12 04 2017 | by Victor Xing | Central Banks
10 17 2017 | by Victor Xing | Capital Markets
How we learned to stop worrying and love the “fake markets”
09 20 2017 | by Victor Xing | Central Banks
QE’s distributional effects a rising political liability
04 18 2017 | by Victor Xing | Capital Markets
Persistent low volatility threatens active fund managers
02 17 2017 | by Victor Xing | Economics
Looming risks through the prism of bifurcated housing market
01 11 2017 | by Victor Xing | Economics
Financial risk contagion: China’s capital outflow
12 22 2016 | by Victor Xing | Economics
November PCE: dollar strength weighed on goods inflation
12 14 2016 | by Victor Xing | Central Banks
A less-hawkish interpretation of the December FOMC
12 02 2016 | by Victor Xing | Economics
November Payrolls and Governor Powell on risk management
11 15 2016 | by Victor Xing | Central Banks
November FOMC minutes and debates behind guidance change
11 02 2015 | by Victor Xing | Capital Markets
High frequency trading – what are the pros and cons?
High frequency trading benefits exchanges at the cost of investors. Their activities reduce market liquidity and increase execution cost.
High frequency trading generally result in higher commission for exchanges, as outlined in Michael Lewis’ book. However, many HFT outfits have co-locating programs, that is, their trading algorithms are housed in the same building as exchanges’ market-making programs. When an investor hits “trade / execute” on their electronic trading platform, it sends signals to multiple exchanges that may arrive at different times.
If a buy request arrives first at Exchange A, HFT’s program will send another signal to Exchange B to begin lifting prices before the buy request is received by Exchange B. This speed advantage is thanks to more efficient network routing paid for by the HFT firms, and it is completely legal.
Because of this “feature,” large asset managers (who manage pension funds, 401K contributions as well as mutual funds) will end up executing at a higher cost (less attractive prices), and HFT may quickly stop trading amid heightened market volatility events to exacerbate poor liquidity conditions.
This book is an excellent read
Next article10 27 2015 | by Victor Xing | Central Banks