Poll: Does High-Frequency Trading Do More Harm Than Good?

High-frequency trading (HFT) accounts for more than half of equity trades in the United States and represents a growing share of traded volume in Europe and Asia. Although there is no sole definition of HFT, it is often thought of as proprietary trading done through powerful IT hardware and programs to get an edge in order execution over very short time intervals. US regulators have made it known that they are investigating HFT, so we asked readers of the CFA Institute Financial NewsBrief for their views.

Which of the following statements best reflects your views concerning high-frequency trading (HFT)?

More than half of our 950 respondents believe that HFT does more harm than good, and 17% believe its impact is uncertain, compared with 14% who believe it does more good than harm.

Proponents of HFT argue that it improves liquidity and price discovery, which facilitates market efficiency and thereby the allocation of capital. Critics argue that HFT’s liquidity is unreliable because of large-scale order cancellation and that it contributes more to price volatility than to price discovery. Some critics see HFT as an arms race in technology; others see it as responsible for exacerbating the systemic problem of short-termism. Proponents of HFT are likely to see critics’ views as misconceptions. But in the Great Recession, when such ideas as free market capitalism and the efficient market hypothesis have lost support and trust in financial services has waned, such opinions against HFT should come as no surprise.

If you would like to know more about HFT, take a look at this collection of short articles: “High-Frequency Trading: How It’s Changing the Market.”

Do you want to participate in future polls? Sign up for the CFA Institute Financial NewsBrief.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.