I've heard of software which creates orders and automatically submits them orders to an exchange or market center. The software purportedly enables traders to profit from stock fluctuations throughout trading sessions. Have any of you ever used this sort of software? Would you recommend automating stock trading?
Yea, it's called HFT -- http://www.businessinsider.com.au/category/high-frequency-trading -- and it probably behind some nasty moves in the market. Some supporters HFT firms market makers. I call them something else not fit for this forum. http://www.marketwatch.com/story/he...ding-firms-have-over-everyone-else-2015-08-13 http://www.millennium-traders.com/news/highfrequencytradingfirmsadvantage.aspx
To me, HFT should not be legal - it goes against the very spirit of investing. There are a couple of new exchanges specifically created to prevent HFT and hopefully it will die down. An interesting book to read is Flash Boys.
I have no problem with HFT systems, as long as they aren't getting any preferential treatment at any exchanges. Liquidity in markets is a good thing. Who am I to tell someone that they cannot build a faster microprocessor than me or spend countless hours and dollars putting together automated algorithms that do very well in various market conditions?
How can any human investor compete against the HFT. It will be able to place trades at very small time scales which is physically impossible for any human investor. Do people who use them have an edge over human investors?
I'm not sure that systems such as these can be made illegal to use, but I do understand why a lot of people want their use to be curb at least. Personally I don't, and wouldn't use a system such as this, but when you look at what HFT can do, it's easy to see why a lot of people are starting to consider them as an important part of trading these days, as they can put you at a considerable advantage, if they're used right.
Nothing wrong with HFT in my view, as long as it doesn't significantly distort the market. Yes, it's been the villain of the peace on a few occasions but it's still now part of the investing world and we all have to adapt. Admittedly, I'm not a day trader so blips here and there don't really impact the way I think, but I do like to assume that there's an orderly market for everyone to trade within.
But see, they do get preferential treatment because they have better pipelines into the exchanges. While that may not be what you are talking about, what it amounts to is the ability to manipulate the market in small but meaningful manners that lead to profits for big investors at the expense of profits for smaller and medium sized investors. In my mind, I see no good reason for HFT's other than to squeeze micro-profits out of a market exhibiting natural volatility throughout a trading session. And for every micro-profit made, a micro-loss was incurred. The markets were designed to create a platform for people to invest in companies who needed funding to produce and distribute a good or service. They work really well at doing this. But this constant selling and buying in order to manipulate the price of individual stocks in order to make a small profit violates the most basic understanding of investment. In doing so you risk damaging the company that needed the investment to begin with.
I disagree. And as long as they aren't front running others and becoming mini-market makers, if they get there before me because they have a faster machine, it's no different to me than me getting there faster than you - because I pay a few bucks a month for a system that allows me to go directly to the exchanges and bypass any third party broker-dealer - while your broker-dealer account you don't pay that fee for acts as middleman between you and the exchanges. I don't think the government or anyone else should dictate to investors / traders (at least those with a certain amount of money) how long they have to hold an investment, or place limits on how many trades they can execute or whatever.
