If this tax would be 0.02 on each side it would costs at this moment in ES around 0.84 points.
If this is true:
- I think that the HFT traders will get in problems.
- Will volume go down very much? Fills more difficult for "bigger size traders"?
- Will behavior of the market change fundamentally?
On the other hand if you have a system that is profitable even with this taxes, there will be less competition. And these systems will be worth a lot more than before. So maybe for some traders this tax will be not so bad at all.
Well IMO as I said earlier if the FTT was small enough(It would have to be less than 0.1% to even be considered seriously as anything higher would literally destroy the economy and be reversed within the year it was imposed.) For an example of this see Italy, which already reduced there rate down and made special arrangements to allow for HFT, and France grants an exemption to intraday positions, I.E France only charges a tax on positions still held at market close.
So if the FTT was small enough (less than 0.1%) you could still make plenty of money as a daytrader or swing trader assuming you have a high average profit per trade.
For example as I said earlier if you average returns of 4.5% per average winning trade, and minimize losses down to 1.6% per average losing trade. Then have a solid win rate, lets say 55% of your trades are winners, than given you use enough size you will have a high profit per trade. Now lets say this FTT is imposed and as an after effect market volume falls, spreads increase, the market slows down, the gdp decreases, etc...however you will still be making about the same(perhaps a bit more or a bit less) amount of money trading(given the FTT is small enough).
At an FTT rate of 0.02% from above you would add/factor this into your average winning trade and average losing trade, or you could simply take 0.02% off your average profit per trade as this would be deducted by the tax(assuming you couldn't get some money back at tax season.)
So instead of making 4.5% per average trade no you make 4.48% per winning trade, and your losses are now increased to 1.62% per losing trade. Still profitable despite the tax.
However an FTT, even if it's small would devastate the HFT industry(necessary for sufficient liquidity to avoid volatile stock spikes with large purchases of shares. Trading volume would plummet and some speculators would no longer be profitable and would either move to other markets in another country, or switch to swing trading or simply stop trading altogether.
I plan on moving to Dubai as there's no income or capital gains taxes and their market is tax free and they encourage speculation(They realize speculation drives the market forward) and Dubai has been booming and will continue to do some over the next few decades.
Others have said earlier that this has little to no chance of ever becoming a reality(even a small FTT) in the next decade or two and they're right. After really thinking about it the Republicans would never allow for it to happen, and neither would the financial industry. I believe some politicians(not many) and those whom they take advice from have the wisdom to inform these people how absolutely retarded this tax is and how it would devastate not only our economy but our competitiveness with other markets. It's the competitiveness factor that is making the UK and Sweden and others veto this garbage in the EU. Market competitiveness is the same reason weaker economies in weaker/smaller countries are all for it. They can take from the larger economies. IMO the countries looking to implement this are just looking for a handout, a very piss poor thought out handout that will inevitably back fire as this will never go worldwide, and if it did than the global economy would tank and it would be reversed.
The only people that want this tax are people that don't know there ass from there elbow when it comes to the market, mostly citizens or the super wealthy(warren buffet, bill gates) whom want to consolidate there wealth and close to door for those looking to rise up into the same position. Makes me sick, and the uninformed citizens that actually think this is a good thing are even worse. These morons won't be happy until the tax the life out of all the markets and realize all those "speculators" were the only reason there 401K's and mutual funds ever made any money. Retirement accounts will plummet, the government will have to pay more to borrow money, it will be complete pandemonium possibly on an international scale. Luckily some people are born with a fully functional brain capable of rational thought and can reason how ridiculous this is.
