There has been much debate and controversy about the negative effects of high frequency trading programs (HFTs). The arguments range from stealing market liquidity, price manipulation, and unnecessary volatility to being responsible for the flash crash. While there are many negatives to these programs, many are misguided as to the effects they have on the market. Equity HFT programs tend to lift markets not collapse them, albeit in an artificial manner. Artificially propping up prices results in a hollow core that produces more violent crash like sell-offs. We saw lots of this last year. In fact, HFT activity was rampant last year, but the volatility was just too much of a shock to the system. The media and government scrutiny has diminished much of the activity. While the masses may think this is good for the markets, for traders, it’s a bane. HFTs and traders feed on two things, volume and volatility.
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