Following the recent release of Robert Harris’ new novel, The Fear Index, covering the dramatic failure of VIXAL-4, the computer that drives all trading activity at a fictitious hedge fund in Geneva. City AM spoke with GreySpark about the positive effect that high frequency (HFT) and algorithmic trading can bring to financial markets.
Frederic Ponzo maintains that HFT brings liquidity to markets, and that it is impossible to sustain a market making activity on a larger number of products – and with tight spreads – without HFT. He suggests that if it hadn’t proved to be useful, it would no longer exist.
The article goes on to examine the key purposes of HFT, touching on the fact that it’s use in arbitrage removes discrepancy across asset prices and acts as a regulator, balancing markets.
Ponzo also maintains that there have been fewer flash crashes now than there were10 years ago. In 1929 and Black September, computers weren’t around then to cause crashes; in the past they were caused by human beings panicking – crashes were much larger and took longer to recover.