Saturday, 13 August 2011

High Frequency Trading

Very good warning from Ze Moola on High Frequency Trading and the like. My opinion in one word:


"The computers have taken over Wall Street, and they're taking investors on a wild ride.This week, the Dow swung back and forth more than 400 points on four straight days. Trading volume is at or near record levels."

"High-frequency trading makes up 53% of all trading in U.S. stock markets, up from 21% in 2005, said Larry Tabb, president and CEO of market research firm Tabb Group. Other estimates put it even higher, at around 65%."

In my humble opinion, this is (partly) caused by the privatizations of the exchanges, pressuring them to make more and more money, not paying attention to much more important considerations like keeping integrity for all players involved. Certain parties have more (and earlier) information than others, simply unacceptable. These traders rent offices as close to the exchange as possible to minimize delays. The profits that both these trading outfits and the exchanges make are all derived from normal investors.

What has this to do with long term investing, creating value for shareholders and employees (including the management)?

It is about time these practices are stopped. Hopefully the local exchanges Bursa Malaysia and the Singapore Exchange (SGX) don't follow these bad examples and go "back to basics", what investing is all about.

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