Trading is not a zero sum activity, trades happen because each side want what the other person has more than what they have which is a net positive. aka I want lunch more than money.
HFT trading is zero sum because the traders don't actually want or keep stock.
No one wants actual stock. They want to gain money on price differences in stock, or get the dividends that owning stock gives rights to, or I suppose they want to be able to have the voting rights stocks grant.
The difference is all about timing. I may want something else more than you do but am willing to sell now. If at the time you close out your trade (that is sell the shares from me) the price may have risen or fallen. If it rose you won and I lost by not holding longer.
This time mitigation is precisely what market makers have always done and what HFT market makers have driven the profits (and thus the costs to outside participants) out of.
Buying stock is trading future money than money today which is a real and meaningful trade. On the other side, I might want a new car, which means I want money, which means I want to sell stock.
Even stock to stock transitions can be meaningful as Bill Gates had a lot of MS stock and wanted a hedge so he sold stock. What he got was probably worth 'less' the diversification was valuable to him making the transaction a net positive.
What you are talking about are precisely the aggregate benefits to the markets I mentioned, liquidity and easy risk management.
That the markets provide those behaviors is what makes them valuable but the actual trades that make up those aggregates, your selling of shares when you need a car to someone else is zero sum. Either you would make more by holding or you wouldn't.
That something other than that is more important to you indicates that you are in the market for a middle man to bridge that time gap and buy some of the risk from you. Your time horizon is from share purchase to "need money for car", not from share purchase to "optimal selling point". The service you take advantage of when you bridge that gap is provided by the aggregate work of many zero sum interactions between speculative participants like market makers and "investors" like your self.
If I put a sell order on the market at 12:00 the only impact is the sales price. If it executes at 1PM or 2PM it makes zero difference to me as I can only access money at the end of the day. So, I only gain liquidity if I would have been otherwise unable to sell by the end of the day. Therefore, I don't gain liquidity from HFT.
But people don't care about value per se, they care about the extra value they get (over the price they're paying). Therefore, stock is only valuable inasmuch as what you pay for it is less than the present value of future dividends. Otherwise you're overpaying for it, and you might just as well keep the money.
No, stock markets do not perform the same function as grocery stores. Grocery stores take on inventory risk by purchasing (in bulk) the goods that they think they can sell. If their inventory goes unsold or spoils, they lose. Stock markets provide a _venue_ for trading, but it is the market maker which takes on the inventory risk. An appropriate analogy would be that the grocery store is renting from a separate property owner. The property owner collects rent from the grocery store, just as stock markets collect "rent" (trading fees, colocation fees, system access fees) from market makers. In both cases, the inventory risk is managed by the middleman (grocery store, market maker).
That's a pretty weird example, because that is the _only_ stock that trades at $200,000/share. Such a high price forces away liquidity intentionally, because the capital requirements of even 1 share are larger than most futures contracts. For most individuals it is more like buying a house than a stock! As a result, there is a NYSE employee (I forget the title, maybe DMM?) on the floor which _manually_ matches buyers against sellers. Other exchanges I believe still match electronically.
Aside from that, how does your statement relate to inventory risk? Market makers and grocery stores take on inventory risk. An absence of market makers in BRK.A* would only show that nobody wants to take on that risk. It does not change the role of the exchange. Exchanges facilitate matches, they are not a counterparty.
Yes, and in order the markets to perform this function they needs lots of active participants with differing investing time horizons. Without market makers markets tend to be very inefficient at their job.
Haha! :) Clever point but grocery stores provide utility. HFT is more like if you set out to go buy a whole lot of peppers (because you have a pepper index fund :) and some guy saw you doing this at the first store... knew that was your plan, called all around town placing orders to buy all the other peppers in town and offered to sell them to you for a premium, but cancelled those orders if you declined.
You're confusing the order of operations for this pepper middle man. He can't place an order for peppers contingent on me buying them. He has to buy them or not. Ignoring this key difference fundamentally misrepresents the risk he is taking and the utility (price discovery) he is providing to the market.
It's flawed analogies either way, but a better analogy would be you are a store owner with many branches. The worlds largest pepper buyer walks into your store and buys your entire supply. You call your other branches and tell them to change the price on your own inventory because you are assuming that the worlds largest pepper buyer doesnt need just one stores worth of peppers.
Agree that all the analogies are flawed, although funny. Just as the market made this I'm sure the market will find a solution if it really is a problem.
HFT trading is zero sum because the traders don't actually want or keep stock.