[pedalpete]

I completely agree with you, but think your comment should be moderated down from 'They produce nothing usable', to 'They are paid exorbitant amounts compared to the value the produce for society as a whole'.

"but they manage your retirement fund", really? do they? last I checked there are algorithms running the entire show and making sure I and every other little investor get screwed for every 10th of a cent so that a few investors at the top who already have loads of money can have more. They've made a game out of moving money and skimming a bit off the top all the time. Let's not forget that they are actually taking money from your 401k every time they make these trades. Let's not pretend the financiers care about you, the little guy.

Another comment mentioned that YC is in finance, but let's be clear, YC is financing start-up businesses and helping them to grow. They're small finance. When I buy a share in Facebook, I'm not helping it grow, I'm betting on it's growth and the big finance industry is just the casino.

[encoderer]

Spreads on liquid stocks are a penny now. Most limit orders are price improved by a few tenths of a cent -- a better price than you asked for. These are both courtesy of algorithmic trading. If a HFT trader does arb between two diff exchanges he's not hurting you. You're conflating it with front running your orders. That is not really a problem for a retail trader who isn't moving large block trades.

[lintiness]

some market players are allowed to trade at sub-pennies, others are not. when one party can trade inside while leaning on the guy taking the risk to make the market, something is very very wrong with the "system". over time, the guys taking the risk are gone, and the whole market is weakened.

[encoderer]

Can you elaborate on this? What do you mean "sub pennies?"

[nikofeyn]

getting a price better than your limit isn't better than your asking price. you state i will accept nothing less, which is typically priced lower than or close to the market price. so your asking price is really the market price but with a safety net. it's not really a courtesy at all that limit sales go for higher than the limit.

and oh goodie, i made an extra $50 on my trade because of some algorithm. thank god for that.

[encoderer]

Actually, the liquidity providers who are filling orders passed from your broker will give you a better price than the market NBBO (or your limit) by a couple tenths of a cent. You can google it to read more. It's generally called "price improvement". The main reason they do this is to capture order flow so they can use that knowledge in their own trading.

[aianus]

What would a FB IPO have looked like without the expectation of a deep and liquid secondary market for the lifetime of the company?

If the secondary market wasn't so big and efficient, it would be more expensive for everyone to raise capital, from large corporations to one man seed rounds.

[winstonsmith]

I don't know about these guys, but according to Cathy O'Neil, D. E. Shaw profited by anticipating (c.f. index front-running) pension funds in a way that sickened her to the point of quitting.

https://mathbabe.org/2011/06/24/working-with-larry-summers-p...

[mrchicity]

Think about happens if indexes don't pre-announce their changes. Is their market impact larger or smaller than if people know about it and "front-run"?

Suddenly someone wants to trade 10x daily turnover in a small-cap stock right on the closing bell. It could be a dumb whale index fund, or it could be an insider trader who knows about a merger, or a sharp hedge fund who thinks the stock is undervalued.

If you're a liquidity provider or speculator, do you want to stand in front of this freight train at all? If you offset the huge liquidity imbalance, how much will you charge to cover your losses if it was an informed trader? Is it more or less than if you know it's an index fund?

Pre-announcing generally lets utilitarian traders execute their trades more cheaply: http://rfs.oxfordjournals.org/content/4/3/443.short

Remember, even if there is some edge in this type of anticipatory trading, competition will reduce its margins significantly. Imagine I announce tomorrow in the Wall Street Journal that I'll buy 100000 off-lease Honda Accords next week from whomever will sell them to me cheapest. Everyone rushes out to buy them on Craigslist or eBay, but only those who make the least on the deal end up selling to me.

[mrchicity]

If you invest in ETFs, you are certainly being helped by automated arbitrage traders. These products rarely trade more than a cent from their true value because computers can calculate the hedging basket almost instantly. Yes, they have a profit motive, but competition keeps their profits small: https://meanderful.blogspot.com/2013/01/hfts-dirty-little-se...

It always costs money to transact. The alternative to trading against an ETF arbitrageur's quote isn't a costless transaction at the fair price, it's manually paying the spread and transaction costs on hundreds of stocks and risking slippage.

FWIW: YC probably earns more than even the biggest automated trading businesses.

[nikofeyn]

> FWIW: YC probably earns more than even the biggest automated trading businesses.

is that true? bigger than renaissance technologies?

[vostok]

> making sure I and every other little investor get screwed for every 10th of a cent so that a few investors at the top who already have loads of money can have more.

Do you have a reference for this? It runs counter to my intuition.

[pedalpete]

This is actually how algorithmic trading works. Computers are committing multiple trades in a fraction of a second in order to skim the tiniest of profits thousands of times.

https://www.bloomberg.com/view/articles/2014-03-31/speed-tra...

[vostok]

The fact that computers are committing multiple trades in a fraction of second to make tiny profits does not mean that they are screwing you out of every 10th of a cent. In fact, my intuition is that you would be worse off without them because whoever you're trading with would be making big profits rather than tiny profits. It's the competition between computers that makes that profit so small.

> It is a statistical certainty that a percentage of trades will be losers. You are establishing a position with an unknown outcome. Sometimes they go your way, other times they go against you.

> How is it possible that one of the largest high-frequency trading firms executes millions and millions of orders for four years without ever having a down day? The short answer is what they do is not trading -- it is skimming. I call it legalized theft. High-frequency trading is a tax on investors, encouraged by the exchanges, allowed by the SEC. It is prima facie proof that something is amiss.

It seems to me that this author has difficulty with taking the limit of 1/sqrt(n) as n grows without bound.

[zdkl]

Wells Fargo's product-per-client quota springs to mind

[vostok]

I think we're discussing trading here. I'm not prepared to give anyone financial advice, but I'm probably not personally a huge fan of retail bankers, investment bankers, wealth management, expensive mutual funds, and so on.