BBC Programme

High frequency trading was discussed in BBC Radio 4's "File on 4" on 3rd November 2009.
http://www.bbc.co.uk/programmes/b00nk55r
The interviewer was shown an office by DirectEdge in New Jersey. DirectEdge assembled specialized computer programs to trade in the stock market. The computers shown to the interviewer could handle 400,000 transactions per second if needed! They tend to beat human traders by acting moments before human traders act. The programme suggested that high frequency accounts for 70% of US trading.

Technology gone too far

Interestingly, the general view expressed by the program was "technology has gone too far", as ordinary human traders stand no chance in competing with them. Besides, large investors can afford to invest in sophisticated programs, but ordinary people can't. One interviewee equated high-frequency with speculation. That's not necessarily true. He suggested that high-frequency trading harms the economy, as much as cigarette causes cancer. "With trading happening in nano-seconds, the market loses transparency", one argued. I find this view difficult to accept.

Can technology be outlawed?

Are we suggesting that using technology to gain an edge over one's competitors shouldn't be allowed? Even if we take this stand, implementation would be rather difficult. Technology has always been used in warfare (including business warfare). Where should we draw a line between permissible technology and outlawed technology in finance? For example, should spreadsheet be allowed? Should databases be allowed? Should trading on Internet be allowed? Big business always have an edge over small business. The world is not fair, I am afraid.

Blaming the wrong culprit

High-frequency trading itself doesn't do any harm. In fact, they make the market more efficient, i.e. they make share prices reflect the shares' market value more instantaneously, which has always been seen as a good thing in economics. Potential problems arise when big investors have more information about the market than ordinary investors. I would support a case for greater transparency -- all available information should be made public. All computer trading programs should be subject to auditing (but not necessarily published). In a fair battle ground, I've only got myself to blame if I can't write better programs than others. No one forces me to go into the market unprepared!

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