High Frequency Trading ( Hft )

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As we known, high frequency trading (HFT) means using powerful computer to transact a large number of orders at a very fast speed. Normally, traders with faster speeds are more profitable than those with slower speeds. Nowadays, about 70% of trading in U.S. is HFT and usually people think HFT is beneficial for the markets. However, in Michael Lewis’s book, Flash Boys, HFT is described as a contributor to the rigged markets. Mr. Lewis told us a story about Mr. Katsuyama in this book. Mr. Katsuyama was the head of equity trading of the Royal Bank of Canada and he found some HFT companies used the time difference among the time when normal traders received the transaction data to make money. These companies could buy the stocks at lower…show more content…
But the time difference is only about a few milliseconds and it is too small to make sense to individual traders. Maybe some people won’t even notice the difference. However, in today’s market, time is so important so even a few milliseconds can change the world. In the Flash Boys, the author mentioned an example about Spread Networks, a company claiming to offer high-speed Internet connectivity between Chicago and New York City. They secretively constructed a new cable from Chicago to New Jersey as straight as possible, through mountains and under rivers, in order to reduce the travel time for data. They succeed and decreased the time from 17 milliseconds to 13 milliseconds. With powerful computers, they could use the 4 milliseconds to buy stocks with lower prices and sell them with higher prices to other innocent traders. When individual investors click the buy button, they always see the trading prices on the screen are higher than the prices they saw previously. Large companies have enough money and technical people to do these things and this kind of behavior hurts common traders. This phenomenon reminds me a kind of similar situation in China. There are millions of people work in big cities like Shanghai and Beijing in China and usually they will go home during Spring Festival for a holiday. Most of them choose trains as transportation tool but they cannot book tickets until 30 days before the
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