70% Of All Stock Market Trades Are Held For An Average Of 11 Seconds

[libspero]

Ah, so it's like a shared ownership pyramid scheme, artificially inflating capital costs?

Not really as I understand it. A pyramid scheme only makes money by sucking in more "investors", it doesn't actually generate any income.

A real company generates income, so when you buy in it can afford to pay you a dividend indefinitely even if no further shares are traded/sold.

In a way I guess you could say the tech bubble was a bit of a pyramid scheme, in that a lot of the companies never really had a viable profit making business model and never paid a dividend.

[Meat Puppet]

I like the fact that I can get my order filled in nanoseconds, but we've already seen what can happen when all the bots make the same trade at once - the price goes to zero or infinity. Then the regulators step in and decide which trades were valid and which weren't.

For someone who only invests new savings or rebalances old savings I think the machines are more menace than benefit.

[@contradevian]

So it is basically theft, and is not wealth creating as they would like us to believe, but in fact is the opposite?

Its creating a huge amount of wealth for a small of people, with no widespread benefit at all. Fancy that!

[bogbrush]

There is no benefit except to the scammers with fast powerful networks and computers, and access to huge funds and/or leverage.

Its like me knowing the town will want carrots on Saturday, I rush out and buy all the carrots. OK I only own those carrots for 11 seconds, I'm a few quid better off, everyone else is poorer. I'm not providing carrot "liquidity" by ensuring there is a market for carrots, just inserting myself artificially into a transaction.

Aren't you just cashing in on your superior knowledge of carrot demand? What's wrong with that?

After all, if you're wrong then you'll lose.

Edited October 22, 2010 by bogbrush

[South Lorne]

...for the micro term investor sounds like profitable business ...run a programme to sell a purchase at a small profit within an average of 11 seconds.....at high volume ...each day must be lucrative....

[pandora's box]

Aren't you just cashing in on your superior knowledge of carrot demand? What's wrong with that?

After all, if you're wrong then you'll lose.

If you are being fed that superior knowledge, and your back is being covered, there is nothing to lose.

[The Masked Tulip]

it'll probably crash jsut as we buy in MT..

My thoughts exactly.

[Meat Puppet]

If you are being fed that superior knowledge, and your back is being covered, there is nothing to lose.

That's just it. If Goldman's algo crashes the market they get the SEC to cancel the trades.

[@contradevian]

Aren't you just cashing in on your superior knowledge of carrot demand? What's wrong with that?

After all, if you're wrong then you'll lose.

They can't loose. I just return all my carrots to the supermarket. I've not paid for them. As I said I'm not providing liquidity.

In 2008 the profits of HFT were estimated to be $21bn shared by just 300 securities firms and hedge funds.

I can't see how this is new wealth, so everyone else must be $21bn the poorer,

Edited October 22, 2010 by Sir John Steed

[Sledgehead]

This is precisely why I proposed that any Tobin Tax should be inversely proportional to the length of time the investment was held (ie instead of a flat rate a Tobin Tax should be a curve, where the closer to duration zero one gets, the closer to 100% tax one gets*).

what you are describing already exists. It's called variously, spread, commission, exchange fees, stamp etc.

Every time you trade it incurs a cost. The shorter the trade, the more trades you'll make, the more costs you incur.

And who does that cost fall upon? The exchanges that amalgamate the market makers? The market makers? The brokers? The Fund managers? The pension fund managers? Or the schmuck who's just looking to keep his pension fund from lagging too far behind inflation? And who would pick up the tab for higher transaction costs?

And let's say you can make the cost stick with, say, the brokerage house that's executing deals as agent for a client. Will the trader who places the deals lose some of his commission? Or will it be the shareholders of the brokerage? And who might they be? Brokers, or just more pensioners?

Let's make sure we're targetting the right people before we suggest such things.

[fellow]

Aren't you just cashing in on your superior knowledge of carrot demand? What's wrong with that?

After all, if you're wrong then you'll lose.

But what if you bought a load of bad carrots really cheaply and got all of your mates to tell people how good these particular carrots are, and then put the carrots into special packaging so that nobody would notice until it was too late.

[aussieboy]

70% Of All Stock Market Trades Are Held for An Average of 11 SECONDS,

What a great market...

http://www.zerohedge.com/article/70-all-stock-market-trades-are-held-average-11-seconds

The Fourteenth Banker writes today:

In the stock market, program trading dominates volume. I heard recently that 70% of trade positions are held for an average of 11 seconds.

He's correct.

As the New York Times dealbook noted in May:

These are short-term bets. Very short. The founder of Tradebot, in Kansas City, Mo., told students in 2008 that his firm typically held stocks for 11 seconds. Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said

Similarly, FT's Martin Wheatley pointed out last month:

I know of one HFT firm operated out of the west coast of the US that boasts its average holding period for US equities is 11 seconds

And market analyst Peter Cohan writes at AOL's Daily Finance:

70% of trading volume on the major exchanges is conducted by high-frequency traders who hold a stock for an average of 11 seconds.

The fact that the vast majority of stock market trades are held for 11 seconds shows that the stock market is not a real market with real traders governed by the law of supply and demand, and with no real price discovery.

Cool - plural anecdotes. Must = data.

This is precisely why I proposed that any Tobin Tax should be inversely proportional to the length of time the investment was held (ie instead of a flat rate a Tobin Tax should be a curve, where the closer to duration zero one gets, the closer to 100% tax one gets*).

Quite how holding an asset in seconds fits with layman's understanding of investment is all Greeks to me.

* A function with shape similar to 1/x would suffice. Obviously parameters would need to be agreed and reviewed but the principle is easy enough.

I'm wondering where exactly was this proposal made... it sounds like it was somewhere important judging by the tone of the post.

Perhaps the floor of the House where members rose in turn to profess their acclaim whilst order papers waved. Or maybe the common room at All Souls where a quiet murmur and arched eyebrows were sole testament to the shock the fellows felt at hearing such a profound insight.

Or perhaps a tupenny ha'penny forum, where the debate soon turned to jizzing in an elderly film director's soup.

[erranta]

So it is basically theft, and is not wealth creating as they would like us to believe, but in fact is the opposite?

Exactly!

A bank of England director spelt it out in plain language about 6 months ago saying for past 10 years all the banks have done is borrow money off each other (to & fro, pass the parcel) and skimmed commission off the transactions.

The crash happened years ago - it's all been about finishing the countries off by siphoning money out of pensions/charges/fees, racking up bank/credit card fees + raising insurance premiums for no good reason etc etc just to keep the City afloat.

That's why the desparate global buying into other countries (bank chains) to tap new markets and begin draining them(and their pensions) and to borrow money from one side of the World to make their London banks look solvent for a couple of days when the London regulators are checking/signing off annual accounts.

Racketeering with bust(front) banks in a bust corrupt system. (Unravelling before your eyes in USA)

Edited October 22, 2010 by erranta

[pandora's box]

Cool - plural anecdotes. Must = data.

I'm wondering where exactly was this proposal made... it sounds like it was somewhere important judging by the tone of the post.

Perhaps the floor of the House where members rose in turn to profess their acclaim whilst order papers waved. Or maybe the common room at All Souls where a quiet murmur and arched eyebrows were sole testament to the shock the fellows felt at hearing such a profound insight.

Or perhaps a tupenny ha'penny forum, where the debate soon turned to jizzing in an elderly film director's soup.

nice rhetoric, no substance cobber.

[Meat Puppet]

They can't loose. I just return all my carrots to the supermarket. I've not paid for them. As I said I'm not providing liquidity.

In 2008 the profits of HFT were estimated to be $21bn shared by just 300 securities firms and hedge funds.

I can't see how this is new wealth, so everyone else must be $21bn the poorer,

Nothing new here. The financial sector has grown like a successful parasite introduced into a new ecosystem. Corporate profits in total have averaged about 10% of GDP for decades but financial sector profits have grown exponentially. This of course means that real productive enterprises have been squeezed out by the vampires.

[@contradevian]

Exactly!

A bank of England director spelt it out in plain language about 6 months ago saying for past 10 years all the banks have done is borrow money off each other (to & fro, pass the parcel) and skimmed commission off the transactions.

The crash happened years ago - it's all been about finishing the countries off by siphoning money out of pensions/charges/fees, racking up bank/credit card fees + raising insurance premiums for no good reason etc etc just to keep the City afloat.

That's why the desparate global buying into other countries (bank chains) to tap new markets and begin draining them(and their pensions) and to borrow money from one side of the World to make their London banks look solvent for a couple of days when the London regulators are checking/signing off annual accounts.

Racketeering with bust(front) banks in a bust corrupt system. (Unravelling before your eyes in USA)

Pretty accurately summed up, pure theft and scammery for scammery's sake!

[ChumpusRex]

Ah, so it's like a shared ownership pyramid scheme, artificially inflating capital costs?

Not really.

It allows company owners to access a larger pool of capital than would otherwise be possible, thereby reducing capital costs. E.g. instead of approaching a billionaire venture capitalist who wants 50% of your company for £100 million cash - you could reach hundreds of thousands of small (and large) investors via the stock market, and raise £100 million for 40% of the company. You get a better deal, because you have more competing bidders.

There is not necessarily any 'pyramid' or 'Ponzi' scheme, as the company has the potential to create profit from its operations which are paid to the shareholders.

There is a risk that a kind of 'Ponzi' economics can develop due to a bubble mentality - but that's not strictly a problem with the stock market itself, but a problem of herd mentality, and recklessness that accompanies human greed.

[aussieboy]

nice rhetoric, no substance cobber.

I'm sure all of your contributions have each been fact-filled nuggets of pearly wisdom.

[aussieboy]

Not really.

It allows company owners to access a larger pool of capital than would otherwise be possible, thereby reducing capital costs. E.g. instead of approaching a billionaire venture capitalist who wants 50% of your company for £100 million cash - you could reach hundreds of thousands of small (and large) investors via the stock market, and raise £100 million for 40% of the company. You get a better deal, because you have more competing bidders.

There is not necessarily any 'pyramid' or 'Ponzi' scheme, as the company has the potential to create profit from its operations which are paid to the shareholders.

There is a risk that a kind of 'Ponzi' economics can develop due to a bubble mentality - but that's not strictly a problem with the stock market itself, but a problem of herd mentality, and recklessness that accompanies human greed.

That kind of rational approach will play very poorly here.

[@contradevian]

That kind of rational approach will play very poorly here.

Raising venture capital is nothing to do with HFT

[aussieboy]

Raising venture capital is nothing to do with HFT

No, but raising capital does which relates to the public markets and the odd prevailing view that only financial services firms have been accessing capital.

Chumpus' broader rational tone was just a bonus.

[Della]

If you think holding stocks for 11 seconds is wrong...you're a communist.

I am a long term investor, I hold my stocks for 15 seconds.

Edited October 22, 2010 by Della

[Tiger Woods?]

They can't loose. I just return all my carrots to the supermarket. I've not paid for them. As I said I'm not providing liquidity.

In 2008 the profits of HFT were estimated to be $21bn shared by just 300 securities firms and hedge funds.

I can't see how this is new wealth, so everyone else must be $21bn the poorer,

Give that man a cigar. After you have factored out changes in the level of the market, this is a zero sum game. These guys are taking money from non-HFT traders (also known as investors) and increasing market risk at the same time. We need a transaction tax to shut HFT down. It is parasitism.

[Tiger Woods?]

That kind of rational approach will play very poorly here.

Raisng capital by getting people to buy your shares has nothing to do with HFT.

[Dave Spart]

Cool - plural anecdotes. Must = data.

I'm wondering where exactly was this proposal made... it sounds like it was somewhere important judging by the tone of the post.

Perhaps the floor of the House where members rose in turn to profess their acclaim whilst order papers waved. Or maybe the common room at All Souls where a quiet murmur and arched eyebrows were sole testament to the shock the fellows felt at hearing such a profound insight.

Or perhaps a tupenny ha'penny forum, where the debate soon turned to jizzing in an elderly film director's soup.

None of those, I proposed it in the middle of last year.