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Old 08-18-2011, 12:25 PM   #21
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Don't think anything wrong with high speed trading. In fact, I support it. Company's fundamental hasn't changed but market's perception of that company wildy fluctuates up and down b/c of high speed trading. As a value investor, I love that b/c I'll buy when the market has negative perception and sell when it's up. It's easier said than done but I do think you can use to your advantage on a small part of your portfolio.
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Old 08-18-2011, 12:30 PM   #22
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Another way to do that is through a financial transaction tax, as recently proposed in Europe. That would eliminate the profitability of the razor thin margins captured by high-frequency traders.

I don't have a strong view on the merits of this particular idea, but I'm generally favorable to the notion of taxing things we want less of. If we want less speculative trading, it makes sense to tax that instead of taxing things we want more of . . . like saving, investing and working (and no, high-frequency trading isn't saving or investing).
We had a transaction tax in 1929. Our market still crashed.

In addition, a transaction tax will drastically reduce volume in the market. As a result the bid/ask spread will increase. Who knows by how much. But it is safe to say that a transaction tax will mean that the cost for everybody will go up, irregardless if you have a regular equity account, an IRA, a 401k etc.

There are better ways of going after high-frequency traders than a transaction tax.
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Old 08-18-2011, 12:48 PM   #23
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As a result the bid/ask spread will increase. Who knows by how much. But it is safe to say that a transaction tax will mean that the cost for everybody will go up, irregardless if you have a regular equity account, an IRA, a 401k etc.
So?

If the revenues are used to offset income taxes then the cost of everything impacted by those goes down. The question isn't whether a 'Tobin Tax' produces a net good in and of itself, but whether it is preferable to the other ways we raise revenues. That's a much harder question to answer, but I suspect the answer is . . . it is preferable.
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Old 08-18-2011, 01:05 PM   #24
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Don't think anything wrong with high speed trading. In fact, I support it. Company's fundamental hasn't changed but market's perception of that company wildy fluctuates up and down b/c of high speed trading. As a value investor, I love that b/c I'll buy when the market has negative perception and sell when it's up. It's easier said than done but I do think you can use to your advantage on a small part of your portfolio.
About the only impact it has for most of us is to encourage the use of limit orders (where you specify an exact price to buy or sell at) rather than market orders (sell or buy at whatever the 'current' price is), which high frequency trading makes a bit dangerous with wiggling the current price around hundreds of times a second, often violently.
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Old 08-18-2011, 01:14 PM   #25
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So?

If the revenues are used to offset income taxes then the cost of everything impacted by those goes down. The question isn't whether a 'Tobin Tax' produces a net good in and of itself, but whether it is preferable to the other ways we raise revenues. That's a much harder question to answer, but I suspect the answer is . . . it is preferable.
I guess we have to agree to disagree. Unless all countries agree to a world-wide transaction tax, it will fail as investors will simply move their funds to markets that do not have this tax. Ask the country of Sweden how their transaction tax worked. Not only did they fail to raise revenue, most of their prior volume left for London which had a much less onerous transaction tax than Sweden.

I find it interesting that people like to criticize speculators and high frequency traders the second the market starts going down. Why was there no criticism of speculators and high frequency traders in late March 2009 through the rest of 2009 when the market took off?
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Old 08-18-2011, 01:33 PM   #26
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Unless all countries agree to a world-wide transaction tax, it will fail as investors will simply move their funds to markets that do not have this tax.
I agree with that criticism.
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Old 08-18-2011, 01:59 PM   #27
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I guess we have to agree to disagree. Unless all countries agree to a world-wide transaction tax, it will fail as investors will simply move their funds to markets that do not have this tax. Ask the country of Sweden how their transaction tax worked. Not only did they fail to raise revenue, most of their prior volume left for London which had a much less onerous transaction tax than Sweden.

I find it interesting that people like to criticize speculators and high frequency traders the second the market starts going down. Why was there no criticism of speculators and high frequency traders in late March 2009 through the rest of 2009 when the market took off?
There are legitimate concerns.

There are ways to deal with it other than a tax.

Of course the people making money from it are going to deny they are causing instabilities or that they have an unfair advantage.

Those markets are essentially money machines... and people do exploit them unfairly.

We had that flash crash and there are many people (in the profession) that are concerned about it. I believe it is very rational to be skeptical about it. It should be looked at very closely.

Technology changes are often ahead of us understanding how it might impact the overall system and the participants in the system.

We may be getting to a point where changes to normal convention require more testing and vetting before they are allowed "on the road" so to speak.
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Old 08-18-2011, 02:39 PM   #28
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Right, the inexperienced do not have a staff of 100 PhD's developing quantitative algorithms that are executed via computers/high speed data lines positioned in close proximity to wall street.
You mean like the Nobel-prize-winning parolees experts at Long Term Capital Management?
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Old 08-18-2011, 03:37 PM   #29
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There are legitimate concerns.

There are ways to deal with it other than a tax.

Of course the people making money from it are going to deny they are causing instabilities or that they have an unfair advantage.

Those markets are essentially money machines... and people do exploit them unfairly.

We had that flash crash and there are many people (in the profession) that are concerned about it. I believe it is very rational to be skeptical about it. It should be looked at very closely.
I couldn't agree more. What caused the flash crash needs to be addressed.

I simply think a solution such as a transaction tax is not the best way to go. Why penalize regular small investors for the abuses of those people that caused the flash crash?
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Old 08-18-2011, 05:22 PM   #30
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Did you really think things would calm down so soon?
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Old 08-18-2011, 07:38 PM   #31
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