by flagamuffin

The most prominent form of automated or algorithmic trading today is known as high-frequency trading (HFT). For a good introduction, this documentary provides some insight into the way that the shadowy world of HFT operates. Essentially, this kind of trading relies on buying and selling assets just moments ahead of slight changes in price up or down. By acting on informational disparity at exceptionally small time intervals, these these HFT firms can make a tiny bit of profit on each trade. In the world of HFT, those with the fastest information get the profit, and the profitability of these firms is driving a scramble for faster data transmission.

But this is where it gets a bit scary. The institution of algorithmic trading as the main force driving modern markets means that the decisions of algorithms are increasingly the basis of market price. As these algorithms start to go up against eachother, they are also being used to discover ways to manipulate the market itself. Scarier still, it is unclear how connected the gaming between algorithmic traders is to the fundamentals of economic function (like how many people can afford bread tomorrow).