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by harryh 3253 days ago
It's a bit hard to say to be honest. The wider spreads should make a lot of HFT strategies more profitable. Profitable enough that they can successfully absorb the costs from the tax and not go out of business. You are probably right that this wouldn't be true in all cases though.
1 comments
minimax 3253 days ago
Here are some numbers. 0.5% of a $50 stock is $0.25. So to break even on the tax alone you need to sell $.50 higher than you buy. That alone will blow out the spread any market maker is able to quote at. The other problem is that now scratching (you buy at the bid and now it looks like the price is going the other way so you aggress and sell back into the bid for no profit) is also extremely expensive (you lose $.50 per share on a $50 stock just scratching). That's going to really kill your profitability. Maybe someone could figure out how to make it work, but it would be an extremely painful regime for market makers.
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harryh 3253 days ago
Are there really people proposing a 0.5% tax on trades? Jesus. That's 1-2 orders of magnitude bigger than I thought we were talking about. That's crazy!
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minimax 3253 days ago
0.5% on equities was the Bernie proposal. Here I'm assuming that both sides pay 0.5% but even if it's half that (each side paying 0.25% or only one side pays) the numbers are crazy.
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cwkoss 3253 days ago
Easy fix - only tax the takers. I agree the 0.5% is a bit steep on both sides. If only to takers and makers aren't taxed, seems like it could work. Would also probably add a ton of liquidity to the markets.
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minimax 3253 days ago
How is that a fix? A market with huge displayed sizes but no trading (because nobody wants to pay the massive take penalty) is not a "liquid" market.
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dsacco 3253 days ago
> Would also probably add a ton of liquidity to the markets.

What? No it wouldn't. You are disproportionately rewarding makers in this scenario. You would find plenty of listed orders, which somewhat looks like liquidity, but it would not be a liquid market. The end result would be a market that is actually less liquid because no one wants to fulfill orders. It would be utterly lopsided.

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rramdin 3253 days ago
HFTs are almost entirely makers; retail and institutional do almost all the taking, so taxing the takers may not have the desired impact on the industry.
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