Explain Like I'm Five

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ELI5: Why is high frequency trading allowed? (lemmy.ca)

submitted 2 months ago by [email protected] to c/[email protected]

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I don't see how it's a benefit to capitalism or companies or, well, anyone, really, to allow people to make thousands of trades a day for minute profits on each.

My gut feeling is that the stock market would not suffer, and less resources would be wasted, if trades and updates to stock prices were limited to, say, one batch per hour.

There are probably reasons the system is the way it is though.

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[–] [email protected] 2 points 2 months ago

It's more like it has to exist as a logical consequence of the technologies used, particularly the way that stock exchanges are implemented. Exchanges are built on the premise of fast and scalable technology, just like most other kinds of network service. There have been some attempts to build a new kind of exchange that does not have the inherent problems that allow for the possibility of HFT.

I highly recommend the book Flash Boys by Michael Lewis (author of The Big Short and Moneyball) if you want to learn more about this subject. It tells the story of the creation of Trader's Exchange, which is an exchange that tries to defeat HFT by introducing delays. It's a surprisingly fun read for a story about financial markets (I feel like that sentence could be used to describe all of Lewis's work)