A Jazz Quartet Explains High-Frequency Trading

There was an opinion piece on MarketWatch about how information flow influences how often you should trade.

As part of it, there was a video that explained how algorithms effect trading (using a jazz quartet).

 

via Marketwatch.

The Meaning of Money: Listen to how computer algorithms changed the music of the market.

 

Faster trading brings up important economic questions: What are the costs and benefits to investors for speeding up trading? Is there an “optimal” trading frequency at which the financial market should operate? And does a faster market affect one group of investors more than another?

 

Here are a few of the points made:

• A higher-frequency market is more responsive to new information.

• The optimal trading frequency depends on how the benefit and cost balance each other.

• The more frequently the market allows investors to transact, the stronger their incentive to split orders over time to avoid price impact.

From my perspective, faster trading is inevitable.  However, as more traders gain access to it, speed for the sake of speed will lose its appeal.  What will continue to matter is the speed at which a trader can identify an edge and capture its profit opportunity.