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>From a trader's perspective, a few observations on the
so-called decimalization problems:
1. Beware the logical error: "After this, therefore
because of this" (I"ll skip the Latin.)
The markets are dealing with an unprecedented bubble.
The consequences of this are not easy to predict, but one
thing is that there are going to be far, far fewer traders
involved. The changes in noise level, choppiness, etc.,
that you pin on decimalization, are characteristic of almost
all major (& even minor) changes in trend, in most markets,
at most times. It is far greater now, partly because of
massive public participation in the markets, and partly
because of the nature of the change: a 10-year bubble has
broken. My guess, even without decimalization, pretty much
the same characteristics would have occurred.
2. To the extend that decimalization has had a minor
impact, it will adjust, as all market changes have.
Remember the massive temporary dislocations with triple
witch? Markets take a bit of time to adapt, but they do.
How & when is the trick.
3. While the lack of easy money from daytrading appears to
be a negative for the daytrader, in the intermediate to
long-term, it is a major positive for the economy. A nation
of daytraders is not productive.
Regards,
----- Original Message -----
From: "Bilo Selhi" <citadel@xxxxxxxxxxxx>
To: "Neal Falkenberry, CFA" <tnf@xxxxxxxxxxxx>;
<omega-list@xxxxxxxxxx>
Sent: Tuesday, May 15, 2001 5:12 PM
Subject: Re: Dual CPUs
>
> > We believe the move to decimalization changed the
demands on our CPUs
> with
> > respect to data collection although we can not prove it.
Has anyone else
> > experienced similar problems?
> >
> you bet. things changed since the decimalization in
equities, esp in Naz.
> short term price volatility increased and noise level went
up considerably.
> spreads are now negative many times especially ecn
spreads.
> there is pretty good arbitrage opportunities now but only
for MMs.
> *actually for mms it became a lot easier to whip
daytraders by artificial
> momentum creation. the daytrading edge actually went down
even more.
> you can hardly see depth anymore and short supply and
demand is becoming
> very one sided. if before you could deal with 1/16 spread
now you are
> forced to go outside of the market as much as 10-30 cents.
basically
> slippage
> now doubled :-)
> the mm's have even better advantage now against the
daytraders.
> takes a lot less size now to shake the tree...and works
faster.
> markets thinned out in terms of short term trading.
> i consider it yet another blow to the daytraders.
>
> if you looked at csco today after the 3pm major sell, even
on a 20 dollar
> tabletop the supply demand was so one sided the stock
tanked very fast.
> what happens it that bid side (demand ) evaporates down up
to 10-40
> cents.
> you get a pile up on the offer with hundreds of thousands
offered and
> and no one on the bid to support the shit...
> and remember that it used to be that csco would have some
> good depth support on both sides... now forget about it.
> so in terms of program trading for mms it's several times
easier to run the
> stock.
> means it's easier to create panic, easier to manipulate...
better for them
> overall.
>
> this can only be taken care of if someone proposes a 5
cent price scale
> like
> in futures ) which is forget about it.
>
> and on top of that chicago boys are kicking in individual
futures on stocks
> which will be even easier to run and manipulate stocks...
more
> commissions, more variables to consider, more
clusterf...ck and more
> volatility...more noise, with less directional movement.
>
> in terms of cpu load, more volatility will create more
ticks and add to cpu
> load.
> in terms of systematic trading, slippage will go up and
cost low commissions
> will
> be offset by high slippage, noise levels will increase on
low resolutions
> time frames...
> overall worse not better...
>
> all that unless they invoke the min tick increment of say
5 cents.
> then it will stabilize. but the chances of that is next to
nothing.
> if it's better for the market makers the chances are it
will stay that way.
>
> bilo.
> ps. i'd say short term stock daytrading business is
kaput... or
> you have to have the machine do it for you.
>
>
>
>
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