High-Frequency Trading

I have commented on high-frequency trading before.

Those who defend it say high-frequency trading improves market liquidity. It assures a buyer or seller available whenever one wants to trade.

High-frequency trading benefits mutual fund investors and traders in that it reduces costs. It lets investors with fast computers take advantage of small price discrepancies and bring market liquidity.

Some mutual fund companies claim that the stock market has efficiently used middle men or “market-makers” for years. They complete sales by buying and selling in their own accounts, if they cannot immediately match buyers and sellers. Market makers profit on the difference between the bid prices buyers are willing to pay and the ask prices sellers accept.

High-frequency traders have changed this and not for the better, others say. Large mutual fund representatives have met with SEC officials to discuss such trading.

Thus, there is disagreement among fund companies, with ongoing worries about market manipulation, Their trade group, the Investment Company Institute, has urged the SEC to further study the matter further before issuing any new regulations.