High-Frequency Trading: is there really a place for it?

High-Frequency Trading Leaders Forum 2012, "How Knight Capital's 'Knightmare on Wall Street' Could Transform the Regulatory Landscape and Impact Investors, Speed Traders and Brokers"

High-Frequency Trading Leaders Forum 2012,

Reported by Mike Rhodes, rather interestingly, the NASDAQ (the most recent victim of the problems caused by HFT) was the first electronic exchange to have been created, in the early 70’s. At this time, the rest of the world was blissfully writing documents on typewriters, calling people using tethered home phones, and were exchanging messages using something called ‘the post’ (having researched this, it appears to be some form of paper-based system that requires human intervention).

Derivation aside, the way in which stock has been traded has gradually changed since the inception of the NASDAQ, and the speed-of-execution has increased. In itself, this was fine, because everyone was still playing on the same field, and ultimately to execute a trade a human had to place it somewhere along the line. Then along came the wolf in sheep’s clothing known at Algorithmic Trading. At first sight, the ability to trade automatically without the need for interaction seemed like a great idea – in fact I’m a BIG proponent of using analytics in this way and it yields optimal results in many different lines of business. However, allowing the computer to trade on your behalf also introduced a rather more dangerous variant of algo–trading, High-Frequency Trading.

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