Are high frequency traders rigging stock markets? Split-second sharks accused of profiting at expense of ordinary investors
The financial world is in uproar over controversial claims that high frequency traders are rigging stock markets.
A cohort of US financial firms are being accused of using speed - an advantage of just a few thousandths of a second - to fleece big money rivals and by extension ordinary savers and investors.
The allegations made in Flash Boys: Cracking the Money Code by Michael Lewis have prompted the US Justice Department to say it is probing high-speed trading for possible insider trading violations. The FBI and US financial watchdogs are also investigating the industry.
The book focuses on Wall Street share trading, but one City insider has commented: 'The same players are in the UK and Europe – if it’s happening in America, it’s happening here too.'
Detractors, spearheaded by Lewis, believe high frequency trading firms are deploying a host of strategies which exploit speed - literally a few milliseconds, less than the blink of an eye - to jump in on share trades and manipulate prices in their own favour.
Lewis alleges that they are 'frontrunning' slower traders by registering that someone wants to buy a stock, acquiring it at a lower price and immediately selling it at a higher one - and because they already know you wish to buy, this transaction is all but riskless.
The staggering speeds now achieved by modern technology mean it is possible to do all this trading faster than a human eye could possibly follow, in a few milliseconds or thousandths of a second. A blink of an eye takes 100 to 400 milliseconds, or thousandths of a second.
http://www.dailymail.co.uk/money/investing/article-2599811/Are-high-frequency-traders-rigging-stock-markets.htmlThe financial rewards for the HFT middlemen are hard to calculate but in Flash Boys it is suggested that one example of their trades could impose a daily 'tax' on the US stock market of $160million (£96million) on an average daily volume of $225billion (£135billion).
$160million/day in estimated profits?
Should the "free-market" allow this or try to control/stop the practice?
