HFT Overview

"Look at these people. Wandering around with absolutely no idea of what's about to happen."
--Peter Sullivan (Margin Call)

Nice overview of high frequency trading (HFT) that includes some historical color as well as comparisons of trading supply chains and categorizations of HFT types and strategies.

At the end of the article, it is concluded that, although regulators, investors, interested observers might huff and puff about the negatives of HFT, nothing will be done. This is because HFT is so woven into the current system that any attempt to extract will be perceived as catastrophic. And any attempt to actually remove HFT trading from the system, which is estimated to account for approx. 70% of stock exchange volume, will result in a gigantic 'flash crash.'

Similar to the big banks, the HFT franchise will be viewed as Too Big To Fail.

Of course, the HFT model may also be precisely what central banks and other policymakers need to express non-economic agendas.

Personally, I suspect that flash crashes may be inevitable even with the black boxes going full tilt. In fact, we have already seen hints of this. If the general market trend changes from up to down, then pattern seeking algos could very well create 'elevator shaft' conditions for sudden, steep price declines.

position in SPX