10 14 2018 | by Victor Xing | Capital Markets
09 23 2018 | by Victor Xing | Central Banks
Calm before the storm as quantitative tightening looms
05 20 2018 | by Victor Xing | Central Banks
Alternative narrative on the natural rate of interest
01 07 2018 | by Victor Xing | Capital Markets
Flatter yield curve a symptom of ineffective tightening
12 04 2017 | by Victor Xing | Central Banks
Bond market term premium and wolves of Yellowstone
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
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