May

19

1. Can anyone come up with ANY justification for retail parties' engagement in High Frequency Trading?

Russ Herrold writes:

Sure. First would you mind please:

1. Carefully defining: High Frequency Trading

2. Explain if you consider the taking of profit from a market to constitute an adequate 'justification'.

Bill Rafter writes:

Let me deal with them in reverse order:

If a market is inefficient such that a profit can be made by doing a trade to capitalize upon the inefficiency, the trade performs the simultaneous jobs of creating liquidity and reducing inefficiency (and making a profit).

Given that, it makes no difference whether the trading is high frequency or not high frequency.

By the way, I have no dog in this hunt, being a long-only equities trader who tends to hold for a minimum of 2 days.


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  1. Jim Davis on May 20, 2010 9:43 pm

    This argument (above) always seemed specious to me.

    It’s the same as saying that any money you take from a sucker (victim) is being repatriated to a more worthy holder.

    The real argument is over whether the HFT boys have engineered a skimming and front running operation under the cover of providing liquidity. The whole co-location thing and the associated ‘edge’ is quite bothersome.

    They shut down the old SOES bandits, who also had a nice racket going for years. They could have made the same claim of increasing efficiency , by lifting those nasty, slow, stale quotes from the market makers.

    I believe some of the SOES crew moved into the HFT game long ago. Not surprised.

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