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 that there is no real price discovery.
But as Tyler Durden points out, alot can happen in 11 seconds when the players are high-powered computers:
But as Tyler Durden points out, alot can happen in 11 seconds when the players are high-powered computers:
07-29-10
BATS "Flag Repeater". 15,000 quotes in 11 seconds, dropping the ASK price 1 penny each quote from $9.36 to $8.58 and back up again.
It seems to me that all this could have been corrected long ago by simply making the definition of investment for tax purposes require that you hold the security for a minimum of one year. Any thing less than that would be considered a gambling win or loss and would be treated for tax purposes the same way as winnings on the roulette tables in Vegas.
ReplyDeleteOf course, no "serious" person wants to fix this because they don't view it as a problem. 11 seconds - hey that's a vital investment and gives a person (usually a corporate person) more rights and privileges over that company than the people who have worked 30 years in its offices or factories. What could be wrong with that?
Sounds like a game of hot potato, hot potato...
ReplyDeleteBei! Ya maladjusted. So are we.
ReplyDeletehttp://www.youtube.com/watch?v=zXEIYpnlxbw
So does this means that CNBC and every financial news network, – actually ANY discussion of the markets anyone every hears that attributes market activity to human decisions – are complete and utter fictions? From the newscaster that states, “Oh markets closed down today as investors were worried about inflation fears, etc etc” to the 24/7 coverage provided by CNBC – is it all a total and complete fabrication? Are we all just actually watching/listening to people make up stories about the activities of computers? Or more accurately and insidiously, stories about the activities of computers run by a handful of powerful entities? If so, this is like me sitting in front of a game of Tetris on my computer and doing a running commentary on the reason the different blocks were selected to drop was due to something I had eaten this morning or what kind of sleep I had last night. How is it not exactly the same thing? Remember, 70% of all trades are held for 11 seconds which prolly means that – I’m guessing – 95% are probably held for under 3 minutes. So are people with long term investments – 401ks etc – basically fed truckloads of BS just to give the appearance that someone somewhere actually is actually helping to determine the value of their assests and they are not just involved in ultracomplex version of a video slot machine?
ReplyDeletePeople may complain that our political system is simply a “kabuki dance” for monied interests but there exist too many ways for politicians and those involved to cling to plausible deniability. However, in this situation involving actual data and numbers the accusations that we are knee-deep in a “Matrix world” may not be so easy to brush aside in my opinion.
Is this too alarmist? If so talk us down.
There absolutely should be a transaction tax on each and every share that gets traded - no matter how long the security is held. If it didn't discourage this type of behavior, at least we could gain something from it.
ReplyDeleteI agree, add a very small fee to transactions that would not be significant for investors but would make extremely frequent trading unprofitable. The frequent trading adds no value to markets and makes them more volatile which is a negative externality.
ReplyDeleteThere is a buyer and a seller, regardless of how long the investment was made. People have been trying to game the system for hundreds of years. Taxing transactions only makes people less likely to invest and more expensive. Taxing and regulating is not the wrong way to think.
ReplyDeleteyou guys are morons.
ReplyDeletethis article is irrelevant. if somebody holds stocks for years, they are not competing with these high frequency traders. The only people that should be concerned are pension funds who have moronic trading patters, and novice traders who think they can compete day trading with their etrade/scott trade account.
adding a transaction tax will only increase the holding time by the exact amount of time that allows them to be profitable. it wont benefit anybody, you wont be anymore profitable in your 401k. It will just transfer money from everybody who invests or trades to the government.