High-frequency trading: fast money on the stock exchanges!
The book "Flash Boys: A Wall Street Revolt" by journalist, writer and trader Michael Lewis was published only 1.5 months ago, but it shook the financial world like Jordan Belfort and his "The Wolf of Wall Street.
High-frequency trading: how it works
Flash Boys Book raised the issue of high-frequency trading (hft) in the financial markets. The essence of this type of trading is that special programs make a very quick decision to buy or sell an asset based on incoming news.
Goldman Sachs, Credit Suisse, and UBS have special divisions that specialize in high-frequency trading. Their servers are located as close as possible to New York Stock Exchange (and it costs a lot of money) to reduce the time of the signal, so that trading robots could make a decision about the news as quickly as possible and start trading.
Information processing for trading robots is taking less and less time. The most talented and well-paid engineers and IT people are working in this field, and they are essentially creating an artificial mind that is geared to make one of two decisions: Sell or Buy. And the cream taken off the market is worth it.
The scheme is as simple as the world: he who buys first, buys at the best price. And resells it already at a higher price to those who came to the market a second later.
Are high-frequency trading robots evil?
ConvergEx conducted a survey that found that 2/3 or 70% of participants believe the stock markets are not fair to all. 51% of respondents believed that High-frequency trading is evil.
Often the efforts of high-frequency robots are tuned to many different stocks, including stocks of small companies that are subject to significant volatility. This allows you to grab a large chunk of profit in a short time.
In the U.S. and Europe, regulators want to limit, if not ban, the use of high-frequency robots that create artificial movement in the financial market, which is not related to the real performance of the company.
A prime example of this is Flash Crash 2010which was essentially a machine uprising. Some high-frequency robots triggered to reach a level, literally dropping the market for a few minutes, while other robots triggered to reach a price, redeeming the stock and bringing the market back within its range of movement.
"High-frequency technique is the new stage in trading. The Future of Trading."The market is not only a market, it is also a market," says Alexander Kuptsikevich, financial analyst at FxPro. "Some robots react to price achievement, others to news, and they all make decisions lightning-fast and in different directions. And the market returns to its original positions anyway. If the trader has a clear trading plan, the machine will do everything faster."