I have been writing about the freakish trends in High Frequency Trading (HFT) for a couple of years now. As our markets have become ever more manipulated, Fed juiced, over-valued, under-regulated and pathetically under-policed, the HFT crowd has taken over. Over the past 5 years as risk-concerned individuals and institutions have pulled back from risk markets that are increasingly unattractive and precarious, transaction volume and traditional participants have fallen off precipitously. Like gardens left to run wild, markets have become overgrown with highly levered weeds and high frequency traders, who have come to account for 70-80% of all volume over the past couple of years. See my previous posts on this, including here where I point out the danger inherent in millions of computer generated trades moving 300 times faster than the eye can blink, only to be largely cancelled again before they are settled. Sounds stable doesn’t it?
Just to show that we aren’t imagining the increase in HFT activity, Mish brings us this animated GIF that chronicles the rise of the HFT Algo Machines from January 2007 through January 2012 by clicking on the link. In this environment, traditional investors trying to use capital markets for rational activities are like old folks trying to hobble across a 6 lane autobahn with a cane at night, while the cops are on espresso break.