Staff Report on Algorithmic Trading in U.S. Capital Markets [pdf]

Re:Staff Report on Algorithmic Trading in U.S. Capital Marke... by greatwave1 on Wednesday September 02, 2020 @08:33PM (#24359740)

"Although some studies argue otherwise, a number of academic papers study the effects of algorithmic trading and high-frequency trading on volatility in equity markets and find evidence that, under normal market conditions, they reduce short term volatility."

That's interesting, and goes against the conventional wisdom that markets driven by automated, high-frequency trading will be much more volatile. I wonder if HFTs made major changes to avoid another Flash Crash.

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Re:Staff Report on Algorithmic Trading in U.S. Capital Marke... by pydry on Wednesday September 02, 2020 @08:56PM (#24359863)

>That's interesting, and goes against the conventional wisdom that markets driven by automated, high-frequency trading will be much more volatile.

Only if you ignore the word "normal". Otherwise it's what people have been saying for years - HFT reduces volatility when the seas are calm and amplifies it when they're choppy.

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Re:Staff Report on Algorithmic Trading in U.S. Capital Marke... by jagged-chisel on Wednesday September 02, 2020 @08:35PM (#24359753)

I'm curious about the number of studies and academic papers ("some" vs. "a number")

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Re:Staff Report on Algorithmic Trading in U.S. Capital Marke... by thinkloop on Wednesday September 02, 2020 @08:45PM (#24359807)

There's also the caveat: "However, there is some evidence, mostly from the Flash Crash, that in certain instances algorithmic trading and HFTs may exacerbate price movements during periods of high volatility or market stress."

Volatile volitility reduction

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Re:Staff Report on Algorithmic Trading in U.S. Capital Marke... by smabie on Wednesday September 02, 2020 @09:04PM (#24359910)

The heart of the problem isn't with HFT, it's that an order book isn't reflective of real supply and demand. A human realizes that, while HFT algos sometimes don't.

For example, no one is listing buy orders for Apple at $1, even though everyone would love to buy Apple stock for one dollar. A human trader has enough sense to realize that most liquidity in any marketplace is off the order book, and act appropriately.

But even so, I don't anyone really believes that HFT creates higher average market volatility. Some freak occurrences have happened, but I'm sure they'll go down over time.

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Re:Staff Report on Algorithmic Trading in U.S. Capital Marke... by siemprenocasa on Thursday September 03, 2020 @12:28AM (#24360798)

Lower volatility would help the HFTs with price forecasting and operating with more certainty to not wildly swing their portfolios.

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