High-Speed Trading Hurts ETFs

Agitated traders make nice backdrops for TV news, but much of today’s action happens in anonymous server racks where bids and offers come and go in milliseconds.

Proponents of high-speed trading say it provides liquidity, thereby reducing transaction costs for investors of all stripes.

Let’s hope so. Such trades make up about half of all equity trades on U.S. exchanges.

What’s troubling isn’t so much the speed of these trades, but the cancellation rate, which is a staggering 98 percent.

Maybe someone can explain to me how a trading system where virtually all the orders are canceled helps capital markets or investors. Key liquidity measures like bid/ask spreads and depth of book depend on order information. With high-speed trading, almost all of that information is false.

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