How high-frequency trading works
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Steve Chiotakis: Later this morning Goldman Sachs is expected to release a big profit report. Even while other big banks are still struggling. One reason Goldman is succeeding so mightily is its emphasis on something called high-frequency trading. Jill Barshay reports.
Jill Barshay: In the old days, traders hit a computer key to buy or sell stocks.
Sang Lee is the managing partner of the Aite Group. He says that’s old school.
Sang Lee: By the time I push a button to trade, it’s not inconceivable that a machine could have already sent, you know, 2,000 orders out there.
There are two parts to high-frequency trading: the PhDs who write trading programs and the high speed computers that execute the trades. The faster your computer, the quicker you can get to a buyer or a seller, and the more money you make.
Lee says these computers dominate stock market activity and play a vital part.
Lee: Machine driven trading has literally become some defacto liquidity provider in the marketplace. Which is a very important role to have.
High-frequency trading may make the market more efficient, but it’s not necessarily fair. If you can’t afford a team of PhDs and the most up-to-date computers, you may find giants like Goldman Sachs beating you at almost every trade.
In New York, I’m Jill Barshay for Marketplace.
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