You’ve heard of High Frequency Trading (HFT) but have you seen it?
The 2010 flash crash has been blamed on HFT. For those of you who forget the details, the term “flash crash” was coined when the U.S. stock market lost 1000 points in a matter of minutes before recovering most of these losses a few minutes later. The crash was triggered by HFT algorithms initiating a selling cycle that wiped out billions of dollars of value before anyone knew what was going on. The trades were processed by computers, rather than human beings making buy and sell decisions based on fundamental valuation measures.
Market data research firm Nanex created this amazing video that illustrates a ½ second of trading activity in Johnson & Johnson (symbol JNJ) on May 2, 2013.
I asked Keith Graham, veteran portfolio manager with Rondeau Capital and manager of the NexGen Turtle Canadian Equity fund if investors should be concerned.
“I view it as legalized “front running” and it should be stopped. I think it creates enormous volatility and is bad for the capital markets overall. It is another issue that is causing the public to lose faith in capitalism etc. and this is very bad for our economy (and our society I think) in the long term.”
Regulators around the world are trying to figure out whether and how much they should regulate HFT. That is an emerging story. Stay tuned.
This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.