High Frequency Traders And Current Market Structures Penalize Investors

High-frequency trading distorts commodities pricesAccording to Forbes’ Tom Groenfeldt, Pragma, an expert in trade execution, has just published a study show to how high-frequent trading (HFT) profits come at the expense of ordinary investors.

“While high-frequency market making is a legitimate activity, the combination of the maker/taker system of exchange fees and rebates and the penny tick size distorts the market and effectively forces investors to subsidize the activity of HFTs,” according to its report, “HFT and the Hidden Cost of Deep Liquidity.”

David Mechner, CEO of Pragma Securities, said this study is significant because it is the first quantitative research to show how HFT profits may come at the expense of investors.

‘It is really notable because most of the real research, the quant research as opposed to people just saying what they think, has said HFT improved market quality. Half a dozen studies in the last two years have shown that spreads have narrowed,” said Mechner.

In their role as market makers, HFT firms make an important role to a healthy market, but certain distortions in the market structure make the profits outsized relevant to the benefits, especially in the liquid end of the market, he said.

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2 Responses to High Frequency Traders And Current Market Structures Penalize Investors

  1. Pingback: High Frequency Traders And Current Market Structures Penalize Investors

  2. And you tell me that winners hurt losers, right? So?

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