Tags: stock | market

High-Frequency Computers Master the Market

Friday, 24 Jul 2009 11:20 AM

By Marc Davis

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New high-tech, high-frequency computers are giving a small coterie of stock traders an unprecedented edge in mastering the fast-moving stock market.

High-frequency trading is the newest buzz on Wall Street, and traders and critics allege that the super-speedy computers can access customers' orders for a look-see, and can also manipulate stock prices, according to a report in The New York Times.

Processing input and data at dazzling speed — much faster than your average PC or Mac — the computers are beyond state-of-the-art, sending and receiving "millions of orders" well ahead of the seemingly slow-pokey, by comparison, computers used by most other traders.

High-frequency traders, consequently, have an unfair advantage, say its opponents.

The result: These traders are making billions of bucks, while others are left on the trading floor wondering what hit them.

Among the beneficiaries of high-frequency trading is Goldman Sachs, which said it profited from it, although the firm claims it has no unfair advantage, said The Times report.

The Securities and Exchange Commission, meanwhile, is looking into the high-frequency trading phenomenon.

Such hyper-fast trading could explain how certain hedge funds and mega-banks have made their huge profits recently.

Meanwhile, Wall Street chatters nervously, or hopefully, about what Joseph M. Mecane of NYSE Euronext, called "a technological arms race."

"Markets need liquidity, and high-frequency traders provide opportunities for other investors to buy and sell," Mecane said.

Data from the NYSE shows average daily volume up 164 percent since 2005, attributable, in part, to high-frequency trading, according to exchange sources.

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