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  1. #1

    High Frequency Trading - A force for good? or not?

    HFT within the UK often gets mentioned in the media. I can't see there is any justification for this type of trading and would like to understand more.

    Here is a view:-

    1) If HFT fund is trading UK shares then they will be paying Stamp Duty on the buys. "IF" the are paying stamp duty then HFT fails due to the transaction costs being too great.

    Therefore the funds must be negating stamp duty on shares using a tax efficient structure. The only ways to negate stamp duty that I am aware of is to be a UK charity or a sovereign wealth fund. As far as I can tell, neither of these categories have a legitimate use for HFT.

    2) If the HFT funds are not trading UK shares, but trading futures as this negates the stamp duty - then we in the UK should place stamp duty on derivatives, in exactly the same way that several European countries are doing. (eg French Transaction Tax)

    I can't see that HFT would have any place in a stable market.

  2. #2
    If it's legal, and I'm sure it is, I have no problem with it

    You say "I can't see there is any justification for this type of trading".

    I think we should be wary of that line of thinking, e.g. I might say "I can't see any justification for day trading, or for shorting stock" meaning "I want everybody to invest the way I do". Imo, that's simply twisting the market to suit one set of investors/traders.

  3. #3
    I think you may have misunderstood.

    I suggested that
    1) If they are applying HFT to shares then only charities and sov wealth funds could apply it - But they have no place trading HFT.

    2) If they are applying HFT to trading futures or options to negate the need to stamp duty, then we should apply a transaction tax

    Hence HFT becomes a non-viable form of trading - what ever they trade now

  4. #4
    But I have some sympathy with it, Clive, because to my mind HFT, daytrading, spreadbetting and trading EFT's isn't "investing" at all! If you accept that the main purpose of the markets is as a medium for companies to raise capital and provide a platform to value and trade their shares, the short-term fluctuations generated by modern trading methods is the antithesis of that. The fact that it's legal is beyond dispute; the problem is that trading technology has jumped ahead of anything that could be forseen when the 'rules' were established.

  5. #5
    Let's say there is no transaction tax on HFT and you add one. All that would seem to do is to shift the bar upwards in the size of anomaly that such trading programs would look for. I can't see it would eliminate it. I wonder if you're thinking of adding such a tax as it's "fair" or because you just want HFT banned. (I think we pay way too much tax already and am loathe to spend my time trying to find more areas to apply tax to)

    Hi Jeffian

    Can see what you're saying, but I'm in the market simply to make money. If my investments jumped by (say) 50% in a day, I'd probably sell immediately as I'd think "huge profit, unsustainable". Wouldn't worry me that it wasn't in the spirit of long term investment. (I trade for the short-medium term, on the basis I'll be dead in the long term !).

  6. #6
    High Frequency Trading is a technological progression which effectively now dominates the short term trading niche once occupied by scalp traders. Back in the day before the internet and electronic trading, human traders on the floor would often be buying and selling within seconds, as fast as they could shout the order. This was how, from the beginning of modern day financial markets over 100 years ago, liquidity and price discovery happened. Often a trader wouldn't really know much more about what they were trading than it's name.

    Also, it's important to remember that HFT's trade against one another, the markets in essence match buyers and sellers. There are arguments to be made about aspects of high frequency trading, just as with anything else in life, but hey are not simple, black and white ones.


 

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