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Anorak | Michael Lewis Says High Frequency Trading Rips Off Investors. Michael Lewis Is Clearly Wrong

Michael Lewis Says High Frequency Trading Rips Off Investors. Michael Lewis Is Clearly Wrong

by | 8th, April 2014

PA-8809723

THERE’S been a bit of a furore over in the US about the new Michael Lewis book. He’s saying that all this high speed trading (that’s the stuff done by computers in nanoseconds) is just a rip off of the average investor. The sad thing is that he’s got it entirely wrong.

What HFT does do is add more liquidity to the markets. That is, there’s just more people buying and selling as a result of their activity. Because their activity is buying and selling, so obviously there’s more of it going on.

And when there’s more liquidity then the bid ask spread becomes narrower. That’s a bit of jargon, true, but it’s also true. The difference between the buy price, the one you can buy for, gets smaller with respect to the price that you can sell for. That’s what a smaller “spread” means, that the difference between what you can buy for and what you can sell for becomes smaller.

And obviously, you buy shares

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Posted: 8th, April 2014 | In: Money, News Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink