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ELI5: Why is high frequency trading allowed? (lemmy.ca)

submitted 2 weeks ago by [email protected] to c/[email protected]

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I don't see how it's a benefit to capitalism or companies or, well, anyone, really, to allow people to make thousands of trades a day for minute profits on each.

My gut feeling is that the stock market would not suffer, and less resources would be wasted, if trades and updates to stock prices were limited to, say, one batch per hour.

There are probably reasons the system is the way it is though.

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[–] [email protected] 7 points 2 weeks ago (1 children)

It adds liquidity and that does more good than bad for everyone, whether you're a retail investor looking to enter or exit a position without facing a hefty 'tax' from a wide bid-ask spread, or you're managing an ETF and need to dump 300k shares of something while rebalancing.

Without HFT a lot of tickers would look like options and futures contracts - no volume, wide spreads, and rife with abuse from people walking orders up and down

[–] [email protected] 1 points 2 weeks ago

Instead we have to worry about algorithmic traders flash crashing stocks. The tail is always going to try to wag this dog, but at least when humans are doing it other humans can react in real time.