The New High Frequency Trading Landscape: Man Versus Machine

Based on  an article by Hilary Farrell and Benzinga Staff, Last week, 11 financial and Wall Street firms, including the Security Traders Association and NYSE-Euronext, issued problems on future practices for fair markets. Perhaps not surprisingly, the subject of high frequency trading came up as a prominent issue affecting today’s trading exchanges.

High frequency trading is the use of computer programs, tools and sophisticated algorithms to trade the markets. Positions are held for short periods of time, and the algorithms often move in and out of these trades in small increments. The key components of high frequency trading are speed and aggregated profit.

High frequency trading has received criticism for being unfair, and even though high frequency trades make up to 70% of all equity trading volume in the U.S., it is rarely discussed in retail circles and financial media. co-founders Joel Elconin and Dennis Dick have over 30 combined years of experience in the markets, and are both outspoken advocates of educating traders about the differences between algorithmic trading and “predatory” high frequency trading practices. Dick said:

This is where the gripe starts – with the predatory aspect. I would define a predatory HFT strategy as any automated strategy that seeks to profit from other participants’ order flow – by stepping ahead of those orders, getting a sneak peek of orders, or finding large orders to step ahead and front-run.

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