High Frequency Trading, computers, humans…

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In markets, as in war and medical research and just about everything else, technology tends to impart an advantage.

This is how a single computer program of mysterious origins managed to make up 4 percent of all quote traffic in the U.S. stock market last week while hoarding 10 percent of the bandwidth allowed for trading on any given day.

That’s scary. No one knows where the program came from, what it’s really doing, or why it failed to actually execute a single trade–though there are plenty of theories. None of which is comforting. [1]

Something to think about as the millisecond tick by today: How computers have taken control of our financial world.

This is largely the result of high frequency trading, or HFT, in which computer algorithms are constantly trying to find small price discrepancies for the same stock on different exchanges, which are caused by the fact that so much trading is happening so quickly that each exchange can’t always keep up with the rapidly changing price of any security. If an algorithm can spot a millisecond-level opportunity in which a stock is–for the blink of an eye–worth more on one exchange than another, it can make a quick buck (this is called abitrage, and it’s how HFT turns a profit). [2]

So the underlying value of the stock doesn’t matter – HFT generally just exploits pricing opportunity, and in turn the high volume of trading it produces helps to further create delays in the connections between exchanges, which helps create even more opportunities for abitrage.

Unfair. Illogical.

It can only be human.

Or… computer?

Author: skakos

Spiros Kakos is a thinker located in Greece. He has been Chief Editor of Harmonia Philosophica since its inception. In the past he has worked as a senior technical advisor for many years. In his free time he develops software solutions and contributes to the open source community. He has also worked as a phD researcher in the Advanced Materials sector related to the PCB industry. He likes reading and writting, not only philosophy but also in general. He believes that science and religion are two sides of the same coin and is profoundly interested in Religion and Science philosophy. His philosophical work is mainly concentrated on an effort to free thinking of "logic" and reconcile all philosophical opinions under the umbrella of the "One" that Parmenides - one of the first thinkers - visualized. The "Harmonia Philosophica" articles program is the tool that will accomplish that. Life's purpose is to be defeated by greater things. And the most important things in life are illogical. We must fight the dogmatic belief in "logic" if we are to stay humans... Credo quia absurdum!

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