Demystifying High Frequency Trading
I recently came upon this great article by Rishi Narang of Telesis Capital exploring the popular misconceptions about high frequency trading (HFT), which has frequently come under fire in the media as being a root cause of the 2008 crisis and 2010 market flash crash. Proper education, documentation, and public awareness of the diverse roles different types of high frequency traders serve will only help investors as the financial field becomes increasingly automated. Seeing HFTs for what they are, as weapons in an overall investment arsenal (akin to algorithmic trading) will foster a better understanding of the market as merely a function of the people involved. Narang says the following, before separating truth and myth from HFT’s criticisms:
Capitalism is fundamentally about this: if you are willing to take some risk, you have a shot at reaping some reward. What would be unfair is if some people were being prevented from taking such risks and having such opportunities. And that’s assuming that we’re talking about something that is of unlimited supply. If supplies of resources are limited, then simply being late to the game is a sufficiently good reason to be very fairly left out of an opportunity. I’m not saying that there exist no facets of HFT that are unfair (very good arguments can and have been made about flash trading and naked sponsored access), but to label the activity in general as unfair is plainly wrong.
Check the full article out and tell me what you think.