A Closer Look at High-Frequency Trading

30 September 2011

Trader John Santiago works on the floor of the New York Stock Exchange earlier this month.

This is the VOA Special English Economics Report.

Once, stocks were traded through the open outcry system, with men shouting share prices on the floors of stock exchanges.

But the sights and sounds of stock traders furiously exchanging securities has mostly disappeared. They have been replaced by fast, interconnected computers.

Joe Saluzzi is a head of equity trading at Themis Trading in New Jersey.

JOE SALUZZI: “The equity market has changed. It’s no longer what you see on TV, it’s no longer guys with colored jackets running around the floor anymore. That’s the show, that’s the TV studio. The equity market is a bunch of co-located computers strung together by a bunch of wires, everyone trying to race to zero. The speed of light is the goal—t he speed of light! That’s what we’re looking at now.”

Computers can process stock trades in thousandths of a second. Andrew Haines of Gain Capital is an online broker.

ANDREW HAINES: “A millisecond can mean millions of dollars to the success of your strategy. Having a one, two, three-millisecond advantage over other traders may mean that you get into a trade at a preferable price.”

Andrew Haines says an estimated seventy percent of all stock trades are high-frequency trades made with computers. Stocks may be held for only seconds. But fast trades are also blamed for big moves in stock prices.