Riots against financial transaction tax in Toronto
The G20 summit in ever peaceful Toronto has just finished. The undefined group of nations decided not to agree on anything special, so far so good. There was a serious risk at stake for the trading community. Angela Merkel and a few other presidents of countries knocked out of the world cup pitched the idea of a financial transaction tax.Difficult to understand
Perhaps my experience as a trader shaped my mind in a way which makes it difficult to understand what these people are thinking. It sounds too bizarre to take it seriously. Any friend or family member proposing me a brand new idea on taxing all financial transactions, and spend the benefits on uh.. the fight against global warming and poverty, I would seriously advice to cool it with the beer during the barbecue. Time to flip the burgers, and slow down with with the beer.
Trading is not smoking
Return of oldskool spreads
Taxing transactions
This Merkel and Sarkozy are seriously in their pitch for Financial Transaction Tax (FTT). This is a kind of mass stupidity which is hard to believe. Several organizations support this FTT, like the Halifax Initiative and clowns for financial reform. The core idea is taxing all transactions against a rate 0,05%. Just spend a minute contemplaining the consequences of such an idea. A future on the AEX would be taxed with 65 euro on a round trip.
APT not involved yet
A coalition of the big four Dutch trading firms (Optiver, IMC, All Options, Flow Traders) gave an interview in the FD this friday. Somehow the united market maker association, the Association of Propietary Traders (APT), wasn’t involved in the matter but let’s hope they are doing some lobby work.
No broad media coverage
This time the threat to the market as a whole didn’t receive much support. But in the future any regulation aimed at the OTC mess elsewhere could wipe out most small market makers who won’t have the pockets to survive a few years of strange regulation. In general other relevant companies (exchanges) didn’t reach mass attention in the press. Worrisome to see this trading meltdown proposal coined without broad media coverage.
first ?
who cares anyways ..
@ mr. First. Who cares anyway? Anyone trading for instance. If these blame the traders ideas are taken into production there will be a whole lot less trading. And p&l. And traders.
But I guess you don't care. What's your profession, consultant?
"who cares" is on winning the first post I guess.
That thought crossed my mind, so I guess we're now on a geenstijl.nl level. Nice.
Quite Maca-ber altogether…
"A future on the AEX would be taxed with 65 euro on a round trip."
That's crazy, mostly because in the future markets there is only an exchange of money in stead of making money…
I recognized an increased amount of censorship by means of deletion of post on AT lately.
did our favorite market makers complain or something ? I suppose the blog writer doesnt want their legal department to file a defamation suit or some ?
but to think abt it, they are that stupid to waste time worrying about this website/contents rather than trying to concentrate on their own business ..
No complaints, nor legal trouble.
Utterly boring insulting crap just runs the risk of ending in the trashcan.
but the request for more gossip of AO or IMC is not insulting .. i thought the whole point of this website was the gossip : )
Ooh, I’d totally post using my real name, but I may regret going on the record with this controversial view, so I will stay anonymous now.
My first reaction to the financial transaction tax was that it’s a stupid idea that will destroy market making and trading businesses. As a trader, that would be no fun for me.
However, I’d argue that there’s little societal benefit to having as many people as we do now trading for a living and being compensated as much as we are. HFT firms argue that they provide liquidity and reduce transaction costs for investors. It’s sort of true, except for the fact that they suck billions of dollars of profits out of the market. If markets became wide and illiquid because of taxes, investors would experience more risk because they would be unable to get in and out of positions easily, but on average they would make more money. I think retail investors are best positioned to take a little liquidity risk in exchange for some expected return. The value that market makers add in terms of risk reduction may not be worth the profits we make. And all the really smart people who are currently trading will go and apply their brains to something of more value (in theory). Or maybe they’ll go work for defence firms and design missiles to blow people up. That’s how I justify my career choice–it’s less harmful than some of my alternatives.
After having read your comment I really think the world would be better off if you would design missiles . As they would probably never get built, never would fly and certainly never would explode . On the other hand it is better and certainly more profitable for us as people like you keep trading . . . . . . . .
I appreciate the cleverly worder implication that I’m not very bright, but I’m curious which parts of my comment you disagree with. Actually, I think “attacking the messenger” and not arguing the topic being discussed is a poor debate tactic. I’m calling you out on it and asking you to explain what value market makers and high frequency traders bring society, given that I’m an incompetent mook who loses money on every trade and can’t put together an electronic circuit either. 😉
Hij bedoelt te zeggen dat het vrij triest is dat jij in deze wereld actief bent, maar dat je eigenlijk niet weet hoe vrije marktwerking in elkaar zit omdat je denkt dat wijdere spreads en minder concurrentie goed is voor de eindgebruiker. Dat je daarnaast piekert of je kostwinning sociaal wenselijk genoeg is of niet, zou je inderdaad over de streep moeten trekken om voor een appel en een ei bejaarde gehandicapten in en uit hun bad te gaan hijsen, en je handelaarsvrienden met een gevoel van morele jaloezie achter te laten in de hoop dat ze nog vaak terugdenken aan die nobele oudcollega die nu wél iets goeds met zijn leven doet. Doei!
“they would be unable to get in and out of positions easily, but on average they would make more money”
Idiot.
In VERY simple terms: when transaction costs go up, you give up more of your profit, therefore you make less money.
I think you’re trying to make an argument that if the market is illiquid it will go up more easily, and retail investors will make more money. That’s crap as well – not being able to short a market is one of the big reasons why bubbles form, and then burst.
A transaction tax like this will kill the market, pure and simple.
To a certain extent i agree with the incompetent mook who apparently loses money every trade, but like all other participants on this forum i don’t want the ride to be over just yet
Here’s my argument that HFT firms add no value, and in fact detract from the returns of real investors
-In aggregate, the beta of the market is 1, and the alpha of the market is zero (ignoring fees etc). The same goes for the alpha and beta measures for investors (in aggregate)
-You cannot create alpha – if your alpha is positive, then someone else’s is negative
-Traders, on the other hand, have a beta of zero (ie no structural delta) and an alpha of what ever their trading revenue is (ideally positive)
-As aggregate alpha is zero, then the alpha of mums and dads investors is negative. HFT traders are taking it from them, and investors are effectively paying away to deal in the stock market
-While bid offer spreads are necessarily tighter from the advent of HFT, this is not looking at the whole picture
In this sense HFT can be viewed as a tax on the market but perhaps it is fair – traders being paid for providing liquidity
To John:
The market is a zero-sum game, except for dividend payments by companies. As long as market makers make money, they are taking profits away from long-term investors.
Think of it another way. Imagine there are no market makers and I want to buy 10 000 shares of ING and they’re 9,05 bid at 9,08, 50 up. If I try to buy my 10 000 shares quickly, I push up the price to 9,35 and it’s “costing” me up to 27 cents extra per share. However, my cost is another investor’s gain. Some other retail investor just made the extra up to 27 cents.
In steps the market maker to “lower my cost”. He offers to sell me the entire 10 000 for 9,15 or something, and then he waits to buy them back around 9,12 once the market drifts back partially towards the previous price. It appears that I got filled at a better price, which I did, but all the other investors who want to sell end up having to sell around 9,12, instead of earning the higher prices that would have prevailed without market makers.
In the long run, retail investors don’t care if they’re paying a few pennies more or less for shares. Taxing market makers / HFT could divert their intellect to more useful ventures, like hedge fund work that pushes prices to be more fair.
To idiot??
a: financial markets are not a zero sum game. Shares are value creating entities and can grow by definition indefinitely. Financial markets also communicate with other markets (and each other) and can derive value from those markets. Think for instance about commodities or real estate. The hypothesis that “one man’s gain is another man’s loss” is therefore false.
b: why are investors holier than market makers? In the end investors are also traders, only with a more longer term view. In the end most investors (especially institutional) will prefer to execute their orders with less market impact, thereby validating the need for market makers. Every year there are several conferences about transaction cost analysis, focusing on market impact and hundreds of consultants and sales droids are running around explaining investors how to execute their orders with minimal price impact. Even retail investors sometimes complain when bid/offers spreads are too high.
So basically I think you are totally wrong.
Trader B
I wrote the two posts above idiot’s. I agree with some of what he is saying but not all
-“financial markets are not a zero sum game” – this is correct. What i was trying to get at though was that you can break down a market participant’s returns down to two factors – alpha (your individual outperformance over the market) and beta (what the herd earns), However, what is correct is that there is zero net alpha (ignoring fees/commissions etc). Since market makers’ returns are only alpha (either positive or negative, since they are neither an individual investor nor a long-only fund) then any alpha they generate is taking it away from a natural investor
-why are investors holier than market makers? I am not suggesting that, although in its purest sense, a stock market is there to provide a secondary market liquidity for those investors who invested in the IPOs, and for those other investors who want to buy in to the company at a later date. Market makers make their money effectively as a middle man between buyers and sellers. They are paid for providing liquidity which would otherwise not be there. But don’t try to kid yourself that you are trading for the greater good – you are there to make money for yourself and no other reason
So while idiot is not 100% correct, he is not totally wrong either
Although this is an old topic, i’d like to discuss it again with my fellow traders. In my opinion this is the most important topic of all instead of arguing what is the best company or has the highest profit.
The impact of a FAT (Financial Transaction Tax) will be a disaster for Market Making in its present form. The markets will change in a major way. Spreads will rise enormously, option trading volume will become much smaller. Traders will be fired on a big scale.
Does anybody know when they want to introduce this FAT?
According to the Fortis mail we received this morning the “Financial Transaction Tax (is) to Be Introduced in the EU” as in now. They later restated this so basically no decision has been made yet and the EU parliament has nothing to say on tax issues.
So no news at the moment.
Options Market making doesnt add any real value to economy and markets .. higher taxes on it are perfectly okay with just about everyone, excepting trading companies/traders themselves ..
Unemployed people also dont add real value to the economy, lets tax them too
Bureaucrats add no value. They actually destroy value.
http://www.youtube.com/watch?v=2gm9q8uabTs&feature=related
‘Unemployed people also dont add real value to the economy, lets tax them too’
hows it possible to tax someone who has no income ??!
‘Bureaucrats add no value. They actually destroy value.’
Yah i agree .. i’m in full favor of reducing overall level of taxes .. but you have to understand ground realities of democracy where unemployment is 10% + .. they would wanna tax rich bankers/traders .. bureaucrats can’t really be fired or reduced .. politicians will line their pockets .. you can vote and hope that with your words you can influence people to have smaller govt, smaller taxes, smaller bureaucracy ..
High income tax works to maintain the status quo of the rich staying rich and the poor staying poor.
It also kills any motivation to work.
income tax is a much inefficient part of GDP .. how could govt possibly spend the 50% of your income more efficiently than you would do with your own remaining 50% !
“I’m happy to pay a lot of taxes, because it means I have a high income.” (Onno)
3:29 Onno, you’re happy to pay more taxes if that makes you feel (even) better.
Onno – You are welcome to donate half of the remaining amount to a charity of someone else’s choice. Somehow I doubt that will happen.
doesnt matter if onno donates or not, can you onno haters stop shagging each other, its very gay and its very tiring ..