For those who are still wondering what high frequency trading (HFT) is, an 8th grader did a nice, basic explanation for a school project.His dad is Sal Arnuk, who works for the HFT research firm, Themis Trading, and his 6-minute documentary is a good summary of what everyone should understand about HFT by now.
The high point of the explanation is around 2:52, when Arnuk asks, “So what exactly is bad about HFT?” And answers, with his hand on his chin:
“Well, so far we know that predatory trading is unfair for the investor, but what else? Well, remember the May 6 stock crash? When the stock market dropped 900 points?
“People are saying it was caused by fat finger trading. Someone hit the wrong button. Well that could have been a cause, but why did it jump so low?
“Well, there were no humans to realise that this was a mistake. There were only computers to just make the decision to sell.”
To read more thorough explanations of what happened during the Flash Crash, click here to read about the firm which caused it, Waddell and Reed, and/or click here to read the SEC’s explanation of what happened.
Click below to watch: