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Politics : America Under Siege: The End of Innocence -- Ignore unavailable to you. Want to Upgrade?

To: Bilow who wrote (5551)	9/29/2001 12:01:50 PM
From: Qone0	Read Replies (1) \| Respond to of 27666

In fact, any change made to the market that decreases the ability of market makers and daytraders to place orders has the effect of making trading less profitable (by decreasing the number of trades that may be made per hour), and this is automatically compensated for in the market by simply increasing the spreads. That is my whole point. Short selling has the effect of transfering wealth from long term investors to traders. I see you agree. The market is a complicated ecosystem, and every change that is made to the market has difficult to foresee consequences. But the consequences of eliminating short sales is obvious. Half of the (of course short term) trades that market makers enter are entered to the short side. About 1/3 of trades that daytraders enter are entered to the short side. Eliminating shorting will directly eliminate close to half of all market maker and daytrader limit orders. That will increase the spreads in the market. The question is not whether heavily traded stocks will have wider or narrower spreads than heavily traded stocks, the question is what effect does short selling have on spreads. You're not addressing that question here, unless you're making the ridiculous statement that spreads are determined only by the amount of shares traded. Yes I`m making the ridiculous statement that spreads are determined by the amount of shares traded. If you read the bold I think you did to. The long term investors who place limit orders do not generally place them at prices that are near the current trading price for the stock and consequently their contribution to the structure of the market is negligible. The long term investors who place market orders (and limit buys above the market or limit sells below the market) remove limit orders from the market and that reduces the structure of the market. It should be obvious to anyone who's spent a couple years staring at a level-2 screen that most of the limit orders near the current market price in any well traded security (like MSFT) are daytraders and market makers, not long term investors. Because of this, it is the daytraders and market makers that make the market not investors. Daytraders and MM`s are pro`s they will buy at levels of intraday support and sell at levels of intraday resistance. Most long term investors are not pros. If they want to buy or sell a stock they simply do it. They are not the limit orders above and below the inside market. Daytraders are the ones looking at intraday charts and L2 screens that are stacking up at resistance and support levels. They really have nothing to do with the spread. MM`s are not flipping MSFT for a penny on the spread. They are simply filling orders for investors inside the intraday support and resistance levels.