Dead or Alive?
How average retail investors survive under the High Frequency Trading environment?
Nowadays, the term “High frequency Trading” seems becomes more and more familiar to the investors. According to Telis Demos, 84% of all stock trades are by High Frequency computers and only 16% are done by human traders in United States (Telis, 2012). Trading by “real” investor is taking up the smallest share of US stock market volumes. According to the SEC,” High Frequency Trading employs technology and algorithms to capitalize on very short-lived information gleaned from publicly available data using sophisticated statistical, econometric, machine learning, and other quantitative techniques”(SEC,2010). Tobb Group estimated that High trading Traders earned about 60 million dollars on August 8, 2011. Since the High Frequency Trading has such a big proportion in the stock market, it raises the question that how this trading strategy influences average retail investors?
Some people think High Trading Frequency has positive effect to the stock market because it provides liquidity to the market, narrows the bid-ask spread. However, some people argue High Frequency Trading manipulates the uninformed investors and creates the system market to the market. It is obvious that High Frequency Trading has a big influence to the investors because it changes the way to estimate the Stock price. According to Garrett, an expert on market system and High Frequency Trading, The stock price movement is too consistent and quick which didn’t match human action. People used to estimate the price by evaluating the annual report and cash flow of the companies. However, High Frequency Traders can set the price based on what they perceive other’s perceptions to be (The Casey Report, 2012). Hence the environment of the stock market has a big change and it is very hard for the investors to earn profit follow the old strategy. It is the thumb rule that informed investors can always beat...
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