- The Cooling of the Speculative Fervor -
So you want to “get into the market” because that’s where the real money can be made, but you haven’t been tuning in lately to the investment game. Couple things to know:
Most of the players you’ll be playing against aren’t human. They’re bots: Their nervous systems are algorithms that detect fleeting price discrepancies and market patterns, and then place orders automatically.
That’s okay, right? Humans played chess against computers for the fun of it and even beat them until recently, right?
Except that the companies you’re up against, the ones engaging in high-frequency trading (HFT) are playing a different game — one that no retail investor has the opportunity to play. The bots are buying and selling stocks multiple times a second. In theory you’re at the poker table with them but the bots are really playing each other — and the edge they’re chasing is now measured in nanoseconds — billionths of a second.
So investing isn’t about investing anymore — you know, looking for promising companies and supporting them to the level of your risk tolerance. It’s about hardware and software. This is an arms race: and the table’s tilted toward the companies like Citadel that have the money to build the fastest uplink closest to the stock exchange — to push their trade through a nano-whisker ahead of everyone else. And in fact most observers think the arms race will soon become a space race, with big players jockeying to colonize lower-earth orbit with necklaces of hundreds or even thousands of satellites so that one will always be close enough to get their “buy” or “sell” signal in there first as they shoot money across a dozen global stock exchanges and unofficial “dark pools” of high-volume speculation — leaving earthbound punters with their lasers and fiberoptic cables in the dust.
About three trillion dollars a day is generated this way – more than is generated any other way — and it’s making a few cowboys insanely rich as they fleece everyone else in the casino.
But so what?
The “so what” is that all these trillions of dollars aren’t actually doing anything. High-frequency trading creates nothing of actual value. It’s the ultimate financial circle jerk — a massive-scale transmogrification of money that means nothing. Except this whole thing is a ticking time bomb, and when it goes off we’re all going down like we almost did in 2008, or worse.
There is a solution here. It’s simple but not easy.
It’s a “hold” rule.
You put a legally mandated time gap between the trade and its acceptance. So when someone buys a stock, they have to hang on to it for some period of time before they can sell it again. Let’s say it’s 24 hours.
Now people start looking again at what it is they’re buying. The actual value of the stock, rather than simply its role in the spasm chain of money-begets-moneybegets-money.
Nanotrading: gone. Insider trading: severely curtailed. The intercontinental spectacle of money rocketing between exchanges in North America, Europe and Asia: hobbled.
A Canadian trader Brad Katsuyama tried to level the playing field in just this way — albeit much less radically. In 2016 he started his own stock exchange, which put a 350-millisecond “speed bump” in the way of the ultrafast turnarounds of the space cowboys. If you place and cancel an order in less than a third of a second, the order is canceled. Katsuyama met huge pushback from New York and London and Brussels, but also an outpouring of gratitude from pissed-off investors — and the New York-based exchange, called IEX, grew: it now accounts for around 3 percent of US trading volume.
So right there is proof of the appetite for a new, fairer field.
But a third-of-a-second speed bump is not enough to push the bots out of the game.
A one hour or 24-hour hold is better: You buy it, you keep it for a day. Elegant, simple, radical.
Let’s fight for this. Let’s star t with a global vote, and then, if the vote is overwhelmingly in favor, let’s push this 24-hour rule through.