Computerized high-speed trading is increasing market volatility and making it more difficult for regular investors to pick stocks, market experts say. Bring in a financial transaction tax. With high unemployment, it’s better to tax useless activities..
High-Speed Trading Seen Pushing Regular Market Players Out
Thursday, 25 Aug 2011 07:34 AM
Computerized high-speed trading, in which technology allows funds to buy and sell stocks for milliseconds, is increasing market volatility and making it more difficult for regular investors to pick stocks, market experts say.
“From our perch, trading customer business day in and day out, we can certainly say that high frequency trading has amplified market moves, both up and down,” says Sal Arnuk, co-head of equity trading at Themis Trading, according to CNBC.
“High frequency trading does not analyze fundamental metrics of corporations. It analyzes data patterns.”
High frequency traders “hold positions between 10 milliseconds and 10 seconds,” according to a recent study in the Review of Futures Markets journal, CNBC adds.
The study estimates that between 40 percent and 70 percent of all volume on U.S. equities market is done by a type of computer trading, but many traders speculate that percentage is on the increase.
In May 2010, high-speed trading was blamed in part for the Flash Crash, in which the Dow Jones Industrial Average fell by 900 points only to recover in just a few minutes.
That scare prompted regulators to demand more information from high-speed traders.
Under new rules, traders whose market transactions exceed two million shares or $20 million per day will need to disclose more information about themselves to the SEC, the agency says, according to the AFP newswire.
“May 6 dramatically demonstrated the need to enhance the SEC’s ability to quickly and accurately analyze market events,” SEC chairman Mary Schapiro said in a statement in late July, the newswire reports.
“The large trader reporting rule will significantly bolster our ability to oversee the U.S. securities markets in a time when trades can be transacted in milliseconds or faster.”