How High Frequency Trading Robots Are Creating a Bumpy Ride for Main Street

Nasdaq big board

An “Air Pocket” stock is, by definition, any security that experiences a sudden drop in share price, much as an airplane experiences turbulence causing it to drop unexpectedly. Generally, these air pockets in stocks come as a result of negative corporate fundamentals, such as a quarterly earnings miss, an FDA announcement, or SEC investigation.

Today these events are happening more frequently and for other reasons. High frequency trading robots (HFTs) are creating air pockets for so many of the Market’s equities that there should be a sign on the top of your online brokerage trading platform that reads “Buyer Beware.”

High frequency trading robots (HFTs) now account for 73% of the daily trading volume. In 2007, automation accounted for just 30%. In four years, HFTs have more than doubled their trading activity.

Their ability to succeed strictly depends on speed, how quickly they can enter and exit orders. The need for speed has caused corporate office buildings in New York and Chicago to be emptied, only to be replaced by large computer servers. Submarine fiber optic cables are being set down from New York to London in order to shave .006 seconds off trade execution. Yes, from New York to London.

The question under debate: Is high frequency, robotic automation good for Markets in general?

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About yocijourney

God does not play dice
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