Tuesday, November 23, 2010

High Frequency Trading


High frequency trading is an indication of the behavior of money and a measure of market risk. It is responsible for 20-30% or more of volume currently. It's continual, tick-by-tick, high-turnover buying and selling with real-time data to control risk while generating returns from minute change. It's coming from all sorts of capital sources, including hedge funds also. The investment advisors put their money to work and if they can't invest it, they deploy it in other ways.

At broad market, rebate trading, or furnishing liquidity, is necessary to help conventional institutional investors like pension funds efficiently to buy and sell large quantities of shares. High frequency trading depends on nearly equal and offsetting buying and selling in very small increments. This is the kind of activity currently dominating volumes.

The high-frequency trading means that much of the money moving your price and volume sees high equity risk and studies equity-markets behavior, not business fundamentals. This has been going on for some time but it's getting worse and worse, and it's not going to get better anytime soon. High Frequency Trading (HFT) has recently come to the attention of the investing public following the case of Sergei Aleynikov, a programmer of stealing the "goose that laid the golden egg", otherwise known as the the source code of Goldman Sachs' high frequency trading algorithms.

Supporters of high frequency trading say that the HFT systems make the market more efficient. Websites such as the High Frequency Trading Review try to balance both viewpoints and provide informed, objective commentary.


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