The Results of High Frequency Trading

Good Essays
High Frequency? Or Insider Trading?

Dow Intraday Trading May 9th 2010

High frequency trading has reached a point in which its legality needs to be called in to question. These traders hurt markets and other investors while forcing large investors to move into dark pools. High frequency traders also have an unfair advantage when it comes to trading. The above picture shows the most infamous trading crash caused by high frequency traders known to date. The Dow Jones Industrial average fell 600 points, and then continued to rise back up to its former levels fifteen minutes later. A drop like this is a clear sign of how unstable the markets can become when high frequency traders are in the mix of the markets. Another scary incident caused by high frequency traders was the near collapse of Knight Capital, a major brokerage firm. In a matter of minutes a high frequency trading glitch caused the firm to lose approximately 400 million dollars. The collapse of a major firm like this would be awful for the markets; it would take away liquidity and stability. High frequency traders have caused flash crashes of both markets and firms on multiple occasions; they are clearly bad for the markets.

Many large investors have also been forced to invest in what are known as dark pools. Dark pools are barely regulated, adding to the temptation of insider trading and other illegal activities. The reason large investors are going to these dark pools is to be able to secretively make large orders that high frequency traders won’t be able to take advantage of. People used to be able to make large orders in normal markets, but now when trading, people need to chop up their orders in to smaller and smaller blocks to avoid being taken advantage of. This makes trading much harder on these investors and therefore trading is more difficult in the markets as a whole
The real problem with insider trading is the unfair advantage that they have. “These super computers allow



Cited: Engelen, Peter-Jan, and Luc Van Liedekerke. "The Ethics of Insider Trading Revisited." JSTOR.org. Springer/Journal of Business Ethics, 2007. Web. 29 Oct. 2012. http://www.jstor.org/stable/25075485?&Search=yes&searchText=insider&searchText=trading&list=hide&searchUri=%2Faction%2FdoBasicSearch%3FQuery%3Dinsider%2Btrading%26gw%3Djtx%26acc%3Don%26prq%3Dhigh%2Bfrequency%2Btraders%26Search%3DSearch%26hp%3D25%26wc%3Don&prevSearch=&item=3&ttl=8981&returnArticleService=showFullText Green, Stuart P. Lying, Cheating, and Stealing: A Moral Theory of White-collar Crime. Oxford: Oxford UP, 2006. Print. McGowan, Michael J. "The Rise of Computerized High Frequency Trading: Use and Controversy." 2010 Duke Law & Technology Review (2010): 1-23. Redirecting... Web. 29 Oct. 2012. http://heinonline.org/HOL/Page?handle=hein.journals/dltr2010 Popper, Nathaniel. "The Search for Speed Limit in High-Frequency Trading." New York Times 9 Sept. 2012: n. pag. Print.

You May Also Find These Documents Helpful

  • Powerful Essays

    High Frequency Trading

    • 17892 Words
    • 72 Pages

    Markets Committee High-frequency trading in the foreign exchange market Report submitted by a Study Group established by the Markets Committee This Study Group was chaired by Guy Debelle of the Reserve Bank of Australia September 2011 Copies of publications are available from: Bank for International Settlements Communications CH-4002 Basel, Switzerland E-mail: publications@bis.org Fax: +41 61 280 9100 and +41 61 280 8100 This publication is available on the BIS website (www.bis.org). ©…

    • 17892 Words
    • 72 Pages
    Powerful Essays
  • Satisfactory Essays

    high frequency trading

    • 398 Words
    • 2 Pages

    High frequency trading According to Wikipedia, high frequency trading is a type of algorithmic trading which uses sophisticated technological tools and computer algorithms to rapidly trade securities. ! High frequency trading is a quantitative trading. It produces very small profits in each trade but huge profits when it has a large volume. The ability to process a large volume of information by computer contributes to HFT. Computerized quantitative models make all the decisions in a rapid…

    • 398 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    definite answer to what "high frequency" might be, it has been generally accepted that they are the type of trades automated by machines using proprietary algorithms and trade at very high speeds, often executing at least a few trades in under a second. HFT strategies can be broadly categorized into 4 groups: Liquidity Providence: Rebate Trading, Automated Market Trading. Pricing Inefficiency Arbitrage: Scalping, Latency Arbitrage, Statistical Arbitrage Predatory Trading: Latency Arbitrage Flash…

    • 1240 Words
    • 5 Pages
    Good Essays
  • Good Essays

    High frequency trading HFT What is HFT and how does it work? High frequency trading (HFT) is buying and selling stocks at an incredible speed, we are talking about milliseconds. This is too fast to manual put in the orders, hereby taken over by powerful computers. They run by sophisticated algorithms that are independently scanning the market for opportunities. Those programs have very low turnover rates per share, only a few cents or even less. However since they trade thousands of stocks each…

    • 661 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Trading Report Strategy Chosen Our strategy is consisted of two parts: when the market is neutral without obvious trends, we play like the role of market maker; on the contrary, we put our bet on the trend. At first, we calculate the weighted average quantity from the order book, says 1st to 4th layer, for both sides. If bid quantity is larger than 2.5 times of ask, we believe that bulls prevail and this trend will be continued in a phase. Thus we place a market order to buy, expecting to earn…

    • 903 Words
    • 4 Pages
    Good Essays
  • Good Essays

    High Frequency Traders

    • 1450 Words
    • 6 Pages

    Eze Castle Integration Whitepaper High Frequency Trading: What’s True, What’s False and What’s Next *This article is for general information purposes only and does not constitute Eze Castle Integration trading or technology advice as to any particular set of facts. ABOUT EZE CASTLE INTEGRATION Eze Castle Integration (www.eci.com) is the leading provider of technology, IT services and consulting to the investment industry. The company’s service areas include Outsourced IT, Startup and Relocation…

    • 1450 Words
    • 6 Pages
    Good Essays
  • Powerful Essays

    High Frequency Words

    • 7550 Words
    • 31 Pages

    I THE PROBLEM AND ITS SETTING Introduction High frequency words (sight words) are words that students encounter frequently in reading and writing. It is critical that readers and writers develop automaticity (automatic recognition), a skill that leads to fluency. Many beginners in reading need explicit instruction with repeated practice to learn the high frequency words. By third grade, most students have initially come across high frequency words. If pupils are reading grade level passages…

    • 7550 Words
    • 31 Pages
    Powerful Essays
  • Powerful Essays

    Luc Bauwens . Winfried Pohlmeier David Veredas (Eds.) High Frequency Financial Econometrics Recent Developments With 57 Figures and 64 Tables Physica-Verlag A Springer Company High Frequency Financial Econometrics Recent Developments Prof. Winfried Pohlmeier Department of Economics University of Konstanz 78457 Konstanz Germany winfried.pohlmeier@uni-konstanz.de Prof. Luc Bauwens CORE Voie du Roman Pays 1348 Louvain-la-Neuve Belgium bauwens@ucl.ac.be Prof. David…

    • 55805 Words
    • 469 Pages
    Powerful Essays
  • Satisfactory Essays

    The screen is a high frequency, high vibration strength for the main features of the vibration sieve, mainly for wet classification of solid-liquid separation of fine material below 0.5mm. In the coal preparation industry, its investment and operating costs low, making the most of the coal preparation plant has the ability to use their recycling slime in order to achieve a closed recycling of wash water and to improve the coal preparation plant environment, and the obvious economic and social benefits…

    • 414 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Frequencies

    • 427 Words
    • 2 Pages

    Frequencies A sound wave is created as a result of a vibrating object. The object that is vibrating, is the source of the disturbance that moves throughout the medium. The object creating the disturbance could be the vocal cords of a person, the vibrating strings and soundboard on a string instrument, or the vibrating diaphragm of a radio speaker. If an object has the ability to vibrate, then it will produce sound. Almost every…

    • 427 Words
    • 2 Pages
    Good Essays