July 15, 2012

High Frequency Trading

“Cash investigation” is a French documentary film aired on June 8th 2012 about High Frequency Trading (HFT) (documentary in French (YouTube))

It is interesting to see how hard it is for journalists to try and get people to talk to them on the topic. Looks like there is an omertà around HFT, the concept creates a lots of stress… The documentary seems to conclude that HFT is basically machines trading without control and should therefore be banned while there are no ways to prevent the machines from wreaking havoc markets.

Even though it aims at being provocative and informative, it does not really explain really well how stuff works. It implies that machines are loose in the wild without any control which is a bit of an oversimplification to say the least. A lot of focus is put on market abuse, on pressuring interviewees (yes, these journalists are tough guys, hahaha), … and not on debating whether is HFT good or bad (by default it is bad…), whether it could create any value, whether automating trading is a problem or not and if there are means of controlling the market is not being abused. As a consequence, the documentary hovers over the subject without doing a deep-dive – a pity.

All in all it gives an interesting though biased glimpse on HFT : the extent to which HFT represents a large share of trading, how SEC and the likes are ill-prepared to control whatsoever HFT, how companies avoid to communicate on the topic, how the market can suffer from flash-crashes.