Thursday 22 July 2010

High Frequency Trading

I've just been reading a blog comment on High Frequency Trading and the need for circuit breakers. The underlying problem is that HFT is not investment, it is at best gambling. There is no way that the underlying value of a company can change by a few percent in a few milliseconds.
Such speculative gambling extracts money from the investment value of companies. It serves no useful social purpose other than enrich a few people with access to the machinery of HFT. It is in effect a parasite living from the lifeblood of industry.
There is a simple solution, it is called a Return to Investment, where buying decisions are based on longer term business prospects. Governments should agree internationally that no stock/equity or derivative instrument can be re-traded within 32 days of its previous trading. This will return equality to the trading market and give people the opportunity to make considered decisions before deciding to buy/sell. It will also force them to take greater interest in the longer term development of the organisation represented by the financial instruments.

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