How to Make Money in Microseconds

toshj said:
Of course it adds to the wider economy. These funds make money, they're taxed. Quite simple really. I also know of a couple of systematic funds in London that give very generously to various charities.
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They're taxed on fantasy profits, and utterly distort the economy in the process. When there's an upward shift in the value of a share, nothing new is created, made or otherwise value-added all that's changed is a number. That number is then converted into "real" cash. Which is fine to a point, because markets themselves do add a certain amount of value in the ability to liquidate assets, invest and transfer wealth, etc. - but the current state of affairs results in market trading being profitable out of all proportion to its actual value to the economy and, worse, badly distorts the incentives so that a small number of not actually that skilled or talented receive inordinate wealth. That wealth then distorts the local housing markets, etc.
 
Mr Jack said:
There's absolutely no evidence that rapid trading has made markets more efficient. If anything the opposite has occurred. In fact, efficient markets seem very much to be a fantasy of economists, just like rational agents. Real markets just don't work like that.
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Should have expressed it better, I was not referring to the efficient market hypothesis. I meant that this type of trading corrects misalignment in the pricing of securities, thus serves a purpose of sorting out these market errors.

It's simply buying the same product cheaper from somebody and selling it more expensively to someone else, until the price is matched and there is no more opportunity to make a profit out of it. This happens in trade outside financial markets everyday. It's not a financial "invention" by any means, it's just feasible in such a way that only computers could do it.

Mr Jack said:
They're taxed on fantasy profits, and utterly distort the economy in the process. When there's an upward shift in the value of a share, nothing new is created, made or otherwise value-added all that's changed is a number. That number is then converted into "real" cash. Which is fine to a point, because markets themselves do add a certain amount of value in the ability to liquidate assets, invest and transfer wealth, etc. - but the current state of affairs results in market trading being profitable out of all proportion to its actual value to the economy and, worse, badly distorts the incentives so that a small number of not actually that skilled or talented receive inordinate wealth. That wealth then distorts the local housing markets, etc.
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You could say the same about every commodity as well then, housing? wheat? cars? And these assets are more illiquid than shares/derivatives as well. While the value to the economy is debatable (I'm not going to argue one way or another) there are certain benefits, and of course disbenefits, of it. But that's how every kind of market works, there will be bargains for people to make money out of inefficient pricing (inside information or other more legal ways).

You also mention skill and talent, while I agree to an extent and I have no reason to support that traders are geniuses by any means (it's a mixed bunch) I would be more annoyed by the wealth gained by nano-celebrities (ex reality show contenders, ex trashy models, average footballers etc.) who have put less effort into getting that rich. The market (housing or otherwise) suffers the same distortion by all rich people. The capitalistic system allows windows of opportunity (or distortions as you may call it) for people to get rich, fast, with little effort, across all society - it's not restricted to bankers. I suppose the latter came under the spotlight due to the recent recession, but they are by no means alone in the game. Even if you were to "fix" the financial markets issue that you discuss (I don't believe there is a way or that there is something to be fixed in the first place) you still have the rest of the society to sort out too.
 
Fast highly traded(Highly liquid) products tend be less volatile and more closely match there real price. I.e A thinner donchian channel.

If anything these computers driving prices to match there real price more quickly.

You can't just jump into algorithmic trading. These people are called quants and are usually highly knowledgeable cs phds or math phds with a basic salary of £100000 plus bonuses. This had been going for decades and is nothing new, the majority of trades are computers.
 
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