ADM8 (Photo credit: Ars Electronica)
Founders of the NJ-based brokerage firm Themis Trading are taking aim at the Wall Street practice of high-frequency trading. Their book, Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street are Destroying Investor Confidence and Your Portfolio, details how HFT rigs the markets in favor of big money players.
Wall Street favors the practice because it’s faster and lowers transaction costs. But Sal Arnuk and Joseph Saluzzi say HFT has hidden costs, such as the technical instability that caused Knight Capital to lose $400 million in minutes. Algorithms and formulas dictate stock price—not the market view of the company being traded. HFT firms are also privy to prices before smaller traders, making it next to impossible for smaller firms like Themis to execute trades at the listed exchange price.
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