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DailyDirt: Faster Than A Speeding Bullet... Oct 16th 2013, 00:00, by Michael Ho Algorithmic trading is changing the way the stock market game is played, as human reaction times are no longer fast enough to keep up with machines that can make nearly instantaneous decisions about stock trades. A human chess grandmaster takes about 650 milliseconds to recognize when a king piece has been put in check, but it doesn't take anywhere near that long for a computer to perform a few profitable transactions. In 2010, the "flash crash" caused the stock market to plunge for a few minutes, and the SEC published a report on its findings of what happened on that day, but there may be a lot more market instability caused by machines -- and we're only started to recognize the implications. Checkmate, humans! Since 2006, the stock market spiked and crashed thousands of times -- but no one really noticed. High frequency trading algorithms can produce "ultrafast extreme events" (UEEs) in which computers are causing millisecond-scale price fluctuations, and these trading events could be changing the way the stock market behaves on longer time scales. (But it's hard to know exactly what's going on....) [url] The NASDAQ mysteriously stopped all trading for over three hours over the summer, due to technical glitches that have raised concerns about a lack of transparency for how the market operates. Quite a bit of high frequency trading can happen over the course of a few hours.... [url] Latency arbitrage relies on high frequency trading and potentially makes billions of dollars every year for companies involved in high speed trading. An academic study finds that this kind of arbitrage can hurt the average investor and proposes a non-continuous market that would eliminate the advantages of high frequency trading. [url] If you'd like to read more awesome and interesting stuff, check out this unrelated (but not entirely random!) Techdirt post via StumbleUpon. Permalink | Comments | Email This Story

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