tentative decisions

so what is high frequency trading (HFT)? well, i'm glad you asked.

several concepts should be understood first. they include (this comes from the PBS nightly business report website):

1. many tiny opportunities: HFT traders target opportunities to make minuscule returns and pursue millions or billions of those opportunities in a day.

2. advance tech: HFT is not possible without the rapid identification of a myriad of trading signals, a task that requires advanced computing technology.

3. latency arbitrage: HFT traders take advantage of latency arbitrage, which is defined as buying or selling a stock or other investment slightly ahead of other market participants who do not have the ability to rapidly identify small changes in prices.

4. raw feeds: HFT traders get their price data directly from stock exchanges. these raw feeds get them the data they need milliseconds before more consolidated data feeds reach other market participants, like fund managers.

5. co-location: HFT traders often co-locate their servers in stock exchanges to reduce the distance the electronic data has to travel and, in turn, reduce the time it takes for them to identify data and make trades.

why is this important? well it seems HFT might have played a part in the "flash crash" from earlier this month. there is a potential for something to go really wrong, really quickly. a lot of these buy/sell terms are based on price fluctuations and when the determined price is achieved, it triggers a buy or a sell. because of HFT, the buy/sell could be millions of options, as indicated in point 1 from above. the "flash crash" is a potentially small example of what might happen.

now that we know this, let's watch a funny video from samantha bee further detailing HFT.

also, here is an interview with james murphy of lcd soundsystem. excellent piece.