High Frequency TradingBy: Doug Porter

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What Is It?HFT at workHFT involves the use of sophisticated technology and computer

algorithms to trade large amounts of securities at an extremely fast pace.

These algorithms (algos) execute millions of orders per second while simultaneously analyzing markets for useful information and recognize market conditions.

Orders broken downProfit by volume

Utilized by many types of firms & investors2

Why It Exists?●Humans are slow.●Reduced the duration of arbitrage opportunities from 97

milliseconds in 2005 to 7 milliseconds by 2011.●In 1960, an average share would be held for 4 years. In 2000, the

holding time fell to 8 months and to 2 months by 2008.●HFT constitutes around 70% of trading on the stock market.

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Does High Frequency Trading Affect Individual Investors?

Yes

Investors pay a higher price for security.

2010 Flash CrashPeople lost faith in the

financial system after the 2008 crisis.

Unfair to small investor

No

A regular investor usually don't day trade their stock portfolio.

Investing where the professionals aren't looking

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Pros and Cons of High Frequency Trading

Pros

Huge volume increases liquidity

Increases market efficiency

Reduces costs of trades

Cons

● Only a small circle of “traders” truly benefit

● Difficult to regulate

● Can lead to market manipulation (fraud)

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Compliance and Regulation for High Frequency Trading

Is it fair for other traders?

2010 Flash crash.

Trading companies as “proprietary traders”

Avoid oversight

SEC failing to keep up with regulations of new technology.

What’s next?6

What Do You Think?- Do you think HFT is good or bad?

- Do you think it’s fair for investors?

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Questions?

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