HFT Parasites killing the market
It has been a while since we wrote about HFT and the implications on the markets. Here are some reflections by Joe Saluzzi of Themis Trading.
Since Joe first spoke with us last year, HFT firms have only increased in size and share of market activity. Here are some staggering statistics on how influential they have become:
- HTFs make up between 50-70% of the volume seen across market exchanges today.
- 2% of the traders on many exchanges (HFTs, specifically) represent 80% of the volume.
- A single large HFT firm (referred to as a Direct Market Maker) can account for 10%+ of a market’s volume on a given day
- Large HFT firms make between $8 to $21 billion a year.
- HFT trades occur in milliseconds (i.e., a small fraction of the time it takes your eye to blink).
With such scale, speed, and profitability, HFTs have turned the market away from being an efficient price-setting mechanism and perverted it into a casino where the clientele of human investors gets fleeced.
And our regulators are so outmatched by the scope, complexity, and funding of these titanic HFT players that at moment, there are pretty much zero consequences for bad actors.
Interestingly, these HFT parasites, which live by generating fractions of pennies in millisecond-timed trades, may be sowing the seeds of their own demise through their blind gluttony and hyper-competitiveness. As their quest for incremental advantage begins to bump up against the limits of physics (such as the speed of light), the marginal cost of the next increment of advantage increases exponentially. Profitability is being squeezed out and will disappear entirely some day.
Full article here.