Trading & Dealing in Security Markets Essay Example | Topics and Well Written Essays - 1000 words

Trading & dealings in Security Markets - Essay ExampleInvestigations showed that the crash occurred due to a single mutual family fund that sold a large number of contracts worth 4.1 one m goutyion million million USD and this triggered a reaction from HFT machines that rapidly dumped their positions thus pulling the Dow index down. The HFT machines then quickly bought stock at the lower prices and this made the stocks travel then dumped the stock and this hot potato trading continued until equilibrium was brought in. All this happened in a few minutes due to the fragile and interconnected nature of the mart (SEC, 30 September 2010). in that respect are fears that since algorithms used in the software decision making are hidden, it is difficult to asses if HFT amplifies or dampens the market equilibrium prices. HFT alike encourages Flash Trading where certain traders can see incoming buy or sell orders for securities about 30 milliseconds before others do. This lead called fro nt running allows HFT traders to exe visite their trading strategy ahead of others (NYT, 8 October 2012). HFT traders also have the advantage that they can turn their machines off when the risks and trends are against them and thus they can cut their losses. Overall, trading is thus reduced to a war of technology and speed of connectivity and the financial software and hardware market was worth 25.4 billion USD in 2011. Terms such as scalping, shorting have become reciprocal and HFT run transactions in less than 10 milliseconds (Gsell, 2009). 2.2. Advantages of HFT HFT brings equality in the market and a pure trader with a single terminal running mesomorphic HFT software can overcome billion dollar traders. HFT is also credited with bringing liquidity in the market, reducing risk of frauds perpetrated by large... The precedent of the canvas Trading and Dealing in Security Markets begins with that High Frequency Trading HFT makes use of powerful computers that automate the tra ding process and where trading software takes the decisions to buy, sell or hold stock. The practice is also called as Algorithmic trading, Algo trading, automated trading or black box trading. Since the commands are executed by software systems, positions on various stocks are held for durations that vary from a few seconds to a few minutes. HFT has been unholy for flash price variations where the prices changes very rapidly for no apparent reason. With high profits almost informed and reduction of losses to a minimum, many traders have started using HFT. In a way, HFT represents the inevitable execute to high technology. Like many other areas of business processes such as procurement, automatic ordering in supply change management, ERP systems, humans are removed from decision-making and power is vested in machines. At the end of the essay the author concludes that since HFT yields high profits, many more firms will take up this practice. HFT certainly has some ill effects on t he stock movement and these needs to be constrained and regulated. The regulations must non determine HFT under disadvantage and new technology must not be punished. The author also gives his recommendations. Thus, traders should not be allowed to switch off their machines when stocks are falling. This will ensure HFTs remain operational even when they hold water to make a loss, just as any day trader.