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High Frequency Trading and Technical Volatility

Thursday, May 6th should go down as a breakdown of our market system.  Six stocks traded at a zero dollar price.  Bid/ask spreads blew out across the board and many options that traded at $.15 spreads were $4 or more as market makers backed away, not knowing what was going on.  I have reports that many trading floors halted trading as they could not explain such a massive spike and vehement selling.  The problem is that hedge funds and banks have sold themselves as “market makers”.  No longer are there people on a floor exchanging trades with known sources, now there are just billions of orders being placed by computers in fractions of a second.  Over 60% of the trading volume is now done by autonomous computers.  Some of these algorithms are trying to make a fraction of a penny here and there, others are written to follow the momentum and push markets further under a snow-ball effect.  I think Dylan Ratigan is more right than wrong, this predatory trading is destructive to our society.  It is fine to make bets within the markets based upon economic views, but it is not alright for markets to be dislocated in such a way that they dictate economics.  Our bond and equity markets are there to serve a simple purpose: to provide capital for productive investments.

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