Matt Levine’s Money Stuff: Wall Street Wants Predictors

Prediction market liquidity

There are two basic ways to use computers to trade stocks:

1. There are what you might call “naive market making” and “simple arbitrage.” Sometimes a stock index future trades at $100 and an exchange-traded fund on that index trades at $100.01, so you buy the future and sell the ETF and collect $0.01. Or some stock last traded at $30, so you post orders to buy it for $29.99 or sell it for $30.01, hoping to buy from sellers and sell to buyers and collect a small spread. You program computers to do this quickly, make small amounts ...