How Individuals Should Think About High-Frequency Trading

The release of the latest Michael Lewis book, “Flash Boys,” and the subsequent report on “60 Minutes” has reignited the debate over the purpose and value of high-frequency trading (HFT).

Like many innovations, HFT had some noble objectives when it first started (to improve both the cost and timing of trades) but the concept has morphed and changed well beyond its original intent. The original purpose of HFT began to change, in my view, when the exchanges began to focus on HFT firms and began to recruit and incent them to set up shop on or near their exchange location so that they could gain milliseconds over other trading firms, which gave them a trading advantage. As is often the case, the regulatory agencies tend to be slow to react to these new innovations.

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