Dutch News

26 May 2014

A Dutch professor concludes after research that the race for ultrafast stock exchange business is hurting the market itself. The research was done in some Scandinavian states where ten times faster high frequency trading was introduced. The consequences were pretty serious. The costs were six times higher and the transaction rates rose with 32%. In the end the bill was paid by the investors. Dutch companies are very active in the high frequency trade.

This conclusion is completely opposite of the current idea that high frequency trading (HFT) will by definition lead to lower costs. In this age two types of  stock exchange business are opposite each other. On one side traditional computer programs that invest passively, and on the other side computer programs that speculate on the values of investments, based on new information.


In practice the HFT dealers are not interested in the value of stock, but only in the marginal differences in price between purchase and sale. This only works with extreme speeds and very large volumes . The passive trade always loses from the high frequency trading. The more transactions, the large the loss of the passive trader. Over the last years there still was a balance, but if the speed increases and gets under one millisecond only the increasing costs will remain for the passive traders. The investors that do not join the HFT will pay the price.


If this development continues probably the HFT dealers will still make profits, but the investors and in this the market itself will lose out. The professor is a support of a time limit for high frequency trading, but the involved traders opposed plans of a European proposal to limit the trade to half a second (500 milliseconds). To them this would be an extreme speed reduction, and they opposed any limitation.


Dutch companies are very active in the high frequency trade. After London, the Dutch are the second largest in the European HFT branch. Dutch companies are also asked to upgrade and facilitate the New York stock exchange.





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