high-frequency trading

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high-frequency trading

Buying and selling large quantities of stocks in split seconds, and making pennies or fractions of a penny per share. High-frequency trading (HFT) is performed entirely by computer algorithms that look for and take advantage of small price discrepancies of the same stock on different exchanges. HFT computers are constantly bidding and offering 100-share lots of thousands of different stocks to determine moment-to-moment prices. In addition, traders can spoof the market by placing large sell orders, cancel them milliseconds later and immediately buy the stocks at a lower price, which they caused by injecting negativity into the market.

High-frequency traders are competing with other high-frequency traders all day long. In order to profit, the buys and sells must be executed immediately, and the shorter transmission pathways between orders and executions make the difference. To speed up the process, high-speed traders locate their computers within the same datacenter as the stock exchange computers or as close by as possible. In the most extreme example, a fiber optic line was laid from New Jersey to Chicago in the straightest line possible in order to shave nanoseconds from the travel time. The futures exchange is in Chicago, and New York-based stock exchanges have their datacenters in New Jersey.

Extremely Controversial
Proponents claim high-frequency trading is simply an advanced form of algorithmic trading like all the other widely used financial formulas. High-frequency traders also claim their systems make a more uniform market and have a stabilizing effect.

Opponents claim HFT is downright deceitful, turning money making into software that executes 99% of its trades with a profit. They claim high-frequency traders make billions per year without contributing any value to anyone but themselves. In the Flash Crash of May 6, 2010, when the Dow swung 1,000 points within minutes, regulators reported that high-frequency trading exacerbated market volatility after the sale of unusually large futures contracts. Had the event occurred at a different time of the day, the effects might have reached around the world. As a result, opponents assert that high-frequency trading could turn the market into greater bouts of chaos in the future.
References in periodicals archive ?
Another reason for the higher popularity of HFT (according to a GfK survey of 5000 smartphone owners across five countries[sup.
The first firm to trade on the new IEX venue was Goldman Sachs--and after Flash Boys was published, Goldman's chief operating officer declared HFT bad for U.
The European Union has enacted an HFT transaction tax.
11) The market collapse and several events that cast doubts about the integrity of the market pushed HFT and dark pools to the top of the SEC's priority list.
2) HFT has gained traction more slowlya in European markets, but in 2009-10 still had penetration of 20 to 40 percent.
HFT is, quite simply, a contemporary tool that facilitates informational market efficiency and, as such, is capable of being regulated by the market and market participants--indeed, there is significant evidence to indicate HFT activity already is being regulated by the market.
The TimeProvider 5000 has successfully completed interoperability testing with a wide variety of PTP clients running on Windows or Linux such as the SyncPoint PCIe-1000 PTP Clock Card and PTPd to deliver a complete solution to support HFT applications.
There is special emphasis on the impact of HFT on retail and institutional investors, and on the role of HFT in the Flash Crash of May 2010.
2 million by accepting a job offer from Goldman competitor Teza Technologies, which planned to build its own HFT system.
The New Market Maker HFT grew out of the SEC's 1998 decision to allow electronic exchanges to compete with the NYSE and other marketplaces.
HFT takes advantage of - even manipulates - microsecond differentials in trading prices of securities across different exchanges to make profits.
Among the Indian bands, Delhi's HFT is hard at work to make sure its rhythm " gets to you".