high frequency stock trading

Everything You Need to Know About High-Frequency Trading

The stock market isn’t rigged, but it is taxed.

It always has been. As Justin Fox points out, for as long as people have been trading stocks, there have been middlemen taking a cut of the action. Now, that cut has gotten smaller as markets have gotten bigger and more technologically-advanced, but it’s still there. It’s the implicit fee that intermediaries charge for making sure there’s a buyer for every seller, and a seller for every buyer—for “making markets.”

But there’s a new kind of middleman today. They don’t work at stock exchanges or banks. They work at hedge funds, and trade at whiz-bang speeds. These “high-frequency traders” (HFT) use computer algorithms—a.k.a., algobots—to arbitrage away the most infinitesimal price discrepancies that only exist over the most infinitesimal time horizons. You can see just how small and how fast we’re talking about in the chart below from a new paper by Eric Budish and John Shim of the University of Chicago and Peter Cramton of the University of Maryland. It uses 2011 data to show the price difference between futures (blue) and exchange-traded funds (green) that both track the S&P 500. These should be perfectly correlated, and they are—at minute intervals. But this correlation disappears at 250 millisecond intervals, a little more than half the time it takes to blink your eyes. This is the “inefficiency” that HFT makes less so.

Read more. [Image: Reuters]

Newly released State Department emails help reveal how a major Clinton Foundation donor was placed on a sensitive government intelligence advisory board even though he had no obvious experience in the field, a decision that appeared to baffle the department’s professional staff.


The emails further reveal how, after inquiries from ABC News, the Clinton staff sought to “protect the name” of the Secretary, “stall” the ABC News reporter and ultimately accept the resignation of the donor just two days later.


Copies of dozens of internal emails were provided to ABC News by the conservative political group Citizens United, which obtained them under the Freedom of Information Act after more the two years of litigation with the government.


A prolific fundraiser for Democratic candidates and contributor to the Clinton Foundation, who later traveled with Bill Clinton on a trip to Africa, Rajiv K. Fernando’s only known qualification for a seat on the International Security Advisory Board (ISAB) was his technological know-how. The Chicago securities trader, who specialized in electronic investing, sat alongside an august collection of nuclear scientists, former cabinet secretaries and members of Congress to advise Hillary Clinton on the use of tactical nuclear weapons and on other crucial arms control issues.

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How Clinton Donor Got on Sensitive Intelligence Board

This sure looks bad. It almost looks like someone bought access and influence by giving money to the Clinton Foundation! That would be a bit of a problem, I think … but maybe he was an expert in a certain area that is related to the intelligence advisory board’s work, so that’s not –

Fernando’s expertise appeared to be in the arena of high-frequency trading – a form of computer-generated stock trading. At the time of his appointment, he headed a firm, Chopper Trading, that was a leader in that field.

Oh. Um. Well. That’s weird. I’m sure he wasn’t involved in anything truly sensitive and important, taking up a seat that would be better filled by someone more qualified, like–

The Chicago securities trader, who specialized in electronic investing, sat alongside an august collection of nuclear scientists, former cabinet secretaries and members of Congress to advise Hillary Clinton on the use of tactical nuclear weapons and on other crucial arms control issues.

Oh boy. That’s not good. Well, I’m certain that he didn’t have access to important top secret–

The appointment qualified Fernando for one of the highest levels of top secret access, the emails show.

Okay. Okay. I know this looks bad, but remember, money doesn’t buy access! It must be true, because Hillary Clinton keeps saying it, and if you ask any questions about that, it’s just because you’re so sexist.

Also we can truly believe that she’s honestly and sincerely committed to the progressive positions she claimed to suddenly care about during the primary.