Some of the links below point to fairly technical discussions of automated trading systems on Wall Street. I’d recommend you read them, anyway. They’ll help you become a better investor in two ways: (1) by giving you a visceral understanding of the dark side of institutional investing on Wall Street, and (2) prove that most of what goes on in the market these days is, quite simply, noise.
High Frequency Trading is proprietary computer trading with the goal of collecting rebates, and/or detecting real order flow (i.e. institutional flow) and frontrunning it and making pennies.
And, yes, frontrunning is illegal, thus explaining why the blogosphere (or at least the geeky investing parts) are aflutter these days with questions about High Frequency Trading.
1 – A quick, simple intro to HFT. Source for the quote above.
2 – Toxic Equity Trading Order Flow On Wall Street. An excellent primer.
3 – Goldman Sachs Loses Grip On Its Doomsday Machine. The theft that launched a thousand blog posts.
4 – What’s The Frequency, SEC? The mainstream media starts asking questions.
5 – Automated Front Running On An Unfathomable Scale. That about sums it up.
Hat tip to ZeroHedge.