The Impact of High-Frequency Traders

The recent appearance of Michael Lewis, author of Flash Boys: A Wall Street Revolt, on 60 Minutes, created quite a stir about the impact of high-frequency traders (HFTs), claiming the game was, and has been, rigged, with the victims being all investors.

High-frequency trading is a set of computerized trading strategies characterized by extremely short position-holding periods. In high-frequency trading, programs running on high-speed computers analyze massive amounts of market data, using sophisticated algorithms to exploit trading opportunities that may open up for only a fraction of a second. After Lewis’ appearance I received many questions about the impact of HFT. Is Lewis right about investors being hurt by HFT? The answer is that it depends.

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