Michael Lewis’ controversial ‘Flash Boys’, controversially began a conversation about ‘High Frequency Trading’ and the impact on financial markets. Although HFT has existed ever since the US stock market first allowed electronic exchanges in 1998, the speed at which trades are executed have increased from seconds to nanoseconds.
But what even is this form of trading that everyone keeps talking about?
High frequency trading refers to trading platforms using algorithms analysing various markets and executing orders based on set market conditions. The development of powerful computers has resulted in the ability to execute thousands of orders per second. This provides a huge opportunity for those that have access to the technology.
So what impact does it have on us?
The rapid and high volume of trades has an affect on daily trading volumes and therefore liquidity, benefiting investors. However there is debate over the fairness of HFTs and the legitimacy of their advantage is questioned due to its impact on retail traders not being able to access particular opportunities.
Fair or not, there is nothing illegal about HFT as long as it does not conflict with relevant ASIC market integrity rules and the Corporations Act. Keep an eye out on ASIC media releases for upcoming changes in legislation.
For more information about this new form of trading, read here: