HFT – Who is Stealing Your Money
High speed trading has been a very lucrative business for the pioneer companies and other financial giants who have invested in them. ATD was one of the pioneering startups that made some significant profits without actually taking any risk. On average, ATD made less than a penny on every share it traded, but it was trading hundreds of millions of shares a day.
In layman terms what they did was to create a algorithm that could predict which way a stock was headed and be able to buy or sell it prior to hand held stock bids or slower computer programs being able to complete a trade. So in essence they were using speed to beat the system and apparently the stock exchanges and regulators were alright with these huge financial giants taking a piece of the pie just by hiring computer geniuses and super fast computers. So once again the rich get richer and guess who pays, anybody else who is investing in stocks. Sounds almost like insider trading than good investing, only there is a computer involved.
The definition of High Frequency Trading varies, depending on who you ask and if they are making a profit from it or are one of those people being exploited by it. Basically, it’s the use of automated strategies to churn through large volumes of orders in fractions of seconds. Some firms can trade in microseconds. (Usually, these shops are trading for themselves rather than clients. Now you could ask yourself that if this is such a risk free investment why don’t they offer it to their clients?) And High Frequency Trading isn’t just for stocks: Speed traders have made inroads in futures, fixed income, and foreign currencies.
Kevin McPartland of the Tabb Group, which compiles information on the financial industry, projected that companies would spend $2.2 billion in 2010 on trading infrastructure—the high-speed servers that process trades and the fiber-optic cables that link them in a globe-spanning network. And that was before projects were launched to connect New York and London by a new transatlantic cable and London and Tokyo by way of the Arctic Ocean, all just to cut a few hundredths of a second off the time it takes to receive data or send an order. In the New York stock exchange Traders pay to put their servers in the same building, and to make things fair, engineers will add extra lengths of cable to equalize the runs among all the servers. Yes, we are talking about a few feet plus or minus. At nearly the speed of light.
A new microwave network, Tradeworx Inc., says the 2.3 milliseconds it will save users are worth $1,350 a day for a trader trying to profit from some price differences between S&P 500 futures in Chicago and a corresponding security in New York. Tradeworx says its New York-to-Chicago microwave network will be up and running by the end of the year. It plans to use it to execute trades on its own books and is offering a feed of Chicago futures-market data via microwave to outsiders for $250,000 a year.
After a five year wait The Commodity Futures Trading Commission has published a long-awaited discussion paper on computerized trading, a first step to what could become new rules for a sector often blamed for market disruptions. Seeking public comment on more than 100 topics, the derivatives regulator is working closely with the industry as it looks to adapt its rulebook to new technologies such as ultrafast trading. “Traditional risk controls and safeguards that relied on human judgment and speeds must be re-evaluated in light of new market structures,” the agency said Monday. Apparently when there big money involved the US government still moves at a snail’s pace when any ruling may affect the lobbyists and their employers.
In Canada we can expect the status quo for any kind of regulations protecting the average investor, which is nothing. That maybe due in part to the fact that unlike any other major federation, Canada does not have a securities regulatory authority at the federal government level. Remember back during the Enron scandal the US SEC was hitting majority of Canadian Banks with healthy multi million dollar fines and nothing was ever done in Canada itself. Funny, even Conrad Black did his jail time in the US. Makes you think maybe we should sub contract majority of our regulatory responsibilities to the US. Maybe have them overlook the Senate while we are at it, it seems like our current people are totally incompetent at protecting the taxpayer from people stealing our money.
Also we have a provincial and federal government who has both shut down parliament to avoid embarrassing questions about the Senate and moving a Gas Plant, and the misappropriation and wasting of government money.