In Defense of High Frequency Trading

Though high frequency traders focus on short-term gains, the benefits of their activity are long-term and widely felt because of their role as “market makers,” intermediaries between buyers and sellers who assume the risk of holding an asset until they find another buyer or seller. HFT has reduced trading costs from 7.6 cents per transaction in 2000 to 3.8 cents in 2012 by reducing bid-ask spreads — the difference between a seller’s ask price and a buyer’s bid price. This cost-reduction has improved market liquidity — the speed at which an asset or security can be bought or sold without affecting its price.

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