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 ?
The stock trading plans of each to the above officers will terminate on June 30, 2010.
Although individuals have been net sellers since August, their active participation, along with nonresident investors who account for more than 50 percent of the total value of stock trading, have contributed to brisk trading this year, brokerage officials say.
In Chile, Santiago-based financial services firm CB Capitales introduced that country's only Internet stock trading service in March, called cb.
Flanery adopted stock trading plans to sell up to a total of 300,000 shares and 20,000 shares, respectively, of company stock for the purposes of asset diversification, estate planning and liquidity.
Rule 10b5-1 permits corporate officers and directors to adopt written, pre-arranged stock trading plans when they are not in possession of material, non-public information.
Each of the 10b5-1 stock trading plans was adopted in accordance with the guidelines specified by Rule 10b5-1 under the Securities Exchange Act of 1934 and GeoMet's policies regarding stock transactions by insiders.
Under the recently entered-into stock trading plans, executive officers may sell up to an aggregate of approximately 281,000 shares of iPCS common stock over a period ranging from one month to 32 months, depending on the terms and conditions of each individualeIUs plan.
Sanders, Vice President and Chief Financial Officer, have each adopted a prearranged stock trading plan to sell a portion of their Laidlaw stock as a means of funding a portion of their tax liabilities in connection with future vesting of deferred share grants.
Nasdaq:GILD) today announced the establishment of a stock trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934 on August 30, 2006 by John C.
3DIcon Corporation (Pink Sheets:TDCP), a communications development company, announced today that Martin Keating, president and CEO, has established a stock trading plan in accordance with guidelines specified by Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and in accordance with 3DIcon's policies with respect to insider trading.
Nagel, Chairman, President, and Chief Executive Officer, established a stock trading plan effective August 1, 2006.
The stock trading plan was adopted in accordance with the guidelines specified under Rule 10b5-1 of the Securities and Exchange Act of 1934.