Stock Traders Find Speed Pays, in Milliseconds

by Charles Duhigg Friday, July 24, 2009

On Thu, 13 Aug 2009, Steve Witham wrote:

...

The question boils down to whether the rules,,,are fair.

From: Jason <jason@lunkwill.org>

Do you mean fair to the privileged class of high-speed traders, or fair to the market as a whole? If it's the latter, then the claim is rather tautological.

What I really meant was voluntary at the individual traction level for players of all speeds. Beneficial as seen by each participant at the time.

If it's the former, then why does "profitable for high-speed traders" imply "good for the market as a whole"?

That would be economics, which is tautological (and mathematical) until you notice it making some correct predictions.

From: Dan Asimov <dasimov@earthlink.net>

Can you define "fair" -- especially in a mathematical sense?

(Otherwise this may be a political issue and inappropriate for math-fun.)

With that caution in mind, What I was trying to say was that there are mainstream economic models about this stuff, and the NYT article doesn't fit its stories into that picture (nor clash them against it). Henry Baker wrote:

The excursions of a stock price or a stock index during a single day of trading mean that old-fashioned mutual funds that are priced only once per day are as dead as a dinosaur.

One of the features of these mainstream models is that faster trading benefits people of all speeds except maybe the narrow group of people at the formerly fastest trading speed wishing they could still be traders at that speed. Long- and medium-term investment still make sense & is supposed to get a little better. --Steve