Credit Suisse is launching a trading venue that will keep HFT traders at bay (Jim McTague)

High-frequency trading firms love to buy from

and sell to "dumb" individual

and institutional investors.

By Jim McTague 
Barron's
1/22/2011

Yummy, yummy! The good news for high-frequency traders is that juicy retail sheep again are grazing in the domestic equities market, just waiting for the slaughter.

The latest data show the first major weekly inflow of retail investment money into domestic equity funds since the flash crash this past May. These investors plunked down $3.8 billion into the equity funds the week ending Jan. 12, according to the Investment Company Institute. During 2010, they withdrew an estimated $82 billion, in part because they were spooked by the flash crash, when the Dow plunged more than 700 points in 10 minutes and then climbed 300 points in the next 10. That thrill ride was aided and abetted by high-frequency traders using over-clocked computers to front-run panicked retail investors.

These traders program their computers to buy and sell millions of shares of stock every minute, based on short-term trends, not the underlying fundamentals of the companies. Risk-averse to an extreme, their goal is to make a penny or so on each trade. It's easier for a machine to predict correctly if it is looking ahead only by a second or two. If the traders execute the same trades simultaneously, they can trigger dramatic market swings.

High-frequency trading firms love to buy from and sell to "dumb" individual and institutional investors. Individuals tend to place market orders rather than using limit orders at or below the bid price. Thus, they pay the maximum. As for mutual funds and other institutional investors, they are easily front-run by the new trading operations, which have faster access to market data as well as faster trading computers. If the funds are buying a particular stock, the traders' computers can detect this activity, buy up shares ahead of the fund and sell it back to the fund for a profit of a cent or two. This runs up the costs for mutual fund investors.

THE SECURITIES AND EXCHANGE COMMISSION has been mulling some curbs on high-frequency trading to shield long-term investors. But the plodding agency likely will take a year or two to enact any changes, and by then the math whizzes at the trading firms will have figured out another way to make chops out of the retail and institutional lambs.

Fortunately, there is a promising free-market response. Credit Suisse in March will launch what it calls the Light Pool, a trading venue for mutual funds and institutional investors that purposely puts high-frequency traders at a disadvantage. This is revolutionary. High-frequency traders are courted by the 13 major stock exchanges because they deliver trading volume and pay big bucks for concierge services, like the direct data feeds from the exchanges that give them a crucial informational head start of several milliseconds. Dan Mathisson, managing director of Credit Suisse's advanced-execution services, says the trading firms will have to route trades to the Light Pool through an outside stock exchange. "That extra hop could add 100-to-200 milliseconds to a trade, enough time to be very discouraging to high-frequency traders," he says.

High-frequency firms claim they bring benefits to the market, such as liquidity, and thatcritics exaggerate their alleged abuses. Yet Light Pool is getting strong indications of interest from institutional investors. Sal Arnuk of Themis Trading in Chatham, N.J., compares the new venue to the "tipping of a hat" to criticisms of the new traders that he and colleague Joe Saluzzi raised in 2008.

Too bad there's no Light Pool for individuals yet. Out among the wolves, they're apt to get eaten up again and again. Add'l good articles from Jim McTague

Algorithms Take Control of Wall Street (Wired)

For better or worse, the computers

are now in control.

By Felix Salmon and
Jon Stokes
Wired
12/27/10
Wired

Last spring, Dow Jones launched a new service called Lexicon, which sends real-time financial news to professional investors. This in itself is not surprising. The company behind The Wall Street Journal and Dow Jones Newswires made its name by publishing the kind of news that moves the stock market. But many of the professional investors subscribing to Lexicon aren’t human—they’re algorithms, the lines of code that govern an increasing amount of global trading activity—and they don’t read news the way humans do. They don’t need their information delivered in the form of a story or even in sentences. They just want data—the hard, actionable information that those words represent.

Lexicon packages the news in a way that its robo-clients can understand. It scans every Dow Jones story in real time, looking for textual clues that might indicate how investors should feel about a stock. It then sends that information in machine-readable form to its algorithmic subscribers, which can parse it further, using the resulting data to inform their own investing decisions. Lexicon has helped automate the process of reading the news, drawing insight from it, and using that information to buy or sell a stock. The machines aren’t there just to crunch numbers anymore; they’re now making the decisions.

That increasingly describes the entire financial system. Over the past decade, algorithmic trading has overtaken the industry. From the single desk of a startup hedge fund to the gilded halls of Goldman Sachs, computer code is now responsible for most of the activity on Wall Street. (By some estimates, computer-aided high-frequency trading now accounts for about 70 percent of total trade volume.) Increasingly, the market’s ups and downs are determined not by traders competing to see who has the best information or sharpest business mind but by algorithms feverishly scanning for faint signals of potential profit.

Algorithms have become so ingrained in our financial system that the markets could not operate without them. At the most basic level, computers help prospective buyers and sellers of stocks find one another—without the bother of screaming middlemen or their commissions. High-frequency traders, sometimes called flash traders, buy and sell thousands of shares every second, executing deals so quickly, and on such a massive scale, that they can win or lose a fortune if the price of a stock fluctuates by even a few cents. Other algorithms are slower but more sophisticated, analyzing earning statements, stock performance, and newsfeeds to find attractive investments that others may have missed. The result is a system that is more efficient, faster, and smarter than any human. Complete article

“There are predatory traders out there that are constantly probing in the dark, trying to detect the presence of a big submarine coming through. And the job of the algorithmic trader is to make that submarine as stealth as possible.”

60 Minutes: Math wizards writing algorithmic code now control stock market trading.

In a secret new building in New Jersey, high-speed computers decide which stocks to buy and sell. Could this kind of automated "trading floor" lead to Wall Street's next "flash crash"?
 

60 Minutes: Steve Kroft Gets A Rare Look Inside the Secretive World of "High-Frequency Trading"

How Speed Traders Are Changing Wall Street

"Humans are way too slow to trade on the kinds

of opportunities that we're trying to capture,"

(CBS) New Jersey stock trader Manoj Narang says his firm has never had a losing week because his super computers are fast enough to capitalize on split-second opportunities in the market. Narang and other traders are using a legal but controversial technique called "high-frequency trading."

It played a role in a 15-minute, 600-point market meltdown last spring now known as the "Mini Market Crash." Correspondent Steve Kroft talks to Narang in a rare chance to see such a business up close. He also speaks to SEC Chair Mary Schapiro - who has high frequency trading in her regulatory sights - and others for a "60 Minutes" report to be broadcast Sunday, Oct. 10, at 7 p.m. ET/PT.

High frequency traders rely on mathematicians and computer experts to write electronic trading programs and they use expensive computers to run them. Many of the country's large financial institutions do high frequency trading and it is estimated that from 50 to 70 percent of all U.S. stock trades are made this way. Humans are becoming less involved. "Humans are way too slow to trade on the kinds of opportunities that we're trying to capture," says Narang. "Opportunities that exist for only fractions of a second," he tells Kroft.

The opportunities are gleaned from information that all traders have access to. But those with high speed computers like Narang's get that information a split second faster and can act on it just as fast. The trades can involve such a high volume that fractions of pennies made on each share of stock can add up to millions of dollars in profits. "We've had two or three days in a row where we lose money but we've never had a week, so far, where we lost," he tells Kroft. "We've never had a month that was a loser for us."

Narang and staffers at his company, Tradeworx, program his computers with algorithms instructing them to buy or sell certain stocks upon specified conditions, such as price. He trusts the machine to do it all. "The computer is monitoring real time data and knows what to do," says Narang. "Computers are very predictable because they tend not to screw up. They tend to do what they are told."

But computers can create turmoil in the market, and the results can be devastating. The market crash last May 6 was triggered by one computer algorithm that sold $4.1 billion of securities in a 20-minute period. The high-frequency trading programs' response to that - buying many of them up and selling them just as fast - exacerbated an already bad situation.

"The events of May 6th scared people," says SEC Chair Mary Schapiro. She had already proposed more transparency rules for such trading operations before that event, but is considering even more now. "It's unsettling for all investors if an algorithm behaves in an aberrant way and causes a lot of volatility, or causes markets to act in an irrational way," Schapiro tells Kroft.

Some financial people think high-frequency trading with its reliance on speed rather than hard facts about the company or market is bad for Wall Street. "Valuation is irrelevant. It's just about moving the price up and down the ladder…so you have to question the true valuation of the markets now," says Joe Saluzzi, an institutional trader at Themis Trading. He also says he sees predatory behavior made possible by the speed advantage, where practitioners can execute and cancel thousands of trades to see which way a market is going and then capitalize on that advantage.

But to Larry Leibowitz, the chief operating officer of the New York Stock Exchange, the charges are nothing new. "There's always been charges for as long as trading has existed that people are front running orders, manipulating stocks," he says. Add in the mystery a machine like a computer can inject into the formula and the stage is set for mistrust he says. "I think high frequency trading is the natural evolution of applying technology to the problem of how do I trade the cheapest and most efficiently," Liebowitz tells Kroft.

The Traders Who Skip Most of the Day...welcome to the New and Improved U.S. Equity Market

Does any retail "investor" truly believe they stand a chance? While you are working 10 hours a day or searching for employment to put food on the table for your children, the High Frequency Algorithmic Traders are golfing, playing tennis and catching a few rays of sunshine. This is no longer a market as it has become a video game played for 2 hours per day and the retail investor's retirement funds provides the gamers with profitable entertainment.

Wall Street Journal
By Kristina Peterson
9/10/10
NEW YORK—On the day the "flash crash" bludgeoned the stock market and chaos swept over the floor of the New York Stock Exchange, the founders of Briargate Trading were at the movies.

Rick Oscher and Steven Rubinstein weren't playing hooky. Briargate, a proprietary-trading firm that the two former NYSE floor "specialist" traders started in 2008, is mostly active at the stock market's open and close.

In between, when market activity typically drops, the Wall Street veterans play tennis in Central Park, take leisurely lunches, visit their children's schools and work out at the gym. Dress shoes have been replaced with flip-flops, slacks with cargo shorts. Once during market hours, they walked about five miles and crossed the Brooklyn Bridge to try Grimaldi's pizza.

"We actually planned on working a full day," says Mr. Oscher, wearing a white polo shirt and blue-plaid shorts. "But from 11 to 2, the markets are pretty quiet—what's the point? As a specialist, you have to stand in your spot all day and we did that for 20 years."

Briargate—an anagram of "arbitrage"—isn't the only firm taking an extended recess during the 6½-hour U.S. trading day. Trading has become increasingly concentrated in the first and last hours of the session.

Those two hours now make up more than half of the entire day's trading volume, according to an analysis of data provided by Thomson Reuters. In August, the first and last hour generated nearly 58% of New York Stock Exchange primary volume, up from 45% in August 2005, the analysis shows. The rise of high-frequency trading, where algorithms are used to exploit small discrepancies in high-volume situations, amplifies the concentration of trading at the beginning and end of the day, analysts say.

Heavy trading in the first hour is largely due to the accumulation of orders placed by individual investors and their brokers after the previous day's close, mutual-fund activity and new strategies deployed by institutional investors based on the latest research and overseas trading, says Adam Sussman, director of research at Tabb Group, a financial-markets research firm. Meanwhile, funds that track stock indexes often wait until the final hour to execute trades to better reflect the benchmark measures' last prices.

Focusing trading on those times could limit gains, but Messrs. Oscher and Rubinstein are at peace with that. "Would you rather play tennis or make an extra $80? It's a lifestyle question," says Mr. Rubinstein, who sometimes works remotely from Florida. "I can go play 18 holes of golf and then come back and trade and that's a workday."

"If someone offered us three times what we make to do a real job, we wouldn't do it," Mr. Oscher says. "Money isn't everything. Plus, we'd make terrible employees."

The men, both 42 years old, met 12 years ago as specialists manning posts 10H and 11H for Van der Moolen Holding on the NYSE floor. They rose to oversee floor operations for the Dutch market-maker, but saw the writing on the wall as the era of specialists faded. Van der Moolen eventually sold its specialist arm to Lehman Brothers in late 2007 and filed for bankruptcy in 2009.

The advent of automated trade execution rendered people who could see and direct the order flow less crucial. There was a peak of nearly 50 specialist firms working the NYSE floor in 1990. That has dwindled to five now.

In 2008, the men joined forces with a programmer from Van Der Moolen and started Briargate. The five employees that now comprise Briargate work out of an apartment in a luxury-hotel and condominium complex on Wall Street.

Briargate trades mostly stocks, using computer algorithms that still require human decision-making. Sometimes the firm's programmer is left in charge when the rest of the staff leaves the office.

Mr. Oscher said the firm, which trades only its own money, hedges its risks "so there isn't any scenario that would move our profit and loss beyond boundaries of comfort." Briargate says it didn't sustain losses during the May 6 flash crash because it closes its books when the market tends to be volatile. "We actually had a pretty good day," Mr. Oscher says.

While the firm declined to disclose their returns, Messrs. Rubinstein and Oscher say they make more than they did in their later, leaner years as specialists, though not as much as they did in the late 1990s before the industry started to consolidate.

Mr. Oscher says their compensation is "in line" with what they formerly made as specialists. Successful specialists could make upward of $500,000 at the industry's peak, while partners could bring home more than $1 million.

Both feel their freedom is fragile, as trading invariably carries risks. Says Mr. Oscher: "We say all the time—these are the good old days."

Hedge Funds to use more robots trading the equity market

Hedge Funds to Increase Use of Trading Algorithms

By Nina Mehta
July 16 (Bloomberg) -- Asset managers such as hedge funds will probably increase their use of computer programs known as algorithms to execute their stock trades in 2011, according to securities-industry research firm Tabb Group LLC.

The proportion of orders processed by algorithms will probably amount to 35 percent next year, up from 29 percent in 2010, according to a report from Tabb analyst Cheyenne Morgan and director of research Adam Sussman. Human traders at broker- dealers will execute 35 percent of orders in 2011, down from 39 percent this year, the report said.

The growth during the past decade of electronic trading that allows investment firms to exert greater control over their orders has diminished the importance of sales traders at securities firms. Sales desks will generate $9.5 billion of the $15.3 billion in equity commissions paid to brokers this year, compared with almost $3 billion paid for algorithms, Tabb said. Algorithms break larger orders into pieces, executing them over a set time period to help ensure customers get the best prices.

“In 2008 and the beginning of 2009, buy-side traders turned more to sales traders for guidance and advice about how to navigate the market, but that trend has reversed,” Morgan said in an interview. “During the financial crisis they also became more comfortable with how algorithms performed.”

Record VIX

Expectations for volatility in U.S. equities peaked in November 2008, two months after Lehman Brothers Holdings Inc. filed the biggest bankruptcy in the nation’s history. The Chicago Board Options Exchange Volatility Index, or VIX, which measures the cost of using options to protect against declines in the Standard & Poor’s 500 Index, closed at a record 80.86 on Nov. 20, 2008, and has retreated about 67 percent since then.

The Tabb study is based on interviews with 66 head traders at investment management firms with a total of $12.1 trillion in assets and 57 head traders at hedge funds with $182.1 billion. In the former group, 52 percent managed less than $50 billion, compared with 36 percent in 2009, New York-based Tabb said. Large firms, defined as investment companies overseeing more than $150 billion and hedge funds with more than $3 billion, accounted for 86 percent of total assets in each group.

The top five providers of algorithms to asset managers and hedge funds are Credit Suisse Group AG, Investment Technology Group Inc., Bank of America Corp., Goldman Sachs Group Inc. and UBS AG. Credit Suisse trading strategies are used by 69 percent of firms, the study found. Algorithms from Sanford C. Bernstein & Co. are used by 19 percent of firms and those from Weeden & Co. by 13 percent. The report described the latter two firms as “winners” among mid-tier brokers.

Commissions

The estimated $15.3 billion asset managers and hedge funds will pay brokers in equity commissions this year is up slightly from $14.9 billion last year, the report said. The firms paid $17.2 billion in 2008. Asset managers accounted for 73.3 percent of those fees, down from 74.6 percent in the two previous years.

Traders at the firms surveyed will manage 9 percent of their volume themselves next year -- the same as this year -- by placing orders directly on exchanges in what’s called direct market access, the report said. Their use of crossing networks and dark pools, or private venues that don’t display quotes publicly, will rise 1 percentage point to 13 percent in 2011, Tabb said.

Brokers get 3.2 cents per share from hedge funds using their sales trading desk, compared with 2.9 cents paid by asset managers. Hedge funds pay higher commissions than asset managers for sales trading, direct market access, dark pool executions and baskets of stocks sent to so-called program desks at broker- dealers. The only category in which hedge fund rates are lower is algorithms, for which they pay an average 0.9 cents per share, compared to 0.7 cents paid by asset managers.

Low Touch

Commissions to sales desks have “probably hit bottom” while investment firms are likely to “demand more services on the low-touch side,” Morgan said. Low touch refers to the use of electronic trading tools. Sales traders at some brokers will need to provide more guidance to customers about how and when to use algorithms, while at others that advice may come from people staffing electronic desks, she said. “The buyside will also want more market color from low-touch desks,” she added.

Goldman’s Sigma X dark pool is used by 33 percent of the study participants, followed by Credit Suisse’s Crossfinder at 24 percent. Aqua, a system for transacting larger trades than are sent to stock exchanges, and UBS’s PIN dark pool are used by 20 percent of firms. Morgan Stanley’s MS Pool has connections to 17 percent of the firms surveyed, Tabb said.

Financial Advisor of the Future

The U.S. Stock Market is merely computerized trickery (USA Today)

By Matt Krantz, USA TODAY
7/9/10

The time it takes to read this sentence is all it takes for nearly 2 million stock trades to flash through the stock market.


Most of those trades aren't coming from trigger-happy day traders and mutual fund managers with billions of dollars at their disposal. It's a flood of machine-gun speed fury coming from an army of computers programmed to obey complicated algorithms that are hyperactively buying and selling.

What does that mean to you, the individual investor? The next time you buy or sell a stock, forget the quaint idea that there is a living, breathing human being on the other side of the transaction. You're trading with a computer.

Not only are the markets completely computerized, more than half of the market's volume is churned by computers programmed to spot certain patterns in trading. These machines see stocks not as securities used by companies to raise money, but rather, symbols, numbers and bits that are traded, swapped and exchanged.

And now, traders say, humans are responding to machines rather than the other way around. Increasingly, too, the machines are reacting to each other, trying to second-guess what their next moves might be on how to take advantage of an edge that might be gone in milliseconds.

"There are no real buyers or sellers," says Joe Saluzzi, trader at Themis Trading. "It's all about the machines."

•Digital "painting the tape." One of the ways traders misled investors in the past was by conducting sham trades with themselves. A trader might enter orders to buy and sell shares of a stock between two entities it controls, giving the false impression there's strong investor interest for the stock at certain prices. This is called painting the tape.

The intent is to fool other investors into thinking this false trading was real, and tempt them into trading based on that information. It's similar to how a crooked eBay seller might improperly use another username to bid on an item, misleading legitimate buyers about the true value of the item.

Painting the tape is illegal. However, modern technology allows traders to essentially perform the same trick in a way that's hard for regulators to detect, says Eric Hunsader, founder of market data feed provider Nanex.

Rapid-fire computer systems allow sophisticated traders, including the giant Wall Street firms, to post bid (buy) and offer (sell) prices they have no intention of actually following through on, he says. For instance, a firm might post a bid for a stock showing they want to buy at a certain price. But by the time investors interested in selling at that price get their order to the market, the false buyer yanks the electronic bid literally faster than a blink of the eye, Hunsader says. This interplay happens in milliseconds, making it difficult to detect.

•Swamping the market with trades. If your e-mail box is filling up with spam, you've already experienced another distortion technology is bringing to the stock markets.

Thanks to low-cost and automated trading, trading firms can swamp markets with a deluge of buy and sell orders in a way that gives them an advantage, Hunsader says.

As other firms must parse through the extraneous trades, slowing them down, the firms behind the pseudo bids and offers can ignore them, saving them milliseconds of analysis time. This gives their computers valuable extra milliseconds to parse true trends in the market and gain an advantage, Hunsader says.

Think of it this way: Imagine that a winning lottery number is e-mailed to two people at the same time, and whoever reads the message first wins the prize. Quickly, one of the people cleverly e-mails millions of spam messages to the other person who also received the e-mail. The spam recipient will need to sort through those e-mails to find the one with the winning lottery number, giving the spam sender time to claim the prize.

The sheer volume of trades is staggering. During the day of the May market meltdown, for instance, more than 19 billion transactions moved, according to regulators. It would take a person more than 100 years to simply count to 1 billion, he says, so anyone who knows some of those trades can be ignored gets a huge advantage. Link to complete article

Grandpa: if a reporter for USA Today has the information, where is Mary Schapiro and her band of misfits? You know, the organization that has the following Mission Statement:
 
The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

Joe Saluzzi: "We Are One Headline Away From S and P 900" (Zero Hedge)

Thanks to Zero Hedge for a great post. If you really want a non-CNBC view of the world, visit their site as it is worth the trip! http://www.zerohedge.com/

Joe Saluzzi has been let out of his cage and is disseminating yet more truthiness, this time on Bloomberg with Margaret Brennan, where he references the ICI number we disclosed yesterday about $28 billion in equity outflows and says he "doesn't really blame" investors for bailing. After ongoing daily stock beatings, those people will be the smart ones. Joe has long been a proponent of the double dip, yet without a good soundbite, he could only have been classified as a second-tier bear at best so far. We are happy we has realized this little omission, and with Catherine's assistance, we now have one for JS as well: "We are one headline away from S&P 900." Definitely catchy/snazzy.

As for the reasons why he thinks the market is doomed to a 150 point swoon (at least), he notes "stimulus is starting to run out, and in addition to all the problems from last year, now we've got all the issues in Europe, we've got pension funds that need to be bailed out... the government knows this, the Fed knows this, and they are just one step away from another stimulus packages, which the stock market loves."

As for trading, Saluzzi once again explains why nobody should still trade stocks, courtesy of market distorting forces like the HFT SPARC brigade, whereby a few astrophysics Ph.D. determine the price of market (and thus US economy) defining Apple. Joe's long-term thesis is spot on: "Right now we are the flight to safety but that won't last long." Indeed - there is only so many countries whose CDS can hit 1,150 (ahem Greece) before the specs reorient themselves to a better upside/downside investment thesis (ahem Bund, Bobl, Schatz, and, of course, UST).

Fast, Loose, and Out of Control...High Frequency Trading (Newsweek)

Trading billions of shares in the blink of an eye has made stock markets more responsive—and volatile—than ever.

Newsweek
On April 26, the Dow Jones industrial average stood at 11,205, up nearly 70 percent since its low in March 2009. While there were bumps along the way, the ride from 6,500 to 11,205 was generally smooth and steady. But the placid markets were about to get hit by a tsunami. When it became evident that Greece’s financial woes might spark a Europe-wide sovereign-debt crisis, the waters began to churn. The Dow lost 214 points on April 27 and posted triple-digit moves on 13 of the next 17 trading days. Worst was the “Flash Crash” of May 6, when the Dow lost 998 points in a matter of minutes, only to rally more than 600 before closing down nearly 350 points.

Suppressed for much of the recovery that began in the spring of 2009, market volatility has come roaring back. On May 21 the VIX, which measures the volatility of the S&P 500, and is also known as the “fear index,” spiked 25 percent. Who is to blame? Many analysts have fingered high-frequency traders, computer jockeys who plug complex trading algorithms into superfast computers and scour the markets for tiny price differentials. By trading vast amounts of stock at warp speed, as many as a billion shares a day, high-frequency traders gobble up fractions of cents at a time. The more volatile the market, the easier it is for them to make money jumping in and out of stocks across exchanges.

Markets become volatile when liquidity dries up—in other words, when people can’t trade stocks when they want, at a fair price. “High-frequency traders thrive off volatility, because when liquidity is in short supply, it becomes very profitable to provide it,” says Manoj Narang, founder and CEO of Tradeworx, a hedge fund and high-frequency trading firm in Red Bank, N.J., that trades an average of about 80 million shares a day. “On days with big movements, in the realm of triple digits, we make a lot of money.”

High-frequency traders, who on the whole have maintained a low profile, say that because their frenzied trading provides liquidity, they help markets run smoother, improving the environment for all investors. But combine the speed at which they operate, the outsourcing of decision making to computer codes, and an almost complete lack of regulation, and this shadow market can fuel and exaggerate volatility. Speed traders argue they actually tamp it down. Nonetheless, politicians and regulators are starting to get nervous. “I’m afraid that we’re sowing the seeds of the next financial crash,” says Sen. Ted Kaufman (D-Dela.), arguably D.C.’s most vociferous critic of high-frequency trading, or HFT.

High-frequency traders may have become the new villains of finance. But their computer-driven methods, which now account for upwards of 70 percent of all U.S. equity volume, aren’t going away. To a large degree, fundamental investment strategies—i.e., buying and selling stocks based on a company’s performance—have taken a back seat to algorithms hunting for inefficiencies. And the practice is beginning to spread from the U.S. stock market into new areas (Europe, Canada, Brazil, India) and asset classes (bonds, futures, currencies). Assuming the financial-regulatory-reform bill forces derivatives onto exchanges, high-frequency traders will no doubt trade them too. And every day, things are getting faster. Four years ago, executing a trade in a millisecond (one thousandth of a second) was considered fast; now the top firms are trading in microseconds. That’s one millionth of a second.
Fast-loose-and-out-of-control link