rootninja

High-Frequency Flash Trading

This practice gives select traders advance notice of changing market conditions. Flash orders are available to anyone for a fee, but can only be capitalized upon with the use of extremely high performance supercomputers.

Flash orders give some traders the ability to execute market orders fractions of a second before others get a crack at them. They shot to public attention when NYSE Euronext Securities Industry and Financial Markets Association, and others raised concerns they could create two-tiered markets that disadvantage the general investing public. [1]

Due to the advent of high-frequency trading, 30-500 milliseconds might as well be several minutes or more because computers can make calculated buy decisions within this window.

While an order is in a flash window, it is completely unavailable to the public. This practice essentially gives an elite few an unfair advantage over all other traders.

And the kicker is that while a proposed ban appears to be stalled (shocker!) this kind of trading is completely legal.

The Lie

Exchanges claim that the procedure benefits all traders by creating more market liquidity and the opportunity for price improvement. [2]

The only real problem I see in removing the public delay is that computers would continue to perform microsecond transactions causing the average joe trader’s market data to appear incorrect since they could not possible execute an order as fast as the high-frequency traders.

Oh well, at least they would have an equal opportunity.

1. Moyer, Liz. “Flash Trading Fight Reignites“. Forbes, Sept 2009.

2. Anderson, Jenny. “U.S. Proposes Ban on Flash Trading on Wall Street“. The New York Times, Sept 2009.