High Frequency Trading

The charge for such ‘co-location’ can be $50,000 annually, but is nothing when compared to the potential $500,000+ monthly revenues companies using HRT can pull in above the industry average.

Hence, the argument surrounding HFT becomes: it is ethical? Sen. Schumer wrote, “This kind of unfair access seriously compromises the integrity of our markets and creates a two-tiered system, where a privileged group of insiders receives preferential treatment. If allowed to continue, these practices will undermine the confidence of ordinary investors, and drive them away from our capital markets (Bloomberg).”

Andrew M.Brooks, head of United States equity trading at T.Rowe Price, adds that, “People want to know they have a legitimate shot at getting a fair deal. Otherwise, the markets lose their integrity.”

As of now, HFT and flash trading arguably account for up to 70 per cent of daily trading volume in the US.

So what does this all mean to soon-to-be finance graduates entering the workforce?

As always, it means opportunities and drawbacks. As we’ve seen, computers have become the ultimate tool to gain that ultimate edge in getting the best stock prices and the most profit in trading. So for those who are technologically over-literate, this skill may be better able to land you an interview with one of these top financial, HFT-using firms, than just having a standard finance degree.

At the very least, it would be a good idea to gain some basic knowledge of using advanced trading software systems.

But of course, not everybody can be a computer genius and, chances are, most recent graduates have no chance at landing a job at a top financial firm straight out of university. So until the government or (less likely) the private sector on its own resolves the issue of HFT usage, students must bare in mind that their future carrier in financial trading will be (to some extent) affected by the HFT trend that has already raised the cost of trading for typical investors and has contributed to increased market volatility over the last couple of years.

At the very least, up-and-coming investors and finance professionals must learn to factor this element in before they make any trading decisions, or maybe even before becoming an average trader as their career.

ARB Team

Arbitrage Magazine

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