More on High-Frequency Trading

Michael Lewis caused a big stir a few months ago with his latest book on high frequency traders. He claimed that the existence of HFT means the markets are rigged. I said at the time that Lewis overstates the effect of HFT and simplifies it, mostly to sell books I think. Here’s a more reasoned and detailed discussion of HFT done anonymously but apparently by someone who’s in the business. He/she argues that HFT doesn’t really harm individual investors but probably hurts banks and other firms that made money trading the markets. HFT reduces the banks spreads and opportunities. HFT might lower trading costs for individual. The real problem, which Lewis should have addressed, is “dark pools.” These are large firms or groups of firms that essential form their own markets, trading securities among themselves off the public markets.