High-Speed Trading Isn’t About Efficiency—It’s About Cheating: We’ve talked about high-frequency trading before, and some of the absurdities that brings about – people fighting over inches of fiber optic line in data centers, and laying new trans-Atlantic lines to cut milliseconds of transmission times.
Here’s a new one: organizations are paying to received financial information seconds before the competition so their bots can use it for gain during that time. When HFT servers are concerned, two seconds might as well be two years.
There’s a big difference between buying early access to public data and early access to private data. The University of Michigan, for example, sells the rights to its Survey of Consumers to Reuters for $1 million a year. Reuters then sells early access to it either five minutes before the public gets it or five minutes andtwo second before—for the HFT crowd that wants to frontrun the frontrunners.
Much like spammers almost ruined email, the HFT crowd is coming close to ruining trading. I predict we’ll get to a point where non-HFT traders may as well not even bother. The market will simply be totally consumed with HFT (it probably is already), and million of bots will whip around humans as if they’re standing still. The entire system will devolve to a battle of the bots, and nothing more.