Published: 2012-10-10

High Frequency Trading is a Scam

Just saw an article on CNBC about a "mysterious" trading algorithm that placed, then canceled millions of orders last week. The goal, according to one person quoted, was probably to "create latency". In other words, screw with the market.

But why is the algorithm "mysterious"? Is just anyone allowed to hook up a computer to Nasdaq or NYSE and start placing orders? The exchanges know, or could know if they wanted to, who this was, they just won't say. Someone clearly practicing to game the market should be called out, not doing so endangers the efficiency of the market (of course that's the whole point, efficient markets aren't profitable to insiders).

There just isn't a need for HFT, it contributes nothing to long-term health of the market. Yes, it closes gaps between offer and big prices quickly, but why is that really necessary? People can't react to a price difference in 10ms, so why do prices have to match that quickly?