High-Frequency Trading Essay Example | Topics and Well Written Essays - 750 words

High-Frequency Trading - Essay ExampleIt is the a la mode(p) technological tool in the history of securities securities industrying. They assert the trading has lowered trading costs (Shorter and milling machine 1-2). They, however, fail to realize that HFT leads to phantom liquidity, engages in manipulative strategies, have systematic risks, and that some HFT firms are mired in front-running.Although substantial evidence suggests that HFT provides market liquidity, it is not always the case. It at times fails to fulfill the liquidity-supplying function. The cooking of liquidity by HFT is partially illusionary because it avails small ordination depth. This implies that HFT market makers usually quote particularize spreads without the will to sell or buy substantial quantities at the quoted prices. The low spreads, therefore, do not pass away and transacting significant quantities becomes impossible. In addition, it displaces early(a) liquidity suppliers such as certified excha nge specialists who are in all likelihood to endure in the market even during turbulent times. During the Flash Crash, for example, the sale of one large order caused HFT firms to gain substantial blocks of E-mini shares. As a result, many orders transacted at cheap prices and the index fell chop-chop (Jones 1-3). Regulating HFT would, therefore, be important in order to caution liquidity when market conditions are not favorable. To remedy this problem, HFTs should run batch auctions at regular intervals. Under this regulation, exchanges can collect and aggregate useable orders to trade securities. They would then be executed at the price when most offers and bids match (Shorter and Miller 34-36). there is a growing concern that HFT in front-running by damaging price discovery processes. In other words, there is growing worry that HFT provides unreliable price information and makes conditions difficult for traders equipped with sound information. It diminishes the markets potentia l to