A friend who is a professional trader has stopped trading stocks for the summer. This is not a lame 1 man day trader operation. This is a fully professional team with one fellow specializing in trading and the other focusing on the custom trading tools. Thus you can assume what affects them probably affects alot of other large firms.
Here is the break down of the situation in his words:
Here is just a small example of little things that nobody hears about:
- http://www.city-data.com/forum/politics-other-controversies/583978-sec-increases-transaction-fee-per-april.html
- http://www.tickerforum.org/cgi-ticker/akcs-www?post=85835
When you’re primarily a liquidity provider and trying to make pennies and your effective tax rate quadruples it makes things difficult. Lots of liquidity is going to dry up for folks who want to invest too if they kill those responsible for the markets working under the veil of "punishing those evil wall street barons" For example say your total commission on making a penny is 0.35 cents. After raising the fees to 1.5 pennies you are losing money. Only so much of your commission is negotiated with your clearing broker. The majority is a passthrough SEC fees. Now assume you are expecting a winning of a trade if (roughly) normal probability distribution with 2 std. deviations of trades lying under 1.5 cps profit you have now shut down over 95% of your trading.
Remember those numbers are per 1 mil transacted easy to do when you’re making pennies providing lots of liquidity for other market participants. So now you can see these trades are poof !…gone.
The talking idiots like John Stewart can joke about how it is a "$20 increase they’re complaining about…greedy hairy backed old white republicans" Stewart is a paid fool whose job does not require any mathematical homework. This does not bode well for liquidity.
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