November 15, 2010

Picking up Cents a Million times a Day, that is High-Frequency Trading (HFT)

Picking up cents (or a fraction) a million times a day, that is High-Frequency Trading (HFT). Check some of the major HFT players in the US.

HFT relies on the speed of detecting bid/ask prices and executing trades based on it. The HFT traders will do anything to get a speed advantage, from laying down a proprietary fiberoptic cable between Chicago (CBOT data center) and New Jersey (NASDAQ data center) to building HFT data centers at geographical midpoints between the major global exchanges (Alex Wissner-Gross, Cameron Freer).

Opponents say HFT is a scam similar to the horseracing wire scam in The Sting – rig the system to get the information a little ahead of others and act on it, while proponents say it helps create an orderly market for everyone.

Regardless of your views, as an individual investor, you cannot ever get a bid/ask price like the HFT traders. They will always be ahead of you and make their few cents on your transaction. And you cannot participate in HFT yourself. That leaves you asking, is the Stock Market fair?