Tuesday, October 12, 2010

Yes, high frequency traders are trying to take a profit

But specialists and human market makers (not computers) used to take a much bigger profit, on a per trade basis. Instead of working with spreads a penny or two wide, for pretty much all of the last century, spreads were twelve-and-a-half and twenty-five cents.

That's a lot of dough that the specialists were able to pocket. It could be argued that high frequency traders are saving you more than 10 cents a share, if they are the ones providing you with liquidity as you trade, as they probably are, accounting for more than half the volume traded. If a retail investor traded 100 shares per week for forty years--between her brokerage and IRA accounts, 401(k) allocations, mutual funds, insurance claims, and pension funds--that's a savings of over $20,000. For 100 million retail investors, that's $2 trillion dollars of savings.

Let's not go backwards here. Here is the 60 Minutes piece that just ran over the weekend.

No comments:

Post a Comment