Explain Like I'm Five

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ELI5: Why is high frequency trading allowed? (lemmy.ca)

submitted 2 months ago by [email protected] to c/[email protected]

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I don't see how it's a benefit to capitalism or companies or, well, anyone, really, to allow people to make thousands of trades a day for minute profits on each.

My gut feeling is that the stock market would not suffer, and less resources would be wasted, if trades and updates to stock prices were limited to, say, one batch per hour.

There are probably reasons the system is the way it is though.

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[–] [email protected] 4 points 2 months ago

You're probably right. Our system was not designed from the ground up to make sense though, instead its a pile of rules and customs that accumulated one by one over the past few centuries.

Our default position is always to allow something. We have to take action to make something illegal if we want to change from this default setting of "allow all" on everything. So, essentially, nobody has changed it yet.

Now, with people making money from it, there's also going to be lobbyist money resisting any sort of change, combined with general political inertia where most people just don't really think about it very much. Ultimately any politician that could change it is going to consider how it would impact their election chances, including things like public popularity and how it would impact doner money. Someone like AOC could take action if she felt it was important, she doesn't need investor donations, since she funds mainly through crowd funding. A republican from middle America does need big doner money though, and would be reluctant to piss off investors and risk them supporting someone else.

So, basically we haven't bothered to change it, and not many politicians have strong reasons to do so.

Pretty hard to boil legal, political and economic realities to a 5 year old level, but this is more an eli14 I suppose.