Trading and Dealing in Security Markets

Compose a 1000 words assignment on trading & dealing in security markets. Needs to be plagiarism free! Investigations showed that the crash occurred due to a single mutual firm fund that sold a large number of contracts worth 4.1 billion USD and this triggered a reaction from HFT machines that quickly dumped their positions thus pulling the Dow index down. The HFT machines then quickly bought stock at the lower prices and this made the stocks rise then dumped the stock and this ‘hot potato’ trading continued until equilibrium was brought in. All this happened in a few minutes due to the fragile and interconnected nature of the market (SEC, 30 September 2010). There are fears that since algorithms used in the software decision making are hidden, it is difficult to asses if HFT amplifies or dampens the market equilibrium prices. HFT also encourages Flash Trading where certain traders can see incoming buy or sell orders for securities about 30 milliseconds before others do. This lead called ‘front running’ allows HFT traders to execute their trading strategy ahead of others (NYT, 8 October 2012). HFT traders also have the advantage that they can turn their machines off when the risks and trends are against them and thus they can cut their losses. Overall, trading is thus reduced to a war of technology and speed of connectivity and the financial software and hardware market was worth 25.4 billion USD in 2011. Terms such as scalping, shorting have become common and HFT run transactions in less than 10 milliseconds (Gsell, 2009). 2.2. Advantages of HFT HFT brings equality in the market and a small trader with a single terminal running powerful HFT software can overcome billion dollar traders.

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