequency traders (HFTs) are market participants that are characterised by the high speed with which they react to incoming news, the low inventory on their books, and the large number of trades they execute. All this is possible for HFTs because they use automated, algorithmic trading, which enables them to analyse markets and execute trades in under a millisecond. The high-frequency trading industry grew rapidly after it took off in the mid-2000s. Today, high-frequency trading represents about 50% of trading volume in US equity markets. In European equity markets, its share is estimated to be between 24% and 43% of trading volume, and about 58% to 76% of orders.

Benefits how? Even if we are all 'market participants', the time investment between a hobbyist and career investor is rarely equal. An LFT/low frequency trading market would egalise this discrepancy.

This subthread is nonsense. As a retail investor, HFT is good for you and lowers your prices. They have a bad reputation because of the book Flash Boys… but basically nothing in that book was true.

What is the long term effect on accuracy when a large mass simply moves XX% of their monthly paycheck into top ETFs?

I don’t disagree with what you said though, simply sharing thoughts - I think it leads to markets being more sensitive to macro strategies rather than actual fundamentals

>What is the long term effect on accuracy when a large mass simply moves XX% of their monthly paycheck into top ETFs?

Such investments are typically market cap weighted, which means their effect on stock prices are neutral. Moreover there's still room for hedge funds (and other sophisticated) investors to engage in price discovery.

> where the players are allowed to bet on themselves

Wouldn't that be insider trading? You can't short your own company before announcing bad things to make money from it.

If you think the rich people haven't invented a way around those pesky "rules"...

Well people are also betting on themselves in sport betting so if we account for ignoring the rules, I don't see why the qualfiier that betting on yourself is allowed would be needed.

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