http://www.fundmymutualfund.com/2009/06/joe-saluzzi-comments-on-hal9000.htmlSaluzzi was speaking of a "High Frequency Trading Roundtable" he had attended, so you can read the whole piece here; it is not too long - I just wanted to pull out a few quotes.
* I attended a roundtable discussion this morning titled “High Frequency Trading: The New World Order”. In case you are not familiar with the subject, high frequency trading is the hottest thing in the equity market right now. Over 60% of equity volume comes from the high frequency traders (HFT). Basically, HFT’s are computers that execute trades with extremely low latency. They live in a world of milliseconds. If your computer takes more than 50 milliseconds to execute, then you are a dinosaur in this business.
* The high frequency trading business is extremely profitable. Based on the smugness and the smiles on the faces of the panel members, I could tell they were killing it. The exchanges actively court the HFT order flow since it is extremely profitable for them. They are like drug dealers trying to control their turf and the HFT’s are the drug addicts. Making so much money with so little risk is extremely addicting.
* Our equity market is being controlled by machines that are nothing more than two bit, SOES bandits. They cloak themselves under the mantra of liquidity providers but they are really just locusts and are feeding off the equity market until it doesn’t suit them anymore. Once their profit margins are squeezed to almost zero, they are likely just to move on to a new market. But what damage would they have done? We will be left with a shell of a market that is used to being led around by computers. Real people and real capital are a scarce resource in today’s market.
Comment: Huge implications, but I'm not sure what they are...
High frequency trading will increase volume and increase liquidity.
Machine trading is based on the (mis)understanding that everything that can be known is wrapped up in price and price movement and volume. When you get 60% of the volume believing this, there is a serious disconnect from reality.
