Are high frequency traders your friends or foes?
Make no mistake about it. High frequency traders (HFT's) are in it for themselves. These traders used advanced technology to make profits by anticipating demand and trading in milliseconds. Unlike traditional market makers, they have no obligation to provide liquidity and may simply abandon their business when markets get rocky.
Despite being purely profit driven, HFT's supporters argue that their presence in the market has lead to greater volume, faster price discovery and reduced trading cost. Others, including author Michael Lewis, contend that HFT's hurt the average investor in the long run.
While fairness is an important concern, the greater danger of HFT's is their potential to destabilize markets when algorithms go haywire. Any new regulations would need to balance maintaining the good HFT's do for the market in providing liquidity while minimizing their down sides.
#SettleUp the difference with Nela & Chris today at 12pm on Bloomberg Government.