The new Era of Stock Trading
The videos discuss as how the human mind is getting evated from trading activity on Wall Street and is rather performed by high performing super computers which have the capacity to trade billions of stock, even before a blink of a human eye. However, these super computers works on programming of math wizards and are not aware of the value of companies for which they are trading. Thus, the Securities Exchange Commission and Members of the Congress Senate has raised some questions against suitability and usefulness of these machines in stock trading and also alleges that some institutions might be using computer programming to manipulate the market. In terms of development of use of electronic machines in stock trading, at present, only 30% of total stock trading is conducted by humans while the remaining is replaced by high performing super computers which have given birth to two new electronic stock exchanges, which a rare investor knows about. These machines are owned by high frequency institutional traders and big investment banks. Thus, the ‘’Bet Game’’ does not require humans anymore.
In terms of core reason behind how the computers are ruling the stock trading, Manoj Narang, Founder of Trade Works, a small firm that uses computer programming for stock trading, notified that since human beings do not have the skill to see fraction-of-a-second profit opportunity, it is only the super computers who can help us to cash in those fractions of a second arbitrage opportunity. His firm do not hold stocks for a day even, rather on an average, a stock is sold within 3 minutes and the programmer is commanded/required to earn a penny only, but for 40 million times a day. Interestingly, the programmers do not know which company’s stocks they are buying or any of its background, they just work on theory pf probability and statistics.
Similarly, Joe Sallozzi, an Institutional Investor agrees to this fact that electronic stock exchanges receive information few seconds before than the regular investors. However, it is not only the probability and statistical programming of these super computers which matters, but also the physical location of their servers. More proximity of these servers to the servers of stock exchanges will give a much faster information to electronic exchanges. Thus, it is a combination of complicated mathematics algorithm and expensive technology that earn millions for high frequency traders.
However, whether the electronic trading is useful or not, is still undetermined. While regulators and Institutional Investors consider that high frequency electronic trading do not raise funds in capital market rather it distort the capital creation process, traders like Manoj Narang consider that this kind of short term trading provides strong liquidty to the market. However, the past events provides us with evidence to believe that high electronic trading is indeed dangerous to stock market. Past Spring, when Dow Jones Industrial Average decreased by 600 points in just 15 minutes was attributed to a high frequency trade carried by a mutual fund which dumped $4.1 billion worth equities in just 20 minutes and immediately sold them using high frequency computers which prompted other investors to sel their stocks and finally, a market crash.
Thus, Security and Exchange Commission are coming up with regulations to identify high frequency trades so as to ensure that integrity and transparency of capital market is maintained.
