“High-frequency traders (HFTs) are engaged in an arms race. To beat their competitors, each is spending increasingly large sums on expensive technologies to speed their trading. If actions are not taken to stop this arms race, investors will be worse off and economic welfare will decline.

Numerous studies – including the recently released UK Foresight HFT project – have shown that transaction costs for both retail and institutional traders decreased substantially with the growth of high-frequency trading. The cost savings are easy to understand. Compared with human dealers, computers have considerable advantages. They have perfect attention spans, follow instructions to the letter, do not allow their emotions to cloud their judgment and they watch and learn from thousands of sources of information simultaneously. Nor do they cheat and they work for far less and require smaller offices. These advantages have greatly reduced transaction costs as many HFTs compete with each other to serve us now.”

***

Read full Financial Times article here