Personally I waffle on this myself. My instinct tells me it’s bad but then I try to decide what trading cadence I would limit it to. Assume there is a CEO who wants to do something nefarious to manipulate the stock price. If they make a decision how fast can a company actually act on it? Would or could they make the company act on 1 hour boundaries? Even if we limited trades to once per week is that the long term we want a CEO to consider? At what time frame does a stock stop being a stock and convert to something else? Then I decide even by minute trading is not really something that management can even consider, even if they want to, so there is really no point to artificial limits imposed by law and take a more laissez faire attitude.
I waffle on this one too. Institutions that do HFT have a huge capital cost and pay large fees before they even make their first trade. They also employ programmers, traders, etc. Basically, these taxes are going to need to sum to something really big to dissuade them. Too small, they ignore it. Medium, the market will just consolidate. Large, you'll stop HFT, but at what consequence? The probability of unintended consequences is high.
This is when I decide I don't really understand the market as well as I think, and I should stop solving the world's problems, and go back to designing circuits.
A tiny tax on each order (bid, ask) entry would cut the total volume of orders by a huge factor, cost them only a small fraction of their takings, and probably fund free college for everyone in the US.
No you wouldn’t. The development of HFT has created massive liquidity for markets and reduced bid ask spreads in a way that benefits retail investors more than past alternatives.
Does it benefit society though? I'd argue that increased liquidity in markets is a net negative. That means it's easier for investors to sell their assets quickly, which is exactly what you don't want if you want to encourage long-term investment.
People buy and flip houses, despite the fact that it takes months. What timeline would you think would discourage short-term investment?
Ultimately I'd rather place the responsibility for long/short term investing on the investor. The fact that most retail investors should be investing passively and long term is well known at this point, the issue is one of education.
Don't dumb down the system when it's easy to make people stronger.
> People buy and flip houses, despite the fact that it takes months. What timeline would you think would discourage short-term investment?
Months would be pretty good. But I suspect that wouldn't fly in practice. Flipping houses is long-term investment, no? Even if the asset isn't held for a long time, long-term value is added. This is very different to speculative trading where no value is added.
> The fact that most retail investors should be investing passively and long term is well known at this point
Nope! The primary purpose of the stock markets isn't to generate income for the investors. The purpose is to effectively distribute capital to those business that can use if effectively. Passive investment does not help to achieve this. It reduces the "wisdom of the crowd" effect, because anyone investing passively is not contributing their wisdom.
> Don't dumb down the system when it's easy to make people stronger.
I have completely the opposite view on this. If there's an obviously correct way of doing something, then don't leave it to chance. Design the system so that people can't fail.
Flipping houses is also speculative, as those who have lost money doing so can attest to. If you spend a lot of time/money flipping a house only to have the market tank or you just chose a bad area, then no one buys and all that "value" is lost in wasted resources.
Buying stock by definition is purchasing the right to participate in a company's future profits. That's the reward for taking a risk on the company, and the primary metric by which "who can use it effectively" is determined. It isn't and has never been some board of financial justices trying to figure out how reallocate capital out of altruism, otherwise hedge funds and active traders would all be non-profits.
There isn't an obviously correct way to do this, it depends on one's objectives. Financially illiterate employees contributing to their 401ks have different needs than hedge funds who have different needs than people trying to build wealth for non-retirement time horizons in taxable accounts who have different needs than people saving in HSAs and 529 accounts who have different needs than Pension funds, among many other users of the market. It's up to the investor to determine their needs, not be coddled by some nameless, faceless system that only permits the lowest common denominator of participation.
On a more philosophical note, systems where people can't fail are systems I've experienced professionally (working for companies with political/economic moats so vast they can fail repeatably and not be punished). All it produces in my experience is complacent dead weight and rules to maintain said dead weight that unite to stifle the progress of those who wish to perform or make progress. The systems become benign tumors at best.
Now granted there should be some safety nets in place, not everyone can be or wants to be a high performer, but that doesn't mean we should make every room with padded walls. People who throw money into the market without the slightest bit of research should be punished for their lack of planning, same way people who jump off a roof without thinking are punished by injury.
Volatility is the main concern [1]. Making trading decisions based on microseconds is speculation. How can anyone or anything reach an understanding of something as complex as markets in this short time?
Other concerns include unnecessary waste and unfairness [2]. The point is that this is a zero-sum game that makes us invest in infrastructure that will soon get obsolete once someone else builds a faster infrastructure.
Fast trade isn't "efficient". Long-term stability is.
