Sunday, July 26, 2009

What's Scary About HFT Program Trading?

There has been lots of talk about High Frequency Trading or HFT. The media which is usually about 3 months late on most stories have picked up on this phenomena.

Is it election time already for Chuck Schumer? Or is the Goldman Schumer campaign check get lost in the mail?

You know when the Times picks up on a story that the worst damage has already happened. Where is Judith Miller when you need her?

More Opinions on HFT

What we all know about HFT.

All I can say is we know HFT is in full focus at the moment, no one cares because the markets are in rally mode, so all can't be that bad.

Seems like what everyone is alluding and implying is that these automated systems are functional so long as prices rise, but they are quite untested on falling price trends.

Lets get this straight, it as thought by the media these sorts of automated, HFT came into robust fruition only in 2009 and were not so much at work during the vicious down drafts of 2008. Furthest from the truth. A lot of the weakness was caused by program trading run amok, as well as genuine fear. The markets were able to get its "bearings" back [Pun intended] because of TARP, lower short term borrowing costs, full scale global quantitative easing, and continued backstopping of bank balance sheet losses that occurred after the fact to stem the tide.

But what will happen the next time the market takes it on the chin? Will the global financial system be able to deal with the fall out when there is no more smack/steroids to give the system?

How much more can be done? Rates cant go lower. Is another round of TARP politically feasible ahead of mid term elections?

HFT around along time and have evolved.

But like Skynet, they got better, faster, leaner, smarter, more complex,and even more dangerous. It seems like some sort of massive quantum leap has occurred just this year in their use and leverage. When the inevitable downward spiral commences again ,will we see some sort of colossal meltdown that makes the events after Lehman's collapse seem like a walk in the park.

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