sábado, 27 de agosto de 2011

Wall Street: The Speed Traders

In “60 Minutes - CBS News”:

Steve Kroft gets a rare look inside the secretive world of "high-frequency trading," a controversial technique the SEC is scrutinizing in which computers can make thousands of stock trades in less than a second

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High-Speed Traders Dive Into Forex Despite Doubts:

Speed, anonymity and liquidity, which is the ability to buy and sell easily, are the top priority for today's currency traders. In the past, a hedge fund might approach a single Wall Street bank to trade $3 million and receive a bid/ask spread, which is the gap between what sellers are offering and buyers are willing to pay, of around 2 or 3 pips, which are tiny increments of currency prices. Banks would then offload their risks by trading with rivals in an interbank electronic trading market.

Now, with direct access to an electronic trading system, the hedge fund can trade $10 million with a dozen banks at once at a spread of one pip. Even better, the hedge fund doesn't need to spend cash setting up trading links with various banks, which often only want to serve bigger investors.

Some observers complain that high-frequency and so-called algorithmic traders make life harder for other participants in the currency markets, especially Wall Street's big banks.

One worry: High-speed trading may make currencies more volatile during times of market stress. Sharp moves can hurt smaller investors who can't react as quickly.

With so many computer-generated trades "programmed in" every day, investors may develop an exaggerated sense of the market's liquidity, which means any sharp withdrawal of liquidity hurts all the more, says a top Wall Street foreign-exchange banker. An analogy is the difference between a normal person and a manic-depressive, this source says. "A normal person gets happy or sad, but a manic depressive person can get suicidal."

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