Quote:
Originally Posted by Riverman
Do you think high-frequency traders create wealth? Do you think the rise of quants has increased the risk of systemic failure and if so what would you do about it?
Not really. They tighten spreads and make markets easier to trade in, but they don't really create any wealth in any significant way. What I do doesn't really create any wealth, we basically just move money around and take a cut of what we move around.
If by quants you mean High Frequency Trading, then yeah I think that has put in huge risks of systemic failure. In today's marketplace, everything is traded off of correlations and relationships, which is pretty far from the original intent of the Stock Market and the Chicago Mercantile Exchange, and other marketplaces. With everything so closely tied together, one error in an algorithm or one bad input can move the market in such a big way that it creates a massive systemic risk for everybody.
As for what I would do about it, I'd be fine with getting rid of all HFT systems. Kind of a tangent, but I think what is happening right now in our entire economy and not just trading is a massive push towards efficiency and technology, which cuts human jobs that can't be easily replaced. I think cutting HFT would be slightly bad for the markets in that they would be less efficient, but it would have positive side effects of creating more need for human jobs and reducing systemic errors, and the good created from that outweighs the efficiencies that are lost.