This stricle on high frequency trading was in the New York Times a couple of days ago. I couple of point snde by the auhtor are rather inetetersting. It;s good to see a loner view once in a while. This an excerpt. To avoid copyrigh violation, I put onkly part of the article here. The full article is at http://topics.nytimes.com/topics/re...high_frequency_algorithmic_trading/index.html.
High-Frequency Trading
Oct. 23, 2012
Over the past few years, hgh-speed or high-frequency trading — known as H.F.T. — was the biggest new thing to hit Wall Street trading, and in the minds of many, the most disruptive. On any given day, this lightning-quick, computer-driven form of trading accounts for half of all of the business transacted on the nation’s stock markets.
Critics say H.F.T. has contributed to the hair-raising flash crashes and computer hiccups that seem to roil the markets with alarming frequency.
H.F.T. first became a significant part of the Wall Street scene in the 1980s, when it was blamed for exacerbating the market plunges in October 1987. Since then, the computers involved have grown vastly more powerful and the algorithms that guide their trading vastly more sophisticated.
For years, H.F.T. firms have operated in the shadows, often far from Wall Street, trading stocks at warp speed and reaping billions while criticism rose that they were damaging markets and hurting ordinary investors. More recently, they have been stepping into the light to buff their image with regulators, the public and other investors.
At the same time, figures suggest that the practice may be cooling down a bit. Profits from high-speed trading in American stocks were on track to be, at most, $1.25 billion in 2012, down 35 percent from 2011 and 74 percent lower than the peak of about $4.9 billion in 2009, according to estimates from the brokerage firm Rosenblatt Securities. And the percentage of stock trades handled by firms that specialize in H.F.T. fell to about 51 percent in 2012 from 60 percent in 2009.
Drops in overall trading volume have made it harder to make profits for traders who quickly buy and sell shares offered by slower investors. In addition, traditional investors like mutual funds have adopted the high-speed industry’s automated strategies while the technological costs of shaving further milliseconds off trade times has become a bigger drain on many companies.
Meanwhile, the firms are trying to stave off the regulators who are proposing to curb their activities. To make their case, the firms have formed their first industry trade group, hired former Securities and Exchange Commission staff members and spent nearly $2 million in the last few years on Washington lobbying and contributions to lawmakers. Some even want to be called “automated trading professionals” rather than high-frequency traders.
Good Thing for Ordinary Investors, British Report Says
In October 2012, a new study concluded that the rise of high-speed trading firms has generally been a good thing for ordinary investors. The two-year British government study, however, found that the increasing prevalence of computerized trading may lead to isolated incidents of instability in the financial markets.
The report, released on Oct. 22, is the product of the most comprehensive effort to date to understand the computerized trading firms that have come to dominate the financial markets and generate anxiety among regulators and investors.
The committee that oversaw the study largely rejected some of the most troubling accusations that have been made about the firms that practice high-speed trading, or H.F.T., including charges that they have caused greater volatility in markets and manipulated stock prices.
But the committee concluded that regulators had failed to gather enough data or build the expertise needed to allay a widespread assumption among professional investors that faster traders have an advantage and profit at the expense of ordinary investors.
The committee’s conclusions were consistent with a number of academic studies that have found that competition between H.F.T. firms has made it easier and cheaper for ordinary investors to buy or sell stock whenever they want.
Contunued at http://topics.nytimes.com/topics/re...high_frequency_algorithmic_trading/index.html
High-Frequency Trading
Oct. 23, 2012
Over the past few years, hgh-speed or high-frequency trading — known as H.F.T. — was the biggest new thing to hit Wall Street trading, and in the minds of many, the most disruptive. On any given day, this lightning-quick, computer-driven form of trading accounts for half of all of the business transacted on the nation’s stock markets.
Critics say H.F.T. has contributed to the hair-raising flash crashes and computer hiccups that seem to roil the markets with alarming frequency.
H.F.T. first became a significant part of the Wall Street scene in the 1980s, when it was blamed for exacerbating the market plunges in October 1987. Since then, the computers involved have grown vastly more powerful and the algorithms that guide their trading vastly more sophisticated.
For years, H.F.T. firms have operated in the shadows, often far from Wall Street, trading stocks at warp speed and reaping billions while criticism rose that they were damaging markets and hurting ordinary investors. More recently, they have been stepping into the light to buff their image with regulators, the public and other investors.
At the same time, figures suggest that the practice may be cooling down a bit. Profits from high-speed trading in American stocks were on track to be, at most, $1.25 billion in 2012, down 35 percent from 2011 and 74 percent lower than the peak of about $4.9 billion in 2009, according to estimates from the brokerage firm Rosenblatt Securities. And the percentage of stock trades handled by firms that specialize in H.F.T. fell to about 51 percent in 2012 from 60 percent in 2009.
Drops in overall trading volume have made it harder to make profits for traders who quickly buy and sell shares offered by slower investors. In addition, traditional investors like mutual funds have adopted the high-speed industry’s automated strategies while the technological costs of shaving further milliseconds off trade times has become a bigger drain on many companies.
Meanwhile, the firms are trying to stave off the regulators who are proposing to curb their activities. To make their case, the firms have formed their first industry trade group, hired former Securities and Exchange Commission staff members and spent nearly $2 million in the last few years on Washington lobbying and contributions to lawmakers. Some even want to be called “automated trading professionals” rather than high-frequency traders.
Good Thing for Ordinary Investors, British Report Says
In October 2012, a new study concluded that the rise of high-speed trading firms has generally been a good thing for ordinary investors. The two-year British government study, however, found that the increasing prevalence of computerized trading may lead to isolated incidents of instability in the financial markets.
The report, released on Oct. 22, is the product of the most comprehensive effort to date to understand the computerized trading firms that have come to dominate the financial markets and generate anxiety among regulators and investors.
The committee that oversaw the study largely rejected some of the most troubling accusations that have been made about the firms that practice high-speed trading, or H.F.T., including charges that they have caused greater volatility in markets and manipulated stock prices.
But the committee concluded that regulators had failed to gather enough data or build the expertise needed to allay a widespread assumption among professional investors that faster traders have an advantage and profit at the expense of ordinary investors.
The committee’s conclusions were consistent with a number of academic studies that have found that competition between H.F.T. firms has made it easier and cheaper for ordinary investors to buy or sell stock whenever they want.
Contunued at http://topics.nytimes.com/topics/re...high_frequency_algorithmic_trading/index.html
