High Frequency Traders : The Impact On Low Oscillation Traders And The Market

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High Frequency Traders: The Impact on Low Frequency Traders and the Market
Until the Flash Crash in 2010, only few people were bothered by high frequency traders (HFT). As it has caught our attention, the damage HFT firms could do to our market, people such as Michael Lewis have started questioning if HFT should be allowed to exist in the market in the first place. Prospects of the US Securities and Exchange Commission (SEC) passing new regulations limiting these firms have become increasingly appealing to a diverse group of brokers, investors and alike. In Present Shock Rushkoff criticizes that these firms (or algorithms) do not care about the businesses they invest in and are more concerned in turning time into money. But HFT isn’t a
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Using big data, these algorithms are designed to find patterns in stock data and information scattered over the internet in order to predict what stock to buy or sell. An example is when a “Russian computer programmer who had worked for Goldman Sachs . . . was arrested by the FBI and charged by the United States government with stealing Goldman Sachs’s computer code” which could be used to “manipulate markets in unfair ways.” (Lewis 1). This is probably because in the wrong hands, foreign countries or terrorists could find new way of assaulting the US. This already happened, although perhaps not the result of stealing code, by a person named Navinder Singh Saroa, which resulted in the Flash Crash of 2010. By selling E-Mini S&P futures a “few ticks higher than the best offer” by constantly updating his price to keep up with the market through an algorithm he wrote, he managed to drive down the price (Levine) so that “‘investors saw nearly $1 trillion of value erased from U.S. stocks in just minutes’” (qtd. in Levine). The market returned relatively quickly back to normal, but the SEC failed to regulate or intervene with these type of exchanges in a timely manner. That said, even legitimate HFT firms utilize illegal practices like quote stuffers (repeatedly creating and canceling orders so to slow down opponents of all kinds), because at the speed they operate they can do it without the SEC from ever
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