Regulators found HFT's exacerbated price declines. As noted above, regulators found that high frequency traders exacerbated price declines. Regulators determined that high frequency traders sold aggressively to eliminate their positions and withdrew from the markets in the face of uncertainty.
http://en.wikipedia.org/wiki/2010_Flash_Crash
Berkshire Hathaway has a difference of 1000 dollars for its bid ask spread yet you dont see a lot of people complaining, do you?
Thank you. That is all that needs to be said.
Norway's sovereign wealth fund (one of the largest in the world, they own 1% of all US stocks) just came out on this exact topic:
http://www.efinancialnews.com/story/2013-09-17/norways-sover...
> Next, the paper takes on HFT's usual defence – that they provide the market with much-increased liquidity. Norges Bank worries that this liquidity is "transient" - i.e. HFTs often place large orders only to then cancel them, creating "phantom" liquidity and leaving "buyside traders fac[ing] new challenges in assessing posted liquidity."
But great for you! Because maybe you're the guy selling MSFT shares to them. You get the benefit of the price rising faster.
The market is more efficient. Norway can no longer take advantage of the fact that it knows that there's all this additional demand (originating from itself) and it takes a while for everyone else to figure that out.
1. kagillion (shares, %ADV, notional dollars)
2. good old days (single year or a range)
3. too much (in $ or %)
2. It's not a binary thing but a gradual transition from mostly human market makers in the 80s to mostly algorithmic market makers today.
3. I'm on shakier ground on this one, but a fraction of a % of their cost.
This is because there's not just one HFT. There are tons. So if one of them tries to do this you won't sell to them, you'll sell to one of the other ones for a better price. Yay competition!
"Volatility, a measure of the extent to which a share’s price jumps around, is about half what it was a few years ago."
Quoted from here:
http://www.businessweek.com/articles/2013-06-06/how-the-robo...
Although I wish I could find a better article / source with more info and some hard data to back that up. That sentence is not nearly as compelling as it could be if it had more details.
Liquidity is always there. Until it ain't.
And I've yet to see a convincing argument that HFT is of any benefit to anyone else other than themselves.
At the most basic level, HFT firms make money, right? Otherwise they wouldn't be doing this. Where does this money come from? Entities that are holding these same stocks for longer periods of time. It increases the costs to the longer-term buyers, and it decreases profits to the long-term sellers.
HFT is sand in the gears of the economy, not lubricating oil like they would have you believe.