Video sheds light on high-frequency trading

August 19, 2011

The following is a guest post by Brad Allen, personal finance journalist and founder of The opinions expressed are his own.

Wall Street’s computer-powered, high-frequency traders are getting renewed scrutiny in the current volatile market with some media reports suggesting they are not just profiting from the wild market swings, but making them worse. There’s a new report that the U.S. Securities regulator has subpoenaed high-frequency trading firms in relation to last year’s “flash crash” probe.

This lightening fast micro-second trading buys and sells a few shares of stock thousands of times a second, generating huge profits by capturing just a couple of pennies on each trade – over and over again.

Despite the criticisms, nobody can accuse high-frequency traders of not making every second count.  And to illustrate the point, an investor in Portland, Oregon stretched the thousands of trades occurring in one second out over a one-minute video.

Architect Brian White, a self-described active individual investor, read about high frequency trading on financial blogs.  Fascinated by the lightening-speed trades occurring thousands of times a second, he began to observe trading activity on different websites, watching as the bid/ask trading data flashed across his screen.

“Initially, I was purely interested in the graphics,” he said. The shifting patterns inspired design elements, such as carpets, in his architectural and design work for clients.

White and his associate Dan Arico, “my graphics guy,” then set out to create a video of the constantly changing bid/ask screen. “It became a challenge to graphically show how quickly these things are spinning,” he said. While the trading details were incomprehensible, White realized “your eyes could probably comprehend” the action by following the changing patterns without having to think about it. Their solution:  stretching one second’s worth of trading data into a minute of video.

“The idea is, it’s just a video of lot of things happening very quickly then you get a look at the bid/ask going berserk … in milliseconds.” White estimated that more than 100,000 shares of one unidentified stock were traded during the one second he captured on video. The whole project took less than a week to make and the pair has entered it into the Northwest Filmakers’ Festival to be held in Portland in September.

While he appreciates the graphic potential of high-frequency trading, White is less certain of the benefits to individual investors. A self –described active investor for several years, he said his look into high frequency trading is giving him second thoughts: “I pay a lot of attention to (the stock market.) I’m not big money, but I’m active. I read a lot about it. I wanted to understand more about what’s going on.”

The more he learned about high frequency trading, the more skeptical he became.  “I’m losing confidence in Wall Street. The more I understand what’s going on, the more convoluted the whole system seems to be,” he said. “Somebody like me — a ‘Joe Blow’ investor — sees this sort of stuff and I think I’m being scammed because there is no way I can compete. A guy with a 401K probably doesn’t even understand what’s going on,” he concluded.


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