Here Is How High Frequency Trading Hurts Everyone
The market value of a stock quote continues to plummet. As Nanex shows so graphically below, it's taking more quotes to get the same amount of trading done in today's stock market, meaning that everyone has to process more information than ever before, yet actual trading continues to stagnate.
High Frequency Trading (HFT) algorithms that place and cancel quotes faster than most people can physically process them, are causing market data inefficiencies to soar.
Here is how HFT harms everyone, including long term investors (well, except for HFT CEO's and the Exchanges).
Data is for SPY between January 2005 through February 19, 2014.
The number of quotes each day in SPY is skyrocketing..
..but the total dollar value of SPY traded each day stagnates..
..exposing the gross inefficiency of an HFT Quote.
This is how many quotes it took to trade $100,000 worth of SPY each day. Higher values means less efficiency (bad).
That is why it is imperative to understand that volume and liquidity are not synonymous.
Sufficient liquidity is essential for healthy markets, but much HFT-created “volume” actually subtracts liquidity, as in the case illustrated above where the predatory behavior of the HFT merely appears to narrow spreads while in fact increasing costs for investors.
...suggests that not only are predatory HFT strategies like so-called “latency arbitrage” taking money out of the pockets of investors, but they are actually destroying wealth and not merely redistributing it.
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