As reported from Scott Phillips, ever since the meltdown at the US firm Knight Capital last month, the debate over high-frequency trading has exploded.
In short form, high-frequency trading is a flavour of trading that leverages computers and the speed of super-fast data connections to make lightning-quick trades, and lots of them. This means that, often, the trader’s servers are situated in the same data centre as the exchange’s servers.
While there’s no single strategy of a high-frequency trader – they might be acting like a market-maker, or playing index arbitrageur – the common thread is that they all rely on speed to succeed.
So, the billion-dollar question is: is this type of trading a major risk for markets, or closer to a non-factor?