Practical analysis for investment professionals
10 April 2014

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)?
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.

About the Author(s)
Usman Hayat, CFA

Usman Hayat, CFA, writes about sustainable, responsible, and impact investing and Islamic finance. He is the lead author of "Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals;" the literature review, "Islamic Finance: Ethics, Concepts, Practice;" and the research report "Sustainable, Responsible, and Impact Investing and Islamic Finance: Similarities and Differences." He is interested in online learning and has directed three e-courses for CFA Institute: "ESG-100," "Islamic Finance Quiz," and "Residual Income Equity Valuation." The other topics he writes about are macroeconomics and behavioral finance. He has experience working in securities regulation and as an independent consultant. His qualifications include the CFA charter, the FRM designation, an MBA, and an MA in development economics. He has served as a content director at CFA Institute. He is a former executive director at the Securities and Exchange Commission of Pakistan (SECP) and former CEO of the Audit Oversight Board (Pakistan). His personal interests include reading and hiking.

1 thought on “Poll: Does High-Frequency Trading Do More Harm Than Good?”

  1. Marc Denoyer says:

    Thanks for sharing this informative blog on high frequency trading. Keep posting.

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