Essay on High Frequency Trading

Essay on High Frequency Trading

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Introduction:
It is obvious that during the last two decades the financial market has changed. The main cause of development is the result of human knowledge of information technology (IT). The story behind the new structured market can be defined as new ideas and opportunities to make more money being help by computers. Indeed, a clear advantage of computer-aid trading is having access to higher speed. Nowadays, in market place, not only minutes have lost their values but also seconds are becoming worthless. The time aspect of today’s highly electronic age is measured in milli, micro, or even nano-seconds. High Frequency Trading, commonly known as HFT is one of the popular ways of trading using computers. Indeed, HFT is computer determined trading; the algorithm, beforehand programmed by human, makes important decisions such as timing, price, or in many cases, executing the entire order without human interaction . In this survey, we will focus on HFT, its history, its advantages together with its drawbacks and its future. Our main concern will be to try to answer the following question:
Is this market takeover by computers the future of trading or the first steps to a collapse of market?


History of HFT:
The history of HFT began in 1989, when Steve Swanson, a young programmer, and Jim Hawkes, Swanson’s college statistics teacher, decided to program algorithms from predictive formulas for the stock market in order to predict stock prices, to automatically trade and to finally make money. This would later become the world’s first HFT firm, Automated Trading Desk (ATD). At this period, the only way of trading was still manually posted offers of trade on handwritten tickets. It was then an easy prey for ATD trades execution within ...


... middle of paper ...


...putting a very small tax on these transactions can be useful for government to make some money and reuse it for good purposes.

Conclusion:
Regarding the different facts related to HFT, there will always be a strong debate about the legitimacy of use of HFT. In our opinion and to answer the question asked in the introduction, HFT is not in itself harmful, but it has to be used wisely and with supervision. In this view, we think that the human must have the final word on the operation done by the machine. A strong control should be put in place in order to avoid further problems, as well as a limitation on some markets. We also think that the establishment of a tax on HFT transactions is a very good idea, in order to be able to earn some money on these numerous transactions.
In the end, only future will tell us if HFT is a sustainable way to make transactions. 







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