Joe Saluzzi Discusses High Frequency Trading And Volatility

During a recent guest appearance on Benzinga's #PreMarket Prep show, Joe Saluzzi was asked about high frequency trading (HFT) and "Flash Boys," a book that many attribute to putting HFT on the map. "Flash Boys" and Scott Patterson's "Dark Pools" are highly regarded as a good place to start learning about HFT.

High Frequency Trading, Volatility And Risk

At one point in the interview, the expert was asked about risk and high frequency trading. Questions asked included: Are high frequency traders involved in risky moves? Are they trading stocks moving 10 or 20 percent in just a matter of a few seconds -- like we’ve been seeing in the biotech space recently?

Related Link: A Day In The Life Of A High-Frequency Trader

But, high traders do like volatility, Saluzzi explained. Saluzzi pointed out that seeing quotes faster – a direct result of volatility, allows traders to benefit from “a system that’s better than most others out there.” He elaborated further, “Then, the more that that quote moves, the better I’m going to be able to buy on the bid or sell on the offer or whatever it may be.”

So, high frequency traders’ system “relies on that type of volatility; they make their most money on volatile days,” he went on to expound. “So I can imagine in ’07 and ’08 how well they were doing.”

In conclusion, high frequency traders are not volatility-averse, but “they do manage their risk carefully,” Saluzzi assured.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

Image Credit: Public Domain