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The Impact of High-frequency Trading: Manipulation, Distortion or a Better-functioning Market?
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The Impact of High-frequency Trading: Manipulation, Distortion or a Better-functioning Market?

Knowledge at Wharton·@HashtagPLUS·about 1 month ago
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It sounds like science fiction — something from I, Robot or The Terminator, where the machines take over. But totally automated “high-frequency trading” is part of the stock market right now — a big part. According to some estimates, high-frequency trading by investment banks, hedge funds and other players accounts for 60% to 70% of all trades in U.S. stocks, explaining the enormous increase in trading volume over the past few years. Profits were estimated at between $8 billion and $21 billion in 2008. Some market observers, members of Congress and regulators are worried. Are those profits coming out of ordinary investors’ pockets? Is Wall Street’s latest qet-rich-quick scheme going to harm innocent bystanders? “I don’t think it would hurt people to become educated as to the intent of these strategies,” says Wharton finance professor Robert F. Stambaugh . “What is their effect on the markets?…

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