Nathaniel Popper arrives today with something that looks like good news on the high-frequency trading front: there’s less of it!
Profits from high-speed trading in American stocks are on track to be, at most, $1.25 billion this year, down 35 percent from last year and 74 percent lower than the peak of about $4.9 billion in 2009, according to estimates from the brokerage firm Rosenblatt Securities…
The firms also are accounting for a declining percentage of a shrinking pool of stock trading, from 61 percent three years ago to 51 percent now, according to the Tabb Group, a data firm.
This is all true, and in fact it probably is good news, at the margin. But it’s not very good news, and it’s not as good news as it might look at first glance. Because while the number of trades is indeed going down, the number of orders is going through the roof. Here’s how I put it in my Radio 3 essay:
One reason that volumes are dropping is that the algobots are getting so sophisticated at sparring with each other that they’re not even trading with each other any more. They’re called high-frequency traders, but maybe that’s a misnomer: a better name might be high-frequency spambots. Because what they’re doing, most of the time, is putting buy or sell orders out there on the stock market, only to take those orders back a fraction of a second later, and replace them with new ones. The result is millions of orders, but almost no trades.