Monday, September 21, 2009

Nobody Loves me, Everybody Hates me...

High frequency traders are going to go eat worms next. At the Aite Group roundtable discussion on high frequency trading last week there were reportedly a few HFTs feeling unloved (WSJ Marketbeat). They believe that the high profile criticism over what they do and how they make money is unfair, because they also have to take risks which may not pay off. Oh boo-hoo. That is what traders do. These HFT firms were given the unbelievable gift of Reg NMS which made the equities markets more transparent and allowed routing between exchanges. (The fact that there is still arbitrage available between the venues is also unbelievable, but that's another blog.) That same transparency meant that regulators, retail investors and financial journalists alike could also see what was going on. This is what Reg NMS was all about. HFTs should take their money and run laughing all the way to the bank. Transparency means smaller and smaller margins, which means their days are numbered. Rather than complain, they should start looking at FX and commodities for further opportunities to exploit, while they wait for their quants to come up with some new ideas.

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