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Wow. Some of that is so true it hurts. Especially about the spreads so wide you could drive a truck through them. It really did used to be so much easier...
Edmundo-Why were the spreads so wide, less liquidity/participants?
Edmundo-Why were the spreads so wide, less liquidity/participants?
No computers to fuck everything up, and no Internet that enabled every Johnny Lunchbucket to see what was going on.
You used to have to go through a rigorous approval process just to see who was on the bid and the offer, and for how much.
I have a theory about it all. Back then, there was no transparency on the Street, especially if you were a client. You were completely at the mercy of your broker/trader. Now that every Tom, Dick, and Harry has access to every conceivable bit of information, the Street has had to make everything so exotic and complicated that no one understands what the fuck is going on even though they can see everything right in front of them.
Innovate to keep the customers in the dark, I suppose.
wow eddie that is brilliant! Honestly that makes a ton of sense. The exotic credit derivatives that were part of the crisis in 2007/2008 are an interesting example however in that case it seems like the traders at the banks didnt even understand what they were trading and only a few people truly understood it.
Nobody still understands them or will. You can't value jack shit when it is completely illiquid. I went to hear some asset management cock blowers speak a few weeks back on commodities and all they kept repeating was "we are not sure when our models will be able to tell us anything definitive but...any day now...any day now".
Jack-off central. Can't wait till Meriweather comes back with another one...
hilarious
T4S,
I was just out walking my dogs and I thought of the ultimate example of why it was so much easier back in the day to make money because of the spreads, and it didn't have anything to do with liquidity - it was all about a lack of competition.
When I was in S&T (we didn't call it that back then, but same thing) for an investment bank in 1993, if I wanted to buy something in my own account I had to do it in my account at the firm so there wouldn't be any compliance issues. The minimum I could charge myself was $45 a trade - on both sides. If it was a large trade, the firm would grumble if I didn't kick in a penny a share on top of the $45, too. That was as a Series 7-licensed employee of the firm.
Fast forward to 1998. I'm a Series 3 commodities trader exclusively now, so I'm allowed to have an outside account for my own personal equity trading. I choose Kennedy Cabot, which was one of the deep discount brokers at the time. Commission per trade? $65. You don't even want to know what they charged to trade options.
Today I have an account at OptionsHouse and I pay $2.95 a trade for equities and a buck apiece for options. The spreads have narrowed to nothing thanks to the Internet and all the competition it brought about.
If you go back and read my Scam Science post on Chop, it explains all the madness that went on inside the spreads back then.
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