The Dangerous Nonsense Of A "Level Playing Field"

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A big part of the drive to ban or regulate High-Frequency Trading and its variants is a belief that the market should be a “level playing field” for investors.

People don’t like the idea that an expensive computer array can help a trader get an edge in the market. And to some extent, we can understand the frustration.  But actually this is total nonsense.

There’s never been a level playing field in markets. If computers weren’t helping traders gain a 30-nanosecond edge, then they’d be helping traders gain a 1-second edge, which is sill a lot faster than your mum or your pop can pull the trigger on some buy-and-hold, retirement-account stock.

“Ok,” you say, isn’t it still a good thing to make the market more level, even if it’s only marginally so?

No, it’s not.

While people moan and say the game is “rigged” against the little guy, this is exactly the idea that you want to disseminate. You want people to be sceptical. You want your mum and your pop to trade less, because they think (however irrationally) that there’s a computer out there swiping $.01 ervery time they trade.

We have this mindset in this country — and it starts with the SEC’s mission — that the goal is to instill investor confidence. Look where that got us, though. We should be instilling investor scepticism wherever we can, and if that means letting people believe Goldman’s rigged the market, the better.

The playing field isn’t level, and it never will be.  It’s time we just acknowledged that.

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