I think you missed my point: if people are reacting to info at the same time (e.g. clicking at the same time) the exchange should receive the message at the same time. Similarly, market data should be transmitted at the same speed, and exchanges should not offer co-location to give one participant faster data than another - This is how they front-run.
Agreed. ML is the "Wolf Hunter", but in this case, he was hunting sheep. I am astonished by the press's reaction to this. I think a lot of it has to do with the relatively small and obscure HFT industry - it is not well understood, and it is easier to believe it is rigged than to understand what it is.
To even call it "high frequency trading" is not fair - this implied large volumes throughout the day by continuously providing quotes on both sides of a given security. Their PnL comes from the bid/ask spread and rebates for providing liquidity. They are primarily market makers. This is 99.99% of the HFT industry.
Instead, ML and IEX are talking about "speed trading" or, as the press has coined it, "latency arbitrage" - they take advantage of their speed to reach exchanges (2 milliseconds vs. 20 milliseconds) to front-run orders and react quicker to new information. These types of trades only happen at points during the day when signals are met, and they do not provide liquidity but rather cross existing orders (often times before the exchange receives the cancel message from the participant) and TAKE OUT liquidity. I would say less than 1% of HFT firms engage in this type of unethical activity.
An example: Imagine it's 9:29am and the Dept of Labor Statistics is going to release the monthly unemployment numbers. There is a positive expectation, and so before market open there are a lot of buy SPY (S&P 500 ETF) orders queued. The report comes out at 9:30am as the markets open, and the numbers are bad. Now, a rational investor would immediately attempt to cancel his order for SPX as the market is going to move downward. Imagine at the same EXACT time, a speed trader see's this investors buy order on the book and decided to cross him and sell. Due to his speed advantage, the exchange receives his message to cross before the investors message to cancel. The investor loses out, SPX invariably moves down, and the speed trader then buys everything he just sold for an essentially risk-less profit.
A final point is this: for any buy-side market participant (anything from a mutual fund to a "Average joe"), transaction costs are much lower due to the much higher liquidity and tightened spreads that high frequency trading has brought to the markets. HFT is making the markets more efficient. Cliff Asness (Founder, AQR Capital Mgmt) wrote a piece in WSJ talking about this: http://online.wsj.com/news/articles/SB1000142405270230397830...
Actually, GS will never be a "normal" bank holding company. Their commercial banking business is open to a very select number of clients, and will stay that way. GS became a BHC because they would have access to the Fed's emergency funds in case of another major crash -- a line of defense. GS hardly makes any money from their commercial banking arm.
GS's core business will remain their cash cows: Investment Banking, Securities, and Asset Management (in that order). GS will NEVER wind down their Investment Banking arm, in which GS is king above all other banks (closely followed by Morgan Stanley).
GS's core businesses actually did quite well relative to the rest of the industry. This loss is really just "on paper", coming primarily from the Private Equity portfolios. GS has a reputation for aggressively marking-to-market, and their PE portfolio lost a lot of value on paper because the equity markets shit the bed this quarter.
For any interested in Burry's story, pick up Michael Lewis's The Big Short. Great (if somewhat miscontrued) tale of the housing crisis, ripe with corrupt financiers and the "smartest men in the room".
Burry's lightbulb concerning the crumbling housing market was a product of a staggering amount of research on mortgages, contra to the research (mostly by rating agencies) already published. No average Joe is going to foresee a bubble about to explode.
I was thinking something more conventional. For example, contrary to what many may believe, history actually IS a good predictor of future. As an investor, I am not only limited to investing in individual companies -- I can also bet on entire markets/sectors (for example, Burry bet against the housing market). Also recall that the markets are cyclical (that is, recessions follow booms and vice versa).
With that in mind, I could, for instance, have a sector-based model hinging upon the business cycle. Certain sectors, historically, have tended to outperform during different segments of the cycle, and with well-timed bets I can always make money just by recognizing what state of the business cycle we are in.
For example, currently we are in a (if somewhat shaky) "recovery" phase. During recovery, financials and tech companies tend to outperform. I might use ETFs (IXG and IXN) to go long on these markets. I might even enhance my bet and short Consumer Staples, which are expected to underperform during recovery.
This guy is an independent trader because no one would hire him. He's misguided in his understanding of the markets. Goldman Sachs is an investment bank. When he says "anyone can make money from a crash", he's right: any INDEPENDENT investor/fund. Such as a hedge fund or himself, an "independent trader". These people are referred to as the "buy side". However, Goldman Sachs, as well as all the other banks he probably thinks "rules the world" is on the sell-side. The sell-side provides "prime" brokerage services to the buy-side clients -- that is they connect buyers and sellers via the exchanges. In fact, with the upcoming Volker rule, no investment banks will be allowed to engage in proprietary trading (trading for profit with the firms money), which is what the buy-side does.
Investment banks might actually lose money in recessions because they might take illiquid, toxic assets onto their books to service demand (point and case: the mortgage crisis). And securities is only a part of the investment bank business model. Advisory services, largely driven by M&A and IPO volume, provide a decent chunk of profits for banks. Capital markets dry up during recessions, which will completely stifle M&A and IPO activity and therefore revenue on that side of the bank.
This guy is full of shit. When asked what to invest in when the market goes down, his best advice is bonds and "hedging strategies". Bonds do indeed rise in value during bear markets, however hedging has almost nothing to do with profit or loss. Hedging is risk management: covering your ass in case of an unexpected move. For example, if I expect a downward market turn, as per his advice, I might buy up treasuries. But, to "hedge" the possibility that the market moves UPWARDS instead, I might buy an index tracking the Dow, which will increase in value as the market moves up. In this case, hedging is actually DECREASING my profits in the case of a downward movement in the markets. There are much more intuitive ways to play a downward market.