high frequency trading

The Stock Market has become Battle of the Machines

As mentioned previously in something wicked this way comes, the New York Times gives a nanosecond blow by blow on the trading of Broadcom. High frequency traders can literally ascertain a stock trend, buy and sell shares in faster time than all of those little guys doing online trades from PCs. No surprise there that execution time could be manipulated, especially with multiple servers, the number of hops into the actual exchanges, and more of the more dubious routing and network traffic algorithm analysis possibilities.

Such technological wars have netted:

High-frequency traders generated about $21 billion in profits last year, the Tabb Group, a research firm, estimates.

Do they get their drinks for free?

The NY Times as a great article about the role of high frequency traders in the financial market, and how they gain at a loss to others.

It was July 15, and Intel, the computer chip giant, had reporting robust earnings the night before. Some investors, smelling opportunity, set out to buy shares in the semiconductor company Broadcom. (Their activities were described by an investor at a major Wall Street firm who spoke on the condition of anonymity to protect his job.) The slower traders faced a quandary: If they sought to buy a large number of shares at once, they would tip their hand and risk driving up Broadcom’s price. So, as is often the case on Wall Street, they divided their orders into dozens of small batches, hoping to cover their tracks. One second after the market opened, shares of Broadcom started changing hands at $26.20.

Something Wicked This Way Comes - Goldman Sachs & Software

Zerohedge has been covering the Sergey Aleynikov story and some very strange details are emerging. It seems there is some proprietary code for high frequency trading which is amazingly profitable, as in too profitable.

From the Wall Street Journal:

In a commentary Thursday Iati offers some thoughts about how important algorithmic trading has become to the market. His conclusion hints at the significant power of the programmers.