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Good articles:
"- Up to 60% of trading in equity markets is computer-driven.
- algorithmic trades tend to be correlated, suggesting that the algorithmic strategies used in the market are not as diverse as those used by non-algorithmic traders
- there is no evident causal relationship between algorithmic trading and increased exchange rate volatility
- even though some algorithmic traders appear to restrict their activity in the minute following macroeconomic data releases, algorithmic traders increase their provision of liquidity over the hour following each release
- non-algorithmic order flow accounts for a larger share of the variance in exchange rate returns than does algorithmic order flow
- there is evidence that supports the recent literature that proposes to depart from the prevalent assumption that liquidity providers in limit order books are passive.
- some algorithms now automatically read and interpret economic data releases, generating trading orders before economists have begun to read the first line.
- I don't see them being a problem unless everyone is automatically increasing trade size and leverage with the trend. The associated risk-management is fairly sophisticated. That they would do this in a highly-correlated, invisible way is highly unlikely. And high-frequency trading is by definition short-term, so there is constant buying and selling in the market. A lot of these strategies may not hold a position overnight. Markets that are up a lot or down a lot as one-way sure-bet trades are pretty highly publicized. You'll eventually get a sudden reversal, and a lot of haircuts, but these overextensions most savvy players can see coming (though you don't know where or when the turn is going to happen). Wouldn't worry about it - enjoy the
liquidity."
http://www.dailyspeculations.com/wordpress/?p=4350
A few more details:
http://www.federalreserve.gov/pubs/ifdp/2009/980/ifdp980.pdf
Agree with there not being anything to worry about.
This after all is fair and above board unlike Goldman Sach's stolen algo: Tool for Legal Frontrunning
The markets will always provide ample opportunities for humans, but that's not to say that one should close ones mind to available opportunities, or why one shouldn't have two irons in the fire.
"- Up to 60% of trading in equity markets is computer-driven.
- algorithmic trades tend to be correlated, suggesting that the algorithmic strategies used in the market are not as diverse as those used by non-algorithmic traders
- there is no evident causal relationship between algorithmic trading and increased exchange rate volatility
- even though some algorithmic traders appear to restrict their activity in the minute following macroeconomic data releases, algorithmic traders increase their provision of liquidity over the hour following each release
- non-algorithmic order flow accounts for a larger share of the variance in exchange rate returns than does algorithmic order flow
- there is evidence that supports the recent literature that proposes to depart from the prevalent assumption that liquidity providers in limit order books are passive.
- some algorithms now automatically read and interpret economic data releases, generating trading orders before economists have begun to read the first line.
- I don't see them being a problem unless everyone is automatically increasing trade size and leverage with the trend. The associated risk-management is fairly sophisticated. That they would do this in a highly-correlated, invisible way is highly unlikely. And high-frequency trading is by definition short-term, so there is constant buying and selling in the market. A lot of these strategies may not hold a position overnight. Markets that are up a lot or down a lot as one-way sure-bet trades are pretty highly publicized. You'll eventually get a sudden reversal, and a lot of haircuts, but these overextensions most savvy players can see coming (though you don't know where or when the turn is going to happen). Wouldn't worry about it - enjoy the
liquidity."
http://www.dailyspeculations.com/wordpress/?p=4350
A few more details:
http://www.federalreserve.gov/pubs/ifdp/2009/980/ifdp980.pdf
Agree with there not being anything to worry about.
This after all is fair and above board unlike Goldman Sach's stolen algo: Tool for Legal Frontrunning
The markets will always provide ample opportunities for humans, but that's not to say that one should close ones mind to available opportunities, or why one shouldn't have two irons in the fire.
