High frequency trading, in which superfast computer algorithims buy and sell stocks in fractions of a second, is little more than a tax on financial markets that goes directly into private pockets. There's more news today about how ridiculous the practice has become.
Why do financial markets exist? Ostensibly, they exist to funnel capital to its most productive uses. That is what redeems them, socially. They are supposed to fulfill that beneficial purpose, in order to make all the high salaries of Wall Street motherfuckers at least theoretically tolerable. High frequency trading, on the other hand, has no socially redemptive value at all. It is a way for the person with the fastest fiber optic cable to suck money out of the financial markets for their own benefits. It is, essentially, a tax, on everyone, for which we get nothing in return. It is an entire industry that contributes to nothing but the enrichment of high frequency traders.
High frequency traders love to pay exorbitant prices in order to receive corporate or financial press releases a fraction of a second before the general public, because they can use their ultrafast algorithims to trade on the information therein fractions of a second before everyone else, thereby making themselves money. The Wall Street Journal today looks at the latest manifestation of this practice: paying for a "direct feed" from press release service BusinessWire. The paper explains, millisecond by millisecond, how trading firms used an advantage of around a tenth of a second receiving a press release to sell $800,000 worth of stock in a company that announced poor earnings. The practice is widespread enough to move the entire market:
Market volatility in the seconds after the 4 p.m. Eastern time stock-market close has increased in recent years as high-speed firms race to trade on market-moving information such as earnings reports, which are often released immediately after the closing bell, according to Eric Hunsader, founder of Nanex. Swings of at least 0.3% in Nasdaq stocks within the first second after 4 p.m. rose about 30% in the two years ended Dec. 31, 2013, from the previous two years, according to Nanex data.
That is not productive finance. That is farce. Trading a stock several times in one second does not help allocate capital. It just skims money off the top for a select few. Ban this shit.