There has been a lot of news coverage of High Frequency Trading (HFT) and its effects on the markets following the publication of Michael Lewis’ new book, Flash Boys. Mr. Lewis is a well-respected financial journalist who has written several books about the market and investing including Liar’s Poker and The Big Short. Mr. Lewis’ contention is that HFT has rigged the market against individual investors.
The blog posting below from Mark Cuban is a very interesting analysis of HFT and the problems associated with it. Mark Cuban is owner of the Dallas Mavericks and a billionaire from his sale of Broadcast.com to Yahoo in 1999. One thing Mr. Cuban highlights is the difference between Electronic Trading and HFT. Electronic trading has made the markets more efficient and generally benefits individual investors by leading to smaller spreads and lower trading costs. HFT, on the other hand, provides a means to create profits through fast, algorithmic trading. It involves a form of high tech front-running that only benefits the firms engaged in this sophisticated version of line cutting. This type of trading may have been responsible for the market Flash Crash on May 6, 2010. The Securities and Exchange Commission (SEC) has now opened several probes of HFT.