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The latest Wall Street buzzword(s) is “High Frequency Trading” also known as “HFT” and it has had everyone on Wall Street up in arms for the past few years. New York Stock Exchange-IEX CEO Brad Kutsayama and BATS Global Markets President & CEO William O’Brien went after it on CNBC Tuesday about the controversial trend. HFT is algorithm-based trading that many investors use on Wall Street, often gathering just fractions of cents on trades (it’s almost like how Peter Gibbons stole money from Initech in “Office Space”) and High Frequency Traders often make several million trades a day, resulting in gigantic margins and huge profits as opposed to the traditional “buy-and-hold” strategy of the stock market. It’s not illegal, but it’s not quite ethical either. It’s actually pretty fascinating.
After a couple of minutes of prodding, Katsuyama calls out O’Brien with the classic “You want to do this? Let’s do this.” Straight up Randy Marsh-style. O’Brien doesn’t back down from the challenge and the two go after it for a good 20 minutes. Every single trader in the background stops in their tracks to watch the carnage. The entire panel gets involved. Host Michael Lewis gets called out for potentially being an investor with Katsuyama. It’s pure anarchy.
[via Yahoo! Finance]
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Brian McGannon
What do I love? I love happy hour, a good golf tan, and getting moderately drunk during dinner.
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HFT is fascinating. It’s basically skimming off the top of trader’s/bank’s trades because they’re fiber optic cables are faster by milliseconds. How can they justify that being legal?!
It’s quite bullshit. They are taking advantage of minute changes occurring over as little as fractions of a second with no intent of actual investment. While extraordinarily interesting and impressive at an analytical and mathematical level, it really provides no benefit and only detriment as frequency increases.
Totally agree, it blows my mind they’re allowed to do this.
How would you regulate it, though? You’d have to set a speed standard for connectivity? Or…
current talks are about a time hold on stocks. Meaning you have to hold the stock for a certain period of time before you can buy more or sell the stock. There is also talk of a stock freeze, meaning once a stock has been bought or sold x amount of times it becomes locked and no one can trade it anymore.
Your question is valid: How do you regulate it? This is a good question because it has no good answer. you cant regulate it. Its absolutely out of control and unfair. It needs to be stopped, that’s the best solution.
Finally someone addresses HFT and calls it what it is… Criminal. Skimming transactions and littering the marketplace with orders that they have zero intention of filling is not “adding liquidity” it is gaming the system.
BATS and others have cozied up to the HFT factories to get paid on their trade volume, and who can blame em? Just don’t blame the rest of the world when they leave your exchange for a free marketplace. And yes I’m still bitter about HFT ruining my trading career.