How High Frequency Trading Benefits All Investors

Re:How High Frequency Trading Benefits All Investors by _delirium on Wednesday March 17, 2010 @12:55PM (#1199008)

The rest of the article seems to make some rather dubious strong claims, also. For example: "High frequency traders can only trade profitably when their trades push a stock price towards fair value."

I don't see why there's any particular reason that's true. High-frequency traders can trade profitably whenever their trades are in line with (very) short-term price movements. Ideally everything works together to push prices towards fair value, but you can't assume that as an axiom, since that's the main point being disputed in that section (the one on volatility).

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Re:How High Frequency Trading Benefits All Investors by Rimpinths on Wednesday March 17, 2010 @01:55PM (#1199185)

One other aspect of HFT that was not mentioned in the article is that HFTers often seek arbitrage opportunities. For example, the value of many ETFs such as SPY (i.e. an ETF tracking the S&P 500) are derived from the value of underlying securities. If the value of SPY versus the value of the underlying securities becomes out of sync, HFTers may go long one and short the other and then profit when they converge again. In this sense, HFTers only profit if the market returns to fair value. This applies to many ETFs, convertible securities, and options.

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