The evolution of financial markets through technological development has been going on for centuries, with criticism about such developments going back to the invention of the telegraph in the mid-19th century.
And so it goes with the comparatively recent arrival of high frequency trading and commodity investing, vociferously lambasted by a Finance Watch pamphlet which suggested that both HFT and speculation on commodity markets were “bad” developments which regulators or governments should seek to stamp out.
In fact, such arguments are fallacious and specious. Speculation is not a cost to society, nor a drain on liquidity. Indeed, there are significant social benefits that technology has brought to trading and the liquidity that speculators provide is critical to markets functioning properly.
Let me explain why.