Why even mid-sized trading firms are hurting | Hacker News Reader

Why even mid-sized trading firms are hurting

chicagobusiness.com

15 pointswglb13 comments

Is there more nuance to this story than "a lot of players rushed into a sector, commoditizing it and meaning that only a few large players could ultimately survive the race to the bottom"?

For companies who are paid to analyze and predict the future, it seems they should have seen this coming from the outset.

Trading companies (especially like the ones mentioned here) are not paid to analyze or predict the future. They are largely paid to accurately price short term risk of holding particular financial instruments.

This actually leads to some situations where they can be worse at predicting large trends.

You can bet that they were aware of this possibility.

With respect to predict the future, their horizon for that is less than a second, and some simply make money on every share that the trade. And as kasey_junk points out, none of this is about predicting anything. It is about making informed bets. Millions of informed bets.

When everyone does arbitrage, eventually the markets will become very, very efficient, and profits converge on $0. Of course, they'll never get there because market participants will drop out (as we're seeing), but this was always the likely end result.

It's not about lack of funds to hire the bright minds, it's because that's how the system is designed in the first place. The problem is that technologies such a HFT have simply accelerated the removal of the middle men, because now that the uber-wealthy have squeezed as much money out of the proletariat, they need need a new feeding ground. That feeding ground is the middle-upper class, the ones who think they are one of the good ol boys but are gonna get bitten just as hard, they just don't realize it yet. This goes for "middle-class business" too. The SEC is flattened under the weight of regulatory capture and insider trading is the norm. How could any other outcome than referenced in the article be expected?

Class warfare is real and is going on right now, and the bankers and uber-wealthy (.01%) are winning.

Am I reading correctly that you think the elimination of middle-men in the market is a bad thing?

Middle man has come to have such a bad connotation these days. I think majority of people imagine middle men like some crooks who make a phone call or two and take a 20% cut for no work at all.

This couldn't be further than the truth.

Ok but we're clear that these particular middle-men, the human specialists that electronic market makers replaced, were in fact crooks, right?

Not necessarily, but allow me to clarify. What I am talking about is the middle-level entrepreneurs, not the middle-men in the sense of add a layer so they can skim off the top. I'm saying that if you look at the numbers, I am seeing a return of monopolistic industries across the board, and this is bad for the people and consumers. When is the last time we heard about a big anti-trust suit?

OK, because the industry we're actually talking about here was created to outcompete and eliminate actual middle-men who operated in the latter sense: they set up the market so that virtually every trade had to have their fingerprints on it, and charged exorbitant fees for that privilege.

Well, there were over 1,800 automobile companies in the US by 1930. Now, not so many.

This is an example of "go big or go home" and is as old a story as there is in business.

I don't think the attribution of several meanings of "middle" is at all correct. Nor is the class warfare more evident in the Trading world than it was in the early automobile industry's early years.

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