The Wonders Of High Frequency Trading

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All accredited economists agree that modern markets are free, fair and efficient. Open to all, and accessible with a few taps on your smart phone, anyone can trade the markets in a matter of seconds – and you are encouraged to do so by many adverts on a daily basis. Few people realize however, that none of this would be possible without a little something called High Frequency Trading. High Frequency Trading, shortened to HFT, is a form of automated trading that executes thousands of trades a second using state of the art technology, and it has some of our best and brightest engineers working on it, instead of building airplanes and cars like they used to.

HFT makes up the majority of the volume on modern stock exchanges, providing liquidity to millions of traders and investors, big and small. Many HFT companies actually have special high-speed physical connections to the exchanges, giving them a well-deserved edge over the rest of the market, and allowing them to front-run peoples’ orders to provide liquidity before it’s even needed. This makes the markets incredibly efficient and aids in price discovery, helping economists and business owners understand what things are worth and plan or the future. This liquidity-producing effect has also made the markets more stable than ever, with efficient prices reflecting the real goings-on in the economy.

HFT algorithms engage in a variety of clever trading strategies that are simply not available to less sophisticated traders. One such strategy is called “spoofing”, in which an order is placed and then removed again before it is filled, in a short period of time. This technique is designed to fool market participants into reacting in a certain way, in order to front-run and capitalize on their response. HFT’s also have clever ways of fishing out where the majority of people are setting their stops, and then targeting these stops to create air pockets and rapid price movements, that can then be capitalized on. These clever strategies help weed out less savvy traders, leaving only the most professional traders to participate in the process of price discovery.

Many smaller traders often complain that they are being targeted by HFT’s and that less sophisticated traders are having a hard time protecting their trades from predatory algorithms with more visibility of the order books, deeper pockets and special connections to the exchanges. But these people gladly use all of the liquidity provided by HFT’s without ever showing any gratitude. Instead of complaining about electronic trading like the whiners and conspiracy theorists on Zerohedge, we should be praising them for creating the efficient and stable markets that we all benefit from today. HFT’s are here to stay, and they’re only going to get more sophisticated with time. So rather than complain about it, we need to embrace the future, and marvel at these incredible inventions of the modern age.

Pbier

If people place ‘stops’ to ‘protect their downside risk’ this simply means they do not have the courage of their convictions and should stay away from the big boys’ playground! HFT’s are in a way doing these suckers a favour by reminding them that they simply are not sophisticated enough to speculate in today’s accredited markets.

Expat Logger
Expat Logger

In my neck of the woods, we elected Trump to drain yo dark pools!

#russian-propaganda

richandrenee

What an interesting article MDB – It’s great to learn a little more about how markets work.

From what I understand HFT adds liquidity which makes markets safer for the small investor and HFT also helps price discovery to more accurately reflect the underlying supply and demand fundamentals of any given asset. (Is this correct?)

hungrypirana
hungrypirana

Darwinian principles make HFT work, but their optimal application is within society at large. Social darwinism is the logical extension of the argument MDB makes above. I doubt he’ll own up to the accredited ineluctably of his own logic.

#obstruction-of-justice

richandrenee

We’re pretty sure that MDB will own up to his own logic hungrypirana – why wouldn’t he? He is a world renown editor and quite frankly one of the best in the business. Not only that but he is also a powerful organizer – his many successful Pride parades are testament to this and it is commonly accepted in the LGBTQ+ community that without his incredible skills there wouldn’t be a sh#t show of ever getting Mecca pride off the ground.

Do you even realize what a fool you’re making of yourself with your snide comments?

Pbier

I suspect the delay in getting ‘approval’ from the Saudi authorities for the LGBTQ+ parade at Mecca is that no specific authorisation is needed. Knowing their laid-back and progressive views, the Saudis are probably surprised anyone would feel they need to be consulted on such a routine matter.

I think the best course of action is for everyone to simply turn up at Mecca for the pride rally and let the fun begin!

hungrypirana
hungrypirana

Make poor people pay their own damn healthcare. the murder rate would plummet b/c black hoodlums can’t afford ammo or iphones. We need a $1 trillion stimulus to build penitentiaries and breed more german shepards to bite offenders.

#racist

Black Lives Matter

HFT is a great benefit to liquidity. One point I’d note, though, is that apparently “spoofing” is considered illegal by the SEC and other financial regulatory agencies: https://www.sec.gov/news/pressrelease/2015-273.html. Fortunately, thanks to the strong enforcement efforts of regulatory watchdogs in the government, illegal conduct such as spoofing almost never occurs.

trav777

This is because of slavery.

or the crusades.

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