Wall Street's no-longer-so-secret society: High speed trading gets scrutiny, rivals

Updated

An arms race has begun in the secretive world of high frequency trading, the practice of making a high number of trades netting small gains that can add up to big profits at the end of the day. Fueling the competition is the entry of more players into the field as well as technological advances that continue to enhance the speed and quality of trades. A sense of urgency comes from the fact that the industry is bracing for new regulation.

Becoming increasingly popular in the last couple of years, high frequency trading uses technology and computer algorithms to take advantage of sub-millisecond arbitrage -- or essentially the spread between the buy and the sell price of a stock or commodity that can appear in fractions of a second. But the trading technique has come under scrutiny for several reasons. Some fear that stocks could be manipulated by the practice. There's also the concern that high speed trading gives an unfair advantage to high-rollers and major institutional clients who can afford the expensive, high-tech setups needed to participate.

Advertisement