ITHCWY: Robert Ellison's Blog

High-Frequency Trading

Fibre optic cable

Algorithmic trading is getting a little out of hand:

“For high-frequency trading firms that use powerful computers to pop in and out of positions in milliseconds, so-called collocation, or "colo," is a pricey necessity. That's because trade times are approaching the speed of light, and the only way to make light reach its destination quicker is to shorten the trip.” smartmoney.com

This kind of trading accounts for an estimated 70% of US market volume. It’s completely disconnected from any kind of intrinsic value and only creates a benefit for the HFT firms and the exchanges that pocket the fees and exorbitant server hosting fees.

It’s like installing an ATM skimmer on the capital markets.

I think we need some way to enforce a hold period to discourage this business model. It could be an actual window that forces you to hold stock for a few days before selling (actually a few minutes might help), more likely a tax or fee that is prohibitively high at the millisecond turnover rate but ramps down to nothing after a week. 

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