IMAGINE if the stock market were hijacked by computers that executed trades in a fraction of the time that it takes to blink. The values of well-established corporations would sometimes swing wildly from one second to the next and we slow-reacting, human investors wouldn’t know why.
You don’t really have to imagine this. This is how our stock markets function today. (link)
Things are happening too fast and can get out of control.
Should the U.S also think about regulations for this? Thoughts?
As this article points out, the market is not functioning in the way in which it's supposed to. "Markets exist to provide some minimal level of liquidity, so that long-term investors have the confidence to invest." With HFT (high frequency trading) comes much volatility which leads to even more fluctuation; its a vicious cycle. The problem with this is if we impose laws/regulations that limit HFT, people will begin to question what other types of technology we should limit. Limiting technology doesn't help us move forward and evolve, just in the same way that saving large corporations that were failing leaves no room for new ones to grow.
ReplyDeleteTechnology is getting better everyday and there are people who would try take benefit (does not have to be legal) from it, especially in the stock market. US should seriously consider putting regulations on it. The idea of considering investments that mature in 60 seconds as electronic errors and giving the profit to the government, will greatly reduce the incentive for high frequency trading.
ReplyDeleteAlthough the public direction derived from implementing these taxation methods will be beneficial, the impediment to development of further electronic algorithm based trading is unacceptable. I would predict in 5-10 years, with the development of alternative computing powers and reduction of heavy computing, the development of programs actually collecting data on the companies, and correlating this with the market trends. In essence replacing the human trader at least at a basic level (I'm sure computers would have some difficulty with long term technological development trends, or artistic/ fashion trends dealing with human choices) allowing the reduction of cost in trading and possibly an expansion of accessibility to stock markets.
ReplyDelete