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Comment Re:Too bad (Score 1) 377

Unfortunately that's not the way it works, this is a very efficient market. Would you pay 10$ for a steam game if it could be had for 3.99$?

take your example with the apple seller

The apple grower (seller) takes product to a market place (NYSE) and says I'm going to sell it for 5c per apple, the ask.
To create a market, the Market Maker like Knight will now put in a bid for 4 c because that is their purpose, to create liquidity in a market place.
Now we have 2 choices. the seller can decide to sell that apple to the Market maker for 4c or he can just wait around until a Buyer comes in and buys it from him at 5c.

Choice 1: the seller sells it to Knight at 4c. Knight now owns the risk on the apple potentially falling further but in the mean time, the Original seller sold his apple and has none left. Knight will now put an offer , the ask, on the apple they bought for say 4.5 cents (to help move it faster). They will also at the same time lower their Bid in case more apples are for sale down to 3c.

Choice 2: Another buyer comes in and buys the apple from teh seller at 5c. The buyer gets his apple at 5c, the seller sells at 5c. The market maker is completely not involved in this transaction. What the market maker will do though, is now set a sell price at 6c to create a market place.

Now where the market maker potentially can overstep a smaller investor is that the market maker obviously knows the best prices since they're making the market and see what's out there. if they are desperate to dump the apple they bought at 4c and try and sell it at 4.5c and another individual seller comes in at 4.4c, the algorhythm may then say "shit the market is moving down, look for the best price I can sell my position at" If a buyer steps in at 4 cents, the algo will automatically offload the position before the seller can make that decision. But that's why you have things called limit orders or market orders. Limit makes sure you get what you want if the price moves the way you want.

the exchange in all of this is simply a market place. They are not the middle men. They provide for you a service where you have a market place to trade your goods and charges you for the right to trade on the exchange. Much like if you were in a farmers market, you'd have to rent the particular stall.

Comment Re:Too bad (Score 2) 377

what you are talking about is front running and that is illegal.

The sec will absolutely fine you a rather large sum of money if you try that.

Look up the definition of a market maker. It is not a random term I threw around.

The market makers make a spread as a commission for offering liquidity to a particular market place. In your apple example, if the farmer grows an apple at 5 cents, and there is no middle man to deliver it to you, are you implying that you still should be entitled to pay only 5 cents for the same apple?

Comment Re:Too bad (Score 1) 377

nono I made a mistake with that last post which is why i tried to reply to myself.

the 440 mm is real, every single trade that attributed to that 440mm will not be unwound by NYSE.

it already took into account all of the trades that NYSE has said would be canceled, which is the 6 stocks where the trades executed +/- 30% opening price.

Comment Re:Defend flash trading? (Score 1) 377

acutally no,

after an hour when that info has desiminated, there would be a bid of 0$
and the ask would probably be 1$

In an efficient market where news is suppose to hit the fans at the same time, you'd basically have shut down liquidity for that entire period.

If trading in miliseconds you have smaller "steps" as people will let you "tick" the price all the way down to 0.

Comment Re:Too bad (Score 1) 377

erm Knight reported a 440mm USD loss. THey know it, they said it.

They took all 4mm trades they did on those securities, realized the loss and pinpointed it at 440mm, they know that because NYSE said that only 6 stocks where the trades executed at 30 percent higher or lower than opening price will be cancelled.

Reuters reported nothing wrong, and I have stated nothing contrary to that.

Knight is on the hook for the full 440mm USD loss.

Comment Re:Defend flash trading? (Score 2) 377

Really?

What if you were an IT guy who worked at Enron and you happen to be paid in Enron stock?

What if you were working at face book and they paid you in facebook stock for a lower salary and it turns out Facebook was basically committing fraud by having bots click on their paid adverts links. Facebook stock then crashes and you can't sell out of what you have.

Perhaps you hide all your money under your mattress, good luck keeping up with inflation.

Comment Re:Defend flash trading? (Score 5, Interesting) 377

This is also where Knight's algorithm potentially screwed up.

usually firms will put in limit orders. ie I believe it's this so therefore don't go above or below that target to transact

Also what you are missing is that NYSE just "matches" trades. 1 second "guessing" ignores that fact that no matter what you guess, if there is no match, there is no trade. And since not all the market makers enter their prices at the same time, not everyone waits around at the same time.

here's an exaggerated example
Take enron when they released their financial misreporting scandal.
Imagine if every one had to wait 1 hour before prices get updated and transacted.
The stock was at 72$
Everyone in the world just puts in a short @ 72$ because we ALL know what's goign to happen to this stock
At the end of the hour, every one and their extended relatives has shorted Enron @ 72$.
Now, as the exchange, what gets executed? Chances are, nothing. All those buyers on the other side already knew that 72$ is a terrible buy and would have all pulled prices. You now have 0 liquidity.

Comment Re:Defend flash trading? (Score 1) 377

These are actually dark pools and nothing at all related to how you and me trade.

These are transactions that go between market makers. Big boys on the street.

You create an external market place by allowing the free flow of securities behind the scenes. You don't actually have the ability to see what's going on in the background. What it insures is that when the retail market looks at it, they can be sure that they are transacting on the "real" price as determined by the market.

So to your interval question, it's about the price.
If you transact only once a month, surely the price has moved somewhere in between. You buy apple at 600 at the beginning of the month and you want to sell it now, what price do you get quoted? The 600 that was still there a month ago, or do you wait till the end of the month and see where it lands.

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