The Perils of High-Speed Trading

With systems that can conclude a trade in as little as sixteen microseconds, some analysts caution that automated high-speed trading has the potential to amok (like some B-Grade sci-fi movie) as various systems are put in place to cash in on markets that are already considered to be volatile and somewhat unstable. Brokerages and traders who earn a living off commissions on individual transactions are no doubt keen for trading to continue at this rate, as more transactions translate into more commission. But increasing trade volumes are not necessarily in the best interests of investors, or of the overall market.

Some issues raised by critics include the fact that programs for high-speed automated trading have not always been bug-free when introduced into the market. Moreover, human error can result in multiple transactions taking place before the error is realized and rectified. It appears that the May 6 ‘flash crash’ may, in part, have been caused by automated trading bots not being capable of dealing with a trading time-out, and continuing regardless. While critics of new technology may be summarily dismissed as being archaic by those with ‘vision’, no-one can guarantee that markets are immune to the possibility of a technological malfunction that could bring the global financial market to its knees.