> Paying top dollar just to be closer and closer to the exchanges to get the fastest, "best price"
Being able to send an order with a smaller latency does not magically get you a "better price".
99.9999% of the market participants couldn't care less if their orders arrived 1ms or 1m after they send it. Hell, most hedge funds trade on a _daily_ basis, with multiple days of expected returns predictions, and are more concerned with the transaction cost than the latency, thus opting for a very slow "market close price" execution algo.
Those interested with very low latency are not hedge funds but market makers, and the kind of microstructure signals they exploit is not only orthogonal to what a retail investor would do, but often brings in just bips per trade, meaning the leverage required to make it worth it is anyway out of the retail league.
> I think it is very likely that they have info before normal retail investors have any idea.
What is a normal retail investor? Obviously hedge funds are going to be faster to react to e.g. earnings events than you. That doesn't mean this information is not public. It's just that HF pay data providers, invest in automatic data processing and decision making, etc.
But normal retail investors don't trade on events, they trade for the long term. For the simple reason that they don't want to hit refresh every second on the web page publishing earnings calls of each stock they want to buy.
> what about dark pools?
Yes, what about them? The name triggers the imagination of people but there's really nothing fancy about it. The objective of dark pools is to allow the exchange of shares without too much of a movement in the orderbook. This is actually good for both users of dark pool (they get lower slippage) and users of the public market (it prevents artificial big swings in price due to large buyouts, which would be announced anyway). The liquidity at time T in the order book is not tailored to absorb any ridiculous amount that a large investor could be willing to exchange.
> Shouldn't the exchanges have offered the best price, and provided liquidity, in the first place?
What does that even mean? The exchanges don't offer price by themselves, they just reflect what participants are willing to pay or receive. They are just middlemen facilitating the exchange of goods by publishing the order book of who's willing to buy/sell and at which price.
The exchanges also cannot magically provide liquidity out of thin air. Liquidity means there is someone real on the other end of your trade that is willing to buy or sell to you. Exchanges cannot create that artificially.
What exchanges do, though, is offer rebates to providers of liquidity (including the market makers that you seem to despise) in exchange for the liquidity they provide. This is not a random decision by the exchange, it's because providing liquidity to the market is beneficial for everyone. As an investor, it means I won't have to worry that I will not be able to sell my shares whenever I want to. It also means that the spread will be tighter, thus lowering my slippage. And subsequently, it also means arbitrage is most likely in place, so I'm not being scammed just because I didn't check the price on 5 different platforms.
Being able to send an order with a smaller latency does not magically get you a "better price".
99.9999% of the market participants couldn't care less if their orders arrived 1ms or 1m after they send it. Hell, most hedge funds trade on a _daily_ basis, with multiple days of expected returns predictions, and are more concerned with the transaction cost than the latency, thus opting for a very slow "market close price" execution algo.
Those interested with very low latency are not hedge funds but market makers, and the kind of microstructure signals they exploit is not only orthogonal to what a retail investor would do, but often brings in just bips per trade, meaning the leverage required to make it worth it is anyway out of the retail league.
> I think it is very likely that they have info before normal retail investors have any idea.
What is a normal retail investor? Obviously hedge funds are going to be faster to react to e.g. earnings events than you. That doesn't mean this information is not public. It's just that HF pay data providers, invest in automatic data processing and decision making, etc.
But normal retail investors don't trade on events, they trade for the long term. For the simple reason that they don't want to hit refresh every second on the web page publishing earnings calls of each stock they want to buy.
> what about dark pools?
Yes, what about them? The name triggers the imagination of people but there's really nothing fancy about it. The objective of dark pools is to allow the exchange of shares without too much of a movement in the orderbook. This is actually good for both users of dark pool (they get lower slippage) and users of the public market (it prevents artificial big swings in price due to large buyouts, which would be announced anyway). The liquidity at time T in the order book is not tailored to absorb any ridiculous amount that a large investor could be willing to exchange.
> Shouldn't the exchanges have offered the best price, and provided liquidity, in the first place?
What does that even mean? The exchanges don't offer price by themselves, they just reflect what participants are willing to pay or receive. They are just middlemen facilitating the exchange of goods by publishing the order book of who's willing to buy/sell and at which price.
The exchanges also cannot magically provide liquidity out of thin air. Liquidity means there is someone real on the other end of your trade that is willing to buy or sell to you. Exchanges cannot create that artificially.
What exchanges do, though, is offer rebates to providers of liquidity (including the market makers that you seem to despise) in exchange for the liquidity they provide. This is not a random decision by the exchange, it's because providing liquidity to the market is beneficial for everyone. As an investor, it means I won't have to worry that I will not be able to sell my shares whenever I want to. It also means that the spread will be tighter, thus lowering my slippage. And subsequently, it also means arbitrage is most likely in place, so I'm not being scammed just because I didn't check the price on 5 different platforms.