Sunday, July 26, 2009
Faster than a speeding bullet, the new super traders of Wall Street are today utilizing powerful computers and advanced mathematics to buy, sell and even manipulate stock markets like never before. “High-frequency” trading uses advanced algorithms to execute trades in less than a tenth of a second, putting such traders ahead of more traditional players who, in some instances, can wind up paying more for a stock thanks to their competitors’ blink-of-an-eye activity. As The New York Times described it, “High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously.” According to the research firm TABB Group, high-frequency traders made $21 billion in profits in 2008.
This new method of playing the market is one reason why Goldman Sachs rebounded so quickly this year after having to accept federal bailout money last fall. The firm acknowledges it has been utilizing high-frequency trading to help it reap billions in revenue this year. But not all of Goldman’s high-speed work may have been above board. One of its former programmers was accused this month by a federal prosecutor of stealing secret computer codes that may have helped manipulate stock markets.
Even high-frequency trading that doesn’t involve criminal behavior is receiving scrutiny from the federal government. The Securities and Exchange Commission is reportedly keeping an eye on this hot new form of Wall Street business, which could mean new regulations to govern it.
-Noel Brinkerhoff
Stock Traders Find Speed Pays, in Milliseconds (by Charles Duhigg, New York Times)
Weekend Opinionator: Is Wall Street Picking Our Pockets? (by Tobin Harshaw, New York Times)
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