5 Reasons Why High Frequency Trading Is Overhyped


You’ve visible the headlines, listened to the pundits, and purchased the exciting novels about all of the intrigue, greed, and evil that is High-Frequency Trading. Over the final numerous years, HFT has taken the sector of Wall Street through a hurricane and has brought about no scarcity of controversy among the numerous market contributors. HFT is the process of the use of laptop applications to buy and sell securities with lightning pace, executing hundreds of trades in a 2d, an awful lot to the chagrin folks mortals who are limited by using our personal reflexes. But is High-Frequency Trading honestly the foundation of all evil? Below are 5 arguments for why HFT is greater than only a vessel for greed and is, in fact, just some other device like some other:

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1: Controversy is an enterprise

To get it proper out of the manner, corporations that use HFT aren’t the handiest groups making money off the phenomenon. At the chance of sounding like a political nutcase, which I’m now not, I swear, news stores aren’t continually out for reporting the maximum precious information. Most of the revenue for these stores comes from advertisements and royalties, all tied to the number of viewers those retailers have. In many instances, in place of spending time and strength to record on new principles all of the time, it’s miles less complicated to sensationalize current arguments. However, this controversy isn’t always constrained to the news stations, and lots of writers are gaining prominence by discussing (study: crucifying) HFT as a practice. Whether or not humans have to be capable of making money with this generation is debatable; however, is making the most of the argument any greater valid?

2: It’s the next logical evolution in trading

In the wild world of investing, there are numerous ways to technique research. The two maximum vast classes of due diligence are known as fundamental evaluation and technical analysis and are normally harassed. Fundamental evaluation is the manner of searching at what a company really does, how the firm performs, the industry performance, and so forth. And you decide with the expectation that you count on the boom. Fundamental evaluation is often very time eating, monotonous, and now not entirely glamorous. Fundamental evaluation is but a completely sturdy approach to valuing investments, and it’s far from this writer’s personal perception that most successful investors carry out some degree of fundamental analysis of their choice process.

Technical evaluation is the topic for debate in this text, even though technical analysis might be what springs to mind when you think of the stock marketplace. In a strict dictionary definition manner, a technical evaluation tries to derive destiny charge movements from past behaviors the usage of any wide variety of equipment or styles. Hollywood does a quite exact job of displaying the action-packed procedure in films, with buyers looking at charts and speaking approximately using trends no longer than surfers using waves. Technical evaluation is frequently disregarded in educational settings (I.E., Undergraduate finance lessons) because it is exceptionally new and unproven. However, in exercise, some achievement can be had via employing the right technical gear while investing in the right situations. For example, at the same time, as many traders may also decide on essential evaluation to choose stocks, they then use technical analysis to decide when to buy or promote.

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High-Frequency Trading is the subsequent evolution of technical evaluation. Most investment brokerages allow person traders (known as retail traders via massive firms) to hire tools to research shares, and HFT is sincerely the procedure of doing this analysis honestly rapidly on greater shares. This would not suggest that HFT is the satisfactory method, simplest that is where the generation is going. The argument towards HFT is that mid-sized firms and retail buyers do not have access to this technology. The flaw in this argument is that generation is heading on this route regardless, and through the years, it’ll be more on hand for others. We have not stopped air tours because the economic railroad journey feels bad, and we may not be preventing tech advancements for identical purposes.

3: You should not be day trading anyway

I’ll be stepping on lots of toes for this unique segment. The long and short of its miles, in case you are a small-time retail investor, you shouldn’t be day trading anyway. I use the term day trading when you are shopping for and promoting stocks over brief time intervals to try to beat the marketplace. I can nearly assure you that you’ll lose money doing this, even I actually have non-public revel in this. The big firms have access to way greater sources than you do, and HFT is just one extra device inside the toolbox they have. Instead of sweating the information of whether or not a stock went up or down.013% today, due to the HFT movement, you should be searching for long-term investments. Or better yet, put your money in a mutual fund. Sure mutual price range or other retirement vehicles are not glamorous, get rich short, rock and roll trading lifestyle you expected; however, it’s better than the alternative. If you can’t commit all of your time and power into the market, you may lose your money to someone who’s clocking in all the hours you are not.

4: What about the benefits?

I day-traded for a while, with blended effects, I in no way felt cheated by using HFT. The reality is HFT affords greater “shoppers” or “sellers” of protection to have interaction with. This more action method that while you area an order, it gets stuffed almost straight away. This may in no way have been a trouble in case you best exchange stocks that already get a variety of interest (maybe you only exchange the blue-chip Dow shares); however, what are approximately lesser-regarded stocks? If not anything else, this movement provides extra movement in small to mid-cap, a good way to profit off of. Those charge swings manifest out of nowhere; it’s because buying and selling are in a regular struggle to move costs up or down.

5: The Market is already rigged

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Perhaps the maximum frequent argument pundits make is that HFT is that by some means, this new development has made the playing area choose the large boys. This unfair generation has made it hard for the little guys to discover achievement. The fact of the matter is that the marketplace has never no longer been rigged. I don’t suggest this within the Illuminati conspiracy feel, however greater inside the whole idea that the markets will by no means be honest to the less organized. The inventory market isn’t always a clean slate each morning when it opens; it is marinated in all the information and occasions going on always. Any investor who doesn’t make an effort to do any due diligence goes to get slaughtered. What’s greater, the large companies are constantly going to have an advantage, now not due to a few algorithms that trade faster than you, however, because they dedicate a greater workforce than you to the marketplace. You may be spending time doing research and constructing the first-class method possible regarding one precise inventory. However, these huge companies are doing the identical element, and they’ll have multiple analysts covering the equal safety, already giving them the advantage. You are looking to compete with experts who make it their enterprise to be higher than you. Picture stepping onto a football subject handiest to locate that the opposing crew is from the NFL, it is already rigged, and you probably won’t win. Complaining that they may be carrying higher cleats than you and might flow quicker because it isn’t going to trade the fact that they spend all their time learning their craft.

Timothy Washington
Hardcore internetaholic. Social media nerd. General writer. Freelance travel junkie. Music practitioner. Twitter guru. Alcohol maven. In 2008 I was writing about wooden trains for fun and profit. Earned praised for my work researching fatback in Los Angeles, CA. Spent 2001-2006 lecturing about walnuts in Cuba. Earned praise for analyzing tattoos on Wall Street. Uniquely-equipped for deploying wooden horses in Jacksonville, FL. Spent a year lecturing about tar in Salisbury, MD.