Competition requires speed. Wisdom requires patience. In a hyper-computerized world, which one wins?
"High-frequency trading" (Hft) has gone from a financial industry dark art to newspaper and blog headline-fodder over the last few days, and for good reason. The practice, which relies on networked computers to execute billions of micro-scale transactions in order to sniff out prices and beat out slower traders, has all of the earmarks of a Very Bad Thing, Indeed: exploitation of pre-computerized trading rules; possible out-and-out illegal activity ("front-running"); and systems operating too fast for any human to oversee, let alone counter. The mega-scale financial services companies love Hft, as it results in huge aggregate profits and drives out competitors. Nonetheless, there are signs that we'll soon see changes to the rules that will make Hft far less lucrative, and possibly ban it entirely.
But when I first started hearing about Hft and the market distortions it seems to produce,...
"High-frequency trading" (Hft) has gone from a financial industry dark art to newspaper and blog headline-fodder over the last few days, and for good reason. The practice, which relies on networked computers to execute billions of micro-scale transactions in order to sniff out prices and beat out slower traders, has all of the earmarks of a Very Bad Thing, Indeed: exploitation of pre-computerized trading rules; possible out-and-out illegal activity ("front-running"); and systems operating too fast for any human to oversee, let alone counter. The mega-scale financial services companies love Hft, as it results in huge aggregate profits and drives out competitors. Nonetheless, there are signs that we'll soon see changes to the rules that will make Hft far less lucrative, and possibly ban it entirely.
But when I first started hearing about Hft and the market distortions it seems to produce,...
- 7/30/2009
- by Jamais Cascio
- Fast Company
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