From HuffPo: High-frequency trading is bad for everybody, including high-frequency traders, according to new research from a university that produces economic reports that are sold early to high-frequency traders.
The study, by the
department, focuses on one particular tactic of high-speed trading, known as
"latency arbitrage." This is
the practice of gaming the split-second lags between the time trades are made
and the time those trades are crunched by a central clearing house called the
Security Information Processor into a price quote called the National Best Bid
And Offer. Traders with super-fast computers can calculate the NBBO faster than
the Security Information Processor can do it, and they take advantage of the
tiny gaps between the old NBBO and the new NBBO. University
The researchers say this trade somehow reduces the total amount of profits in the system -- in other words, it not only hurts regular, slowpoke investors, but also other high-speed traders. Whatever profit each individual robot makes on a latency arbitrage trade is less than the amount of profit that is destroyed by the practice, according to the report. This is just more evidence that zapping thousands of trades per second does nothing for society….