“It’s like a perfect storm. The cheats are going away, the volatility is going down and the costs are going up.”
Haim Bodek, former head of electronic volatility trading, UBS AG
You could conclude, as Credit Suisse has in a new report, that high-frequency trading is so influential, it “has reshaped the financial industry in its image.”
Or you could conclude, as The Wall Street Journal has, that high-frequency trading is a failing niche on Wall Street.
High-frequency trading uses algorithms and technology to make trades at mega-fast speeds to take advantage of price inefficiencies. Author Michael Lewis brought public attention to high-frequency trading when he published his book Flash Boys in 2014, which claimed that the stock market is rigged.
We’ve railed against HFT as far back as 2011, noting that the majority of trades taking place were being driven not by company performance, but by “tiny inefficiencies that only computers can detect.”
At the time, HFT accounted for 73% of all equity trading in the U.S., up from 30% four years earlier, based on research from TABB Group.
By 2016, though, high-frequency trading accounted for just under half of all stock trading. That was about even with the previous three years, but more than double what it had been in 2006, Credit Suisse noted. (more…)