It is no wonder that in the century of high technologies and continuous progress high-frequency trading (HFT) dominates financial markets, taking about 50% of trades. The essence of HFT is in the use of sophisticated technological tools and computer algorithms to trade securities on a rapid basis (Koba, 2013).
Numerous studies of HFT have been conducted, but there is still little understanding of the relation between positive and negative sides and the real impact of HFT on thr economy.
Pros and Cons
As any phenomenon HFT has dual effect. Speaking about dark sides the first thing that probably comes on mind of any person in relation with HFT is 2010 Flash Crash, when high-frequency liquidity providers were found to have withdrawn from the market (Koba, 2013), causing stock indexes collapse and very rapid rebound. Since then experts claim that HFT increases instability during time of market stress, making the financial system weaker.
At the same time high technologies allow to lower transaction costs simply by substituting people with machines (though sometimes these machines cost enormous money) and increase accuracy of prices, thus, improving market efficiency.
Nowadays specialists are trying to create regulatory basis in order to make HFT clear and controlled and to gain social benefits from it. For example, Italy became the first country that introduced a tax on HFT (Stafford, 2013).
HFT quickly became an integral part of economy, providing with new questions, opportunities and space for further research. Its impact is already obvious, yet there are still many directions for improvement.
- Koba, M. (2013, January 24). High frequency trading: CNBC explains. Retrieved from www.cnbc.com/
- Stafford, Philip (2013, September 1). Italy introduces tax on high-speed trade and equity derivatives. Retrieved from www.ft.com/
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