The impact of high-frequency trading
The trading war
High-frequency trading (hft) is the use of advanced technological tools and computer algorithms to trade securities as quickly as possible. High-frequency trading began in 1999, after the us securities and exchange commission (sec) approved electronic stock exchanges in 1998. Banks, the major players in the financial markets, have continued to push high-frequency trading. Mit immer schnelleren computern traden die banken gegen alles und jeden, sogar gegen ihre eigenen kunden.
The deterioration in the performance of hedge funds in recent years is also a consequence of increasingly rapid trading, especially when they have less computer power than the major players. It almost seems that the banks are acting like a terminator where the machines have taken over. High-frequency trading by investment banks, hedge funds and other players now accounts for about 70 to 75% of all trades in u.S. Equities. It seems that it is time that this fraudulent system is curtailed. Wall street’s get-rich-quick syndrome hurts ordinary investors because they can’t compete in a high-speed environment. The liquidity argument, which supposedly favors high-frequency trading, is questionable. If buy and sell orders are received simultaneously from the same trader in the many trades, it does not mean that a trade is taking place here. Rather, it appears that a computer-based financial war is being waged.
Out of control
Trading at the speed of light poses gross dangers in an increasingly interconnected society. The more the computer takes over, the greater the risk of further black days like the borsencrash of 1987. It is becoming increasingly clear that high frequency trading manipulates the markets and can lead to a situation where the situation can even get out of control (high frequency trading makes markets go crazy).
Trading becomes faster and faster, so that the rough players even place their server farms near or below the stock exchange in order to be able to execute their transactions even faster via the fastest cable connections. The so-called flash crash of 6. May 2010 has shown how easily things can get out of control. That day the dow jones industrial average plunged 2.45 o’clock by about 1000 points (approx. 9%) and recovered from these losses within a few minutes (high frequency trading verstarkt aktiencrash).
If the wheel turns faster and faster, there is a danger that a global crisis can arise within milliseconds. A ban on high-frequency trading seems more necessary than ever to reduce this risk and restore equal opportunities to all market participants. Differences in transmission technology or the distance between trading places (chicago and new york are 720 miles apart) can now determine millions of dollars in profit or loss. Even most hedge funds can no longer keep up with the super-fast computers of the rough financial firms.
Super crash ante portas?
In today’s environment, manipulation of markets is the dominant trend. High-frequency trading systems ie buy or sell orders that are withdrawn in milliseconds, just to test who is willing to trade at certain prices. The best way to describe these practices is front-running. The sec has not done anything yet to stop this manipulation. Inaction and delay is currently the modus operandi for dealing with this complex financial fraud.
A study by fed chicago shows how flash trading robots have now taken control of the financial markets. However, the study also shows that high-speed trading firms are increasingly losing control over their own robots. Out-of-control algorithms are occurring with increasing frequency, which is why the risk of a black day with a daily loss of 40% or more has increased significantly.
It is very dangerous when two-thirds of proprietary trading firms and the stock exchanges have one or more faulty algorithms. How will a regulator control algorithms if they cannot even be controlled by the owners of the machines?. The likelihood of further flash crashes and an ultimate black day flash crash cannot be denied. While bubbles in the financial markets can be seen in advance, computer-based price crashes, like so-called killer waves in the world’s oceans, come out of the blue .