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What (If Anything) is Wrong with High-Frequency Trading?

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AbstractThis essay examines three potential arguments against high-frequency trading and offers a qualified critique of the practice. In concrete terms, it examines a variant of high-frequency trading that is all about speed—low-latency trading—in light of moral issues surrounding arbitrage, information asymmetries, and systemic risk. The essay focuses on low-latency trading and the role of speed because it also aims to show that the commonly made assumption that speed in financial markets is morally neutral is wrong. For instance, speed is a necessary condition for low-latency trading’s potential to cause harm in “flash crashes.” On the other hand, it also plays a crucial role in a Lockean defense against low-latency trading being wasteful developed in this essay. Finally, this essay discusses the implications of these findings for related high-frequency trading techniques like futures arbitrage or latency arbitrage—as well as for an argument as to why quote stuffing is wrong. Overall, the qualifications offered in this essay act as a counterbalance to overblown claims about trading at high speeds being wrong.

Springer Science and Business Media LLC

Carl David Mildenberger

Journal of Business Ethics

Title: What (If Anything) is Wrong with High-Frequency Trading?

Description:

AbstractThis essay examines three potential arguments against high-frequency trading and offers a qualified critique of the practice.

In concrete terms, it examines a variant of high-frequency trading that is all about speed—low-latency trading—in light of moral issues surrounding arbitrage, information asymmetries, and systemic risk.

The essay focuses on low-latency trading and the role of speed because it also aims to show that the commonly made assumption that speed in financial markets is morally neutral is wrong.

For instance, speed is a necessary condition for low-latency trading’s potential to cause harm in “flash crashes.

” On the other hand, it also plays a crucial role in a Lockean defense against low-latency trading being wasteful developed in this essay.

Finally, this essay discusses the implications of these findings for related high-frequency trading techniques like futures arbitrage or latency arbitrage—as well as for an argument as to why quote stuffing is wrong.

Overall, the qualifications offered in this essay act as a counterbalance to overblown claims about trading at high speeds being wrong.

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