Capital dis-formation of high-freq trading

The dog days of August are upon us and the living ain’t so easy.

Judging from the empty seats and parking spots on my commute into Manhattan, many equity and bond trading desks are empty.

The living is good there, but for the rest of us there is little to celebrate. Wages flat, health costs soar and job security is of little value, since circumstances can change in a moments notice.

So unlike 20 years ago, where liquidity evaporated during August vacations, now the high-frequency traders are the source of “liquidity” as black boxes tweak pricing by pinging stocks thousands of times to move them fractionally lower to get in and out of the stock before any person could react to the price move.

Do this a million times a day, you can make tens of thousands of pennies a day on fractional moves. That’s the definition of  “liquidity” today.

And all this high-freq trading brings little value or productivity to the economy. These trades don’t finance deals or provide additional capital for growth.

They traders are in and out so quickly with the profit and move on to the next “victim”.

So August is half-way through, moving towards an interesting fall.

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