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A piece in The New York Times this weekend renewed discussion of the Quixotic war against High Frequency Trading (HFT).
Two “old school” brokers, running a small New Jersey based brokerage, have become the self-appointed priests of the anti-HFT movement. Unfortunately, not many are listening.
HFT is the practice of utilizing sophisticated technology, computers and algorithms developed by brainy PHD IT/Math types to exploit tiny price discrepancies and quickly capitalize on this to earn a profit. The individual profit may be small however the computer systems are designed to seek opportunities and trade thousands of times a day. The small profits add up to huge sums.
Certain hedge funds and brokers using algos earn millions and in some cases billions of dollars.
Like any technology, there are blow-ups. Knight Securities, the Facebook IPO, BATs IPO, fat finger crash, and other instances of the technology going hayware have occurred causing substantial losses for some and wild swings in stock prices.
The wild swings in share prices have been attributed to the retail investors departure from the stock market due to fear of the unknown and that they may be the sucker in this brave new tech-driven world.
The Securities Exchange Commission has informed the public that they have investigated HFT shops and will continue to do so in the future. So far, nothing has happened.
While we applaud the efforts of Messrs. Sal L. Arnuk and Joseph C. Saluzzi in their fight, it does not seem to make a difference.
Cars replaced the horse and buggy, computers replaced workers, the internet is replacing newspapers and magazines, and the list continues.
HFT is another example of technology supplanting the human being, in this instance the broker intermediary.
There will be other crashes and scares but it seems it is almost to stop the advancement of technology reshaping industries.
Ironically, the two gentleman previously worked at Island Securities, a little known firm outside of Wall Street, that was an early pioneer of employing computer programs to compete against the big investment banks and paved the way to the furious growth of HFT and algo trading.
