High-Frequency Trading - HFT

Moody traders. They look at a computer screen’s ocean of numbers and are somehow able to read patterns. Little whispers from the financial gods, pressing them to buy the block of 1.3 million shares of MSFT offered to be bought right now at $50.32.

Then, an hour later, a journalist tweets about Bill Gates making an appearance on The Big Bang Theory (even in reruns) and the stock ticks up 6 cents, because a million retail buyers around the world…notice.

And they each put in an order for 100 shares, long. So now the stock rests at $50.38, where the HFT dumps it for a tidy profit of 6 cents a share times 1.3 million.

Nice for about an hour’s work. Often HFTs’ strategies are driven by computer algorithms and myriad triggers that get analyzed. Those always work great. Until they don’t.

But there’s always someone who wants to get rich quick in some new way, so the black boxes always seem to get funded, despite some 98% of them failing miserably. HFTs also revolve around basic global arbitrage, where that share of MSFT could be bought for a currency-adjusted price of $50.305 and sold quickly at $50.32 to make a penny-and-a-half. Risklessly.

Not only does the stock price flutter, but so do the relative values of the underlying various global currencies that live underneath its price.

HFT. It’s also how you pronounce the noise you make when these trades go the other way, i.e. against ya.