Excuse the terrible pun, but there is just a touch of irony that the University built on the wealth of Cornelius Vanderbilt’s (Allegedly) dodgy dealings has produced research with a positive message about HFT Trading.
I am of course joking, it was just a tenuous way of introducing this article. The research is sound, the article is very well written and it seems that not all HFT firms are evil…… or are they. Conspiracy Theorists, where are you?
Vanderbilt study debunks “phantom liquidity” problem caused by high-frequency traders Michael Lewis’ best-selling book Flash Boys describes a phenomenon where investors place buy or sell orders for a stock based on an acceptable quoted price only to see that price change unfavourably at the moment the trade is executed. The culprits, according to the book, are high-frequency traders (HFTs), which employ complex computer algorithms and lightning speed wiring to gain a financial edge in markets. Among the things HFTs have been accused of doing is creating what’s called “phantom liquidity.” Critics say HFTs place—then abruptly cancel—staggering numbers of trade orders to create the illusion of greater supply or demand for a stock in order to move the price to their advance.