As reported by IrishTimes.com’s Proinsias O’Mahony, the average holding period for a stock is rising, according to US economics professor Michael Hudson – to 22 seconds, up from 20 in 2009. Foreign currency “investments” typically last just 30 seconds.
How come? Because of computer-driven high-frequency trading, which is estimated to account for up to 70 per cent of market activity in the US and 77 per cent in the UK.
High-frequency trading is as noteworthy for its unfilled orders as its hyperactive trading, however. Themis Trading’s Joe Saluzzi, a fierce critic, alleges that orders only execute 5 per cent of the time, with 95 per cent of orders quickly cancelled. This so-called quote stuffing creates a false impression of demand.
Saluzzi’s figures are not backed up, but a recent academic study did confirm that quote stuffing is “pervasive” on stock exchanges.
Acclaimed contrarian investor and author David Dreman is also appalled by high-frequency trading. “If other brokers see a selling stampede bearing down on them, they are likely to escape being trampled by selling their positions pronto,” he says.