z1235’s article seems nice. I like it. Nice blog!
My father used to do this for a while but it wasn’t making enough money to be worth it, and computers were slower back then. My tip: you need alot of money to invest to make it worth it. If you don’t have enough money, the returns from HFT are too low relative the risk.
Being alert to and sensing and using differences in time before people notice that several prices for the same things exist in the same market due to ignorance, pure arbitrage involves pouncing on such differences before anyone else notices, buying at lower price to sell at medium price to person who sells at highest price. It is a stabilizing mechanism for markets according to Hayek (1948) and Kirzner (1973); it causes the market to have fewer different prices simultaneously for same thing, so that nobody sells scarce resources for less than people are willing to pay according to present preferences, leaving more of the resource available in the future for people (a price that is too low shall result in present consumptiuon of the resource being so great that less is left over for the future than people who consume it now prefer and is contrary to their own preferences had they possessed all the information) and thus more efficiently use scarce resources: the price difference, when acted upon narrows, first of all, and is also revealed, and thus eventually disappear, causing simultaneous prices for the same thing to converge toward whatever price best reflects people’s preferences according to what they are willing to pay. Of course, high price also converges to the medium price, as consumers who are willing to pay the higher price buy whatever they want, leaving on the people who value it less. Thus, instead of a high price and a low price simultaneously existing and confusing producers who wish to determine what and how much to begin producing, goods are sent to be sold to consumers ultimately at and only at the highest price consumers are willing to pay, whatever that price is in the immediate present.
All the complaints against high frequency and speed trading are basically made by some firms against other firms having faster computers, more people, and more money, allowing to the catch price differences first, and get the most out of them, closing such price differences already just when other firms have only noticed them and get ready to act on them. Its people complaining against competition that, however, makes the best use of resources and removes pricing error (pricing deviating from preferences by being too low or too high, this is, not consistent with preferences regarding distribution of consumption of the good over time and present valuation) due to ignorance by distributing information.
All such trading is beneficial, because like all arbitrage it directs consumption and production to most closely correspond to consumer preferences and smoothes out changes in consumption in production to most closely follow changes in consumer preferences, which otherwise result in several different prices all other things equal appearing over time due to ignorance by present producers of near past changes in preferences of consumers.
Of course socialists dislike it because they dislike arbitrage and trading in the first place.
Many businessmen dislike it because they can’t pull it off themselves given the competition. Instead of quietly finding other things to do, they complain.
Edit: Maybe I should just sign up to contibute on that blog, which seems well designed, actually. For instance, I’m presenting at the Austrian Student Scolar’s Coference in February, so I might post a write up on some themes touched.
