This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

High-Frequency Madness: Code Red

Stocks in this article: SCHW KCG

NEW YORK ( TheStreet) -- High-frequency trading has been terrorizing the markets for a while now, and there's no reason to think that's going to change anytime soon.

There has been no tall stand for it to stop and without much outcry, why would it? Supporters of HFT -- as it's commonly called -- claim that it provides liquidity to the markets. That's a bunch of crap and everyone in the business knows it.

Technically, sure, by slamming the bid/ask spreads of stocks down to pennies and jumping ahead of orders, they are providing some sort of liquidity, but not in the sense that actually matters to 95% of all traders and certainly 100% of all investors.

For starters, up to 90% of all of the "liquidity" gets cancelled within milliseconds after the order is placed, making them rather artificial to begin with. And their algorithmic mistakes are bountiful. How about the botched IPO by BATS Global Markets (BATS)? What about the fake tweet regarding an attack on the White House that caused markets to shave off billions in market cap in a matter of seconds?

Oh wait, I've got it: How about when the algo's drove down equities more than 10% in a matter of minutes in May of 2010, with some quality names down 15%, 20% or 25%? Even more telling was the complete snapback minutes later, with the S&P 500 closing in the green for the day.

I'd love to hear the argument that supports the need and necessity of HFT in today's market. Aside from firms like Knight Trading Group (KCG) practically blowing up from their own errors, all it does is feed the exchanges a commission and keeps quant firms in business. Across the big board, meaning the vast majority of market participants, it not only serves no purpose, but rather, a negative one.

But without anyone to speak out against it, why stop? The exchanges sure as hell don't want it gone, because it represents at least 50% of their volume in any given year, depending on the volatility (less volatility equals less volume and less HFT profit, while more volatility equals high volume and more HFT profit).

You know what, the whole thing just seems corrupt to me. Just like how early data releases are somehow "fair" -- which is a whole different story completely.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs