How the Tobin Tax affects markets.

[LuciusDeBeers]

http://www.cityam.com/forum/france-s-tobin-tax-will-make-little-damage-lot

"...the empirical evidence suggests that transaction taxes make markets more volatile, not less as their supporters claim. High-frequency trading adds volume and liquidity to markets, reducing volatility. One important role that financial markets play is in making asset prices reflective of real-world conditions. High-frequency trading allows markets to be highly sensitive to new information and to intermediate between buyers and sellers who may not be in the market at the same time. Stopping high-frequency trading would have the effect of making price shifts more sudden, unpredictable and larger.

The economist Tim Harford uses the example of ATMs to explain how Tobin Taxes can lead to this volatility. If all cash machines began to charge a fee, people would save up their withdrawals and only make them once or twice a week. This would mean larger withdrawals and a greater potential for sudden machine-emptying accumulations.

Prices reflect real-world information. Stopping trades acts as a blindfold, so that real-world information is less clear, making markets less grounded in reality. We don’t have to look far back to see how dangerous that can be."

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[FreeMoney]

I agree it will usually increase volatility since it drives some players away and reduces the remaining players willingness to make offers. But even if that wasn't the case it would be awful. The purpose of a market is not stability it is to reflect changing values and conditions of the real world. You could get perfect stability at the last trade by charging one trillion dollars tax per trade or by threatening the death penalty, but so what? Stability is crap, we need the best reflection of reality so we can best plan how to achieve our goals.

[waltmarkers]

True - the market would be far more stable if gox charged 0.05% transaction fee and a $10 monthly fee. THey'd even most likely make more money.

[notme]

True - the market would be far more stable if gox charged 0.05% transaction fee and a $10 monthly fee. THey'd even most likely make more money.

Nope.  Everyone who doesn't trade very large mounts would use an intermediary, who would be able to offer them lower rates and make the trades on their unlimited $10 account.

[niemivh]

To OP.

You don't know anyone who actually works in finance, do you?

 

[Boussac]

".. One important role that financial markets play is in making asset prices reflective of real-world conditions. High-frequency trading allows markets to be highly sensitive to new information and to intermediate between buyers and sellers who may not be in the market at the same time. Stopping high-frequency trading would have the effect of making price shifts more sudden, unpredictable and larger."

No, prices no longer reflect a healthy demand/supply ratio. That was true in the 18th century when this simple law of economics was first formulated: there was  a "simple" production-based economy with a relatively limited basket of goods. Today's asset prices are disconnected from the real economy and based on "expectations".
The economy is based on a complex combination of goods and services where only a tiny set of people control enough information to play successfully on the trading floor. It's a club.
Bankers control money creation (money supply) and most of the trading.
It's not surprising that the City is adamant about repelling any attempt to regulate.
I am not surprised that the author cites Bonaparte, an overused scarecrow for the British banksters propaganda.
Vive la France for having the guts (after Sweden ten years ago) to at least try and curb speculators who are hi-jacking the monetary system.
However only an international policy decision can make a difference in the long run.