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 ?
Because this new standard did not require forward error correction (FEC), which can sometimes cause latency issues, it was much more desirable for applications such as high-performance computing, computer clustering and high-speed trading that cannot tolerate latency.
Blaming high-speed trading technology for informational inequities is like blaming the train for a derailment caused by a stalled vehicle on the rail.
Schneiderman alleged that Barclays "lied to brokers through private and public assurances by Barclays that investors in its pool were continually shielded from high-speed trading when, to the contrary, the bank actively sought to attract such traders.
The bank is alleged to have promised clients that it would protect them from aggressive high-speed trading firms in so-called 'dark pools', while taking steps that were beneficial to the companies.
economic news, Securities and Exchange (SEC) Commission Chair Mary Jo White announced for the first time that the organization would establish stricter rules for high-speed trading and dark pools.
It's possible that by the time regulators catch up with the stock market distortions caused by high-speed trading, the problem will already have been corrected.
Washington: Regulators have sharpened scrutiny of high-speed trading in the wake of criticism that architects of the cutting-edge practice have rigged the market against ordinary investors.
The FBI acknowledged that it has undertaken a probe of high-speed trading, while the head of the Securities and Exchange Commission pointed to its own probes a day later on Tuesday.
Its ultra-fast offerings are aimed at investment banks, exchanges, hedge funds and other financial institutions focused on high-speed trading and ultra-fast pre-trade risk management.
The score: Elena Ambrosiadou 2 - Martin Coward 0 * Less than two years after a Limassol court upheld the island's reputation as being safe for IP rights, a court in England has also found that the intellectual property of the high-speed trading software in question belongs to the company and thus, the co-author who abandoned the European hedge fund IKOS has no claim to the software.
Germany, meanwhile, proposed to curb high-frequency trading as Chancellor Angela Merkel's cabinet yesterday agreed draft laws aimed at putting the brakes on risky high-speed trading, saying it was playing a "pioneering role" for the rest of Europe.
Set up in 2006, Fixnetix provides banks, hedge funds and proprietary trading groups with high-speed trading technology across a number of asset classes.