by RAKSHA DONDAPATI Staff Writer
The use of high-frequency trading in the stock market has struck up some concern due to the result of a recent hacking of the Twitter account of the Associated Press.
High-frequency trading systems can make trades based on keywords found on sources of information such as online newspapers, blogs, and social media websites. These trades can happen in a matter of milliseconds, and high-frequency trading has become the predominant way of doing these trades.
Computers use complex algorithms to transact these trades. These algorithms peruse the blogs, social media sites, etc. to analyze and execute the aforementioned trades.
This means that if there is good news, trades are made accordingly. However, if there is bad news, the stock market will take a hit.
Also, using social media in high-frequency trading is relatively new, and therefore vulnerable to hackers.
This vulnerability was cast into the spotlight recently. On April 23, a Syrian cyber warfare group called the Syrian Electronic Army hacked into the Twitter account for the Associated Press and tweeted, “Breaking: Two Explosions in the White House and Barack Obama is injured.”
Dow Jones dropped 150 points, which is about $136 billion in market value, but recovered within a few minutes. The S&P Index also fell about one percent, dropping by about $136.5 billion before gradually recovering.
“People shouldn’t just leave it to computers and high-frequency trading. They should make security tighter or monitor on a regular basis. It’ll save them time, money, and confusion,” said an anonymous freshman.
Regulators, along with others, are worried about the increasingly prominent role of high-frequency trading systems because of how quickly it can react to stories, whether they are true or false.
“I think that computers have way too much power in what happens in society, which can affect our economy, like this showed. There is an insecurity that many people may develop because after an incident like this. They aren’t sure whether it’s safe to invest in stocks in the market,” said freshman Sharika Kaul.
This is not the first time that high frequency trading systems have caused concern about the stock market.
In 2010, high-frequency trading computers broke down and the Dow Jones Industrial Average dropped almost 1,000 points in 20 minutes.
Now, people are putting in their two cents about high frequency trading.
Some say that people need to accept that high-frequency trading systems are a part of our stock market. Jim Cramer, the host of the finance television program “Mad Money” said that whether or not it causes problems or produces value: “The fact is it’s here to stay. Learn to stop hating it, embrace the madness, and profit from it.”
Others have firmly taken a stand against high-frequency trading. Charlie Munger, a business magnate and investor, said, “I think the long term investor is not too much affected by things like the flash crash. That said, I think it is very stupid to allow a system to evolve where half of the trading is a bunch of short term people trying to get information one millionth of a nanosecond ahead of somebody else. It’s legalized front-running. I think it is basically evil and I don’t think it should have ever been allowed to reach the size that it did.”
Despite mixed feelings, what cannot be denied is that the use of high-frequency trading is rising, and there are issues with the system that most would agree should be worked on as the use of it continues.
How do you feel about the use of high-frequency trading in the stock market?