...some algorithms basically infer the price increase from trades, getting rid of the profits otherwise available. But these are all short term scenarios, and basically make a market efficient. That is, say Apple announces good news, suggesting a sharpe bounce in the stock. An investor tries to buy, and would like to trade 1MM shares, but clearly that's too much, so he puts in an order for 1000, then next minute, another 1000, and another. A machine might sense the pattern and basically jump on for the ride with him, diluting his profits. Is that bad news? Only for the short-term trader. For the longer run investor oblivious to this, who was on the other side, they got to sell at a higher price (the price rose faster than otherwise). The short-term speculator basically makes less because the algorithm reverse engineers his insight. This is the essence of an informationally efficient market, where news gets into the price asap. That those at the bleeding edge are making a profit is not a bug, it's a feature.
Thursday, July 30, 2009
Computer trading makes markets better
The hype against high frequency trading is misplaced:
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Trading is always great in any way, but what we need is ability to analysis situations and market, it is the only way we will get success and fortunately for me, it’s not really all that tough. I trade with OctaFX broker where they provide me daily market news and analysis, it is easy and simple to follow, but is seriously effective, so that’s why I love it and always prefer it over anything else and we don’t even need to pay charges for it.
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