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Five Reasons Why High Frequency Trading Is Overhyped

You’ve visible the headlines, listened to the pundits, and bought the thrilling novels about all of the intrigue, greed, and evil this is High Frequency Trading. Over the ultimate several years, HFT has taken the sector of Wall the Street through typhoon, and has precipitated no shortage of controversy amongst the many market participants. HFT is the process of the use of laptop applications to shop for and sell securities with lightning velocity, executing hundreds of trades in a 2nd, an awful lot to the chagrin people mortals who are confined with the aid of our own reflexes. But is High Frequency Trading honestly the root of all evil? Below are five arguments for why HFT is more than only a vessel for greed, and is in truth just any other device like every other: (1600×1067)

1: Controversy is a business

To get it right out of the way, firms that utilize HFT aren’t the simplest businesses earning profits off the phenomenon. At the threat of sounding like a political nutcase, which I’m now not I swear, news shops are not continually out for reporting the most treasured data. Most of the revenue for those shops come from advertisements and royalties, which might be all tied to the number of visitors those outlets have. In many instances, in lieu of spending time and energy to record on new concepts all the time, it is easier to sensationalize current arguments. This controversy isn’t limited to the information stations however, and plenty of writers are gaining prominence by means of discussing (study: crucifying) HFT as a practice. Whether or not human beings have to be capable of make money with this generation is controversial, however is cashing in on the argument any more legitimate?

2: It’s the next logical evolution in trading

In the wild world of making an investment, there are several ways to method studies. The most extensive categories of due diligence are referred to as fundamental evaluation, and technical evaluation, and are typically harassed. Fundamental analysis is the process of searching at what a firm without a doubt does, how the company plays, the industry performance etc. And making a decision with the expectancy which you expect growth. Fundamental evaluation is often very time consuming, monotonous, and not completely glamorous. Fundamental analysis is however, a completely robust technique of valuing investments, and it is this creator’s private notion that maximum successful traders perform some degree of fundamental evaluation of their selection process.

Technical analysis is the subject up for debate in this article even though, and technical analysis might be what springs to thoughts while you think about the stock marketplace. In a strict dictionary definition way, technical analysis is the attempt to derive future rate moves from past behaviors the use of any variety of tools or patterns. Hollywood does a quite accurate activity of displaying the movement packed manner in movies, with investors looking at charts and speaking about driving tendencies now not like surfers riding waves. Technical evaluation is regularly disregarded in instructional settings (I.E. Undergraduate finance instructions) because of the truth that it is exceptionally new and unproven. In practice but, underneath the proper occasions, some fulfillment can be had by way of using the right technical equipment when making an investment. For instance, while many traders may additionally select essential analysis to select stocks, they then use technical analysis to decide when to buy or sell.


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High-Frequency Trading is the next evolution of technical analysis. Most investment brokerages allow character investors (referred to as retail traders by the massive firms) to appoint equipment to research stocks, and HFT is really the system of doing this analysis without a doubt fast on extra stocks. This would not imply that HFT is the pleasant method, handiest this is the wherein the technology goes. The argument towards HFT is that mid-sized firms and retail investors do not have to get right of entry to this generation. The flaw in this argument is that generation is heading on this path regardless, and over time it is going to be greater available for others. We haven’t stopped air tour because the economic railroad tour feels horrific, and we might not be stopping tech advancements for the identical cause.

3: You should not be day buying and selling besides

I’ll be stepping on a number of ft for this unique phase. The lengthy and short of it’s far, in case you are a small-time retail investor, you should not be day trading besides. I use the time period day trading in the sense that you are shopping for and selling stocks over short time intervals to attempt to beat the marketplace. I can nearly guarantee you that you may lose money doing this, even I actually have non-public revel in this. The large corporations have got admission to a long way more resources than you do, and HFT is simply one greater tool inside the toolbox they have got. Instead of sweating the details of whether or not a stock went up or down.013% nowadays, because of the HFT action, you need to be searching for long time investments. Or better but, positioned your cash in a mutual fund. Sure mutual finances or other retirement cars aren’t glamorous, get a wealthy brief, rock and roll buying and selling lifestyle you expected, however, it’s better than the alternative. If you cannot devote all of your time and electricity to the marketplace, you may lose your cash to someone who is clocking in all the hours you aren’t.

Four: What about the benefits?

I day-traded for some time, with combined results, I by no means felt cheated via HFT. The fact is HFT affords greater “buyers” or “dealers” of protection as a way to interact with. This greater motion approach that whilst you are an order it receives stuffed nearly straight away. This might also in no way were a trouble in case you only trade stocks that already get quite a few attention (maybe you handiest alternate the blue-chip Dow stocks) however what about lesser-known stocks? If not anything else this action offers the extra motion in small to mid-cap that allows you to income off of. Those price swings manifest out of nowhere, it’s because shopping for and promoting is in a regular battle to move expenses up or down.

5: The Market is already rigged

Perhaps the maximum frequent argument pundits make is that HFT is that one way or the other this new development has made the playing subject favor the big boys. This unfair era has made it difficult for the little men to locate success. The fact of the matter is that the marketplace has by no means now not been rigged. I don’t mean this within the Illuminati conspiracy feel, but extra inside the entire concept that the markets will by no means be fair to the much less prepared. The stock market isn’t a clean slate every morning while it opens, it is marinated in all of the information and activities occurring at all times. Any investor who does not make an effort to do any kind of due diligence goes to get slaughtered. What’s extra, the huge firms are constantly going to have a bonus, not because of some set of rules that trades faster than you, however, because they dedicate greater manpower than you to the market. You can be spending time doing research, and building the satisfactory approach feasible concerning one unique inventory, but these big corporations are doing the same element, and they will have a couple of analysts masking the identical security, already giving them the advantage. You are seeking to compete with specialists who make it their business to be better than you. Picture stepping on to a soccer subject handiest to locate that the opposing group is from the NFL, it is already rigged and you probably won’t win. Complaining that they may be carrying higher cleats than you and may circulate faster due to it isn’t going to exchange the fact that they spend all of their time gaining knowledge of their craft.


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I do not anticipate to win the hearts and minds of the humans with a handful of paragraphs, however, I do wish you presently understand that it isn’t always all so black and white as you may have heard. Yes, High Frequency Trading is debatable, but it wishes to be mentioned in a civil way and no longer heralded as the coming of all matters evil. You can also have this grand idea about how the markets are honest and just, and that even the little guy has a shot to make it huge, but the fact is a way more complex. The markets aren’t designed, to be honest, or nice in any manner. The satisfactory manner to avoid the “risk” of HFT is to show it around and try to expand an approach to profit from it because at the same time as rules can be underway to regulate it, Pandora’s Box has already been opened and it is not going away.

Jeffery D. Silvers
Love and share my articles, I will be happy to react on it ! Spent 2002-2009 promoting weed whackers in Edison, NJ. Earned praise for importing junk food for fun and profit. Spent 2001-2006 exporting teddy bears in Atlantic City, NJ. Had some great experience investing in tattoos in Fort Walton Beach, FL. Spent 2002-2007 selling action figures in the aftermarket. Enthusiastic about working on basketballs on the black market.