High-Frequency Trading – Economic Effects

High Frequency TradingMark Cuban, owner of the Dallas Mavericks, Landmark Theaters and Magnolia Pictures, recently wrote an editorial regarding the OWS (Occupy Wall Street) movement. As someone who is “part of the 1%,” it may come as a surprise that Mark is in favor of the movement. His reasons are stated in the Business Insider article.

Whether you’re for, against or neutral on the OWS movement, Mark’s high frequency / black box trading comments are interesting. In part four of the editorial, he states the following:

“In a world of High Frequency Trading and black box trading that does nothing but create a platform for ‘financial hackers’ to turn the market into their own proprietary financial playground, we need to figure out a way to revert the Stock and Bond Markets, and the derivative instruments created from these equities, back to their original purpose, a place to raise capital for growing business. Instead, today it’s a platform for financial engineers and hackers looking to exploit every and any opportunity. When 60% or more of trades are from High Frequency/Algorithmic traders and the correlation for every market index rushes past .7, the market is no longer a market, it’s a platform.

The simplest way to change this is to place a very simple per share tax on every transaction. 10 cents a trade. Every share. Every option. Every Bond. Every currency transaction. Every trade.

The obvious response is that trading volume will plummet. So what? Let it. The next response is that traders will merely move their trades to foreign exchanges. Yes they will. Will transaction costs go up? Duh.. that is the point. The market thrived when spreads and transaction costs were much higher just a few short years ago. It will survive now.

More importantly, it might just put the market back to the basics of what the stock and bond markets are supposed to be, a means of raising capital to support corporate growth. There used to be a time when Investment Bank Partnerships made their money scouting out small companies in need of capital and matching them with investors. They weren’t as big as they are now, but they managed to create quite a few growth industries. Something we could use some of today. Making the stock market a launching pad for companies will have far greater value and impact employment far greater than making sure High Frequency Traders can get their trades in.”

Day Trade to Win is obviously not a high frequency system, nor do the methods we teach dabble in producing an excessive amount of trades using hundreds of thousands of dollars in contracts. Our traders are considered “retail” – observing market conditions and manually take trades at their own pace using a strategy they feel works best under current market conditions. Many of our traders make a living at home, without a degree in finance, astrophysics or software engineering. In addition, DTTW-style trades are placed using publically available platforms such as NinjaTrader or TradeStation. These trades are placed from locations throughout the world by humans; not by advanced AI software running in a 40 degree room a block away from the CME.

Should there be an additional government tax on every trade placed such as Mark’s proposed 10 cents a trade?

Is high frequency trading ruining the economy?

What would day trading be like, as a retail trader, without market movement caused by high frequency trading?

Does day trading (stocks, options, futures, etc.) offer any value to business, the economy or humanity as a whole?

Let us know what you think.

10 Comments

  1. Joe Theo October 31, 2011
  2. JOHN PAUL October 30, 2011
  3. JOHN PAUL October 30, 2011
  4. JOHN PAUL October 30, 2011
  5. diablo 3 forum October 30, 2011
  6. BH October 29, 2011
  7. Steve October 28, 2011
  8. master digger October 28, 2011
  9. jose October 25, 2011
  10. batters up October 24, 2011

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