High-Frequency and Ultra-High-Frequency Trading

I anticipated this in an article I wrote some years ago, "A Bust to the Markets" (Currency Codex, 1996):

It will be most interesting to see how HFT and UHFT develop in the future. It should be said that at least in the short term, they do add liquidity to the market, which is, of course, a positive factor. But in the long term, they may well encourage questionable activities in the marketplace."

The "questionable activity" hit the equities markets hard in May of 2010 when a flash crash occurred. Sadly, little concrete has been done to prevent this from happening again.
Solutions have been proffered, but strong medicine is not wanted by those who run the show. Forcing a small increase in latency before a trade is executed is one possibility; a minuscule tax on the value of each transaction is another.

The author's crystal ball is crystal clear on this one: unless changes are made, another flash crash is a certainty.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2020. Content published with author's permission.

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