3 ms·
(for the moment). HFT will eventually fall off a cliff or be regulated out of existence. I think the FSA in the UK are on this already.
by hp50g 14y ago
(for the moment). HFT will eventually fall off a cliff or be regulated out of existence. I think the FSA in the UK are on this already.
- coob 14y agoWhy would it be regulated out of existence? Does it not provide large amounts of liquidity?
- hp50g 14y agoIt does but there are some real downsides: Failures can cause exchange crashes big time. This has nearly happened a few times before. Risk is centralised and multiplied. HFT contributes to volatility. Hurts long term investment by human brokers.
- michael_miller 14y agoTo play devil's advocate: - Can't failures be counteracted by having failsafe measures? For example, if the market goes down more than 5% in a few-minute period, the market temporarily shuts down for a cooloff period of several hours to diagnose what's happening. - Isn't HFT irrelevant to long term investment, given that it erodes away short-term profit, leading to accurate pricing of the stock?
- hp50g 14y agoGood questions. A failsafe/circuit breaker is a possibility but shutting down the market will affect confidence. I'd prefer to see a market operate on a tick basis I.e all trades for a tick are transacted in one go with a window between each tick and assertions before and after the tick processing. Fair point with your second comment.
- omi 14y agoHFT doesn't provide liquidity, it provides volume which is not the same thing as liquidity. Think churning the same 100 shares a 1000 times. Since market participants assume that the volume they see is liquidity, when they try to execute larger orders, and BAM! (this happens with single large orders as well as a dump of 100 lots) the floor just vanishes from them as machines just turn off for some time while someone liquidates a position and tries to find ACTUAL buyers.