Friday, July 24, 2009

Traders Profit with Computers

The New York Times is running an article entitled, "Stock Traders Find Speed Pays, in Milliseconds." The article states, "Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense."

The article addds, "The rise of high-frequency trading helps explain why activity on the nation’s stock exchanges has exploded. Average daily volume has soared by 164 percent since 2005, according to data from NYSE. Although precise figures are elusive, stock exchanges say that a handful of high-frequency traders now account for a more than half of all trades. To understand this high-speed world, consider what happened when slow-moving traders went up against high-frequency robots earlier this month, and ended up handing spoils to lightning-fast computers."

1. If the old adage is true that it takes money to make money is it fair that those who can afford faster computers can make more money on the stock market? Why or why not?

2. Could an argument be made that individuals who hire traders to trade for them stand a better chance of earning profits than those who trade for themselves, therefore people should not be allowed to hire traders to work for them. Why or why not?

3. Is it important for all individuals who want to trade stocks to have complete equality with one another? (What does complete equality even mean?) If it is impossible to attain complete equality, in what kinds of inequality would be acceptable?

4. Today people have an advantage if they use faster computers to trade. Think one hundred years into the future. What kind of technology will give people an advantage over others in the marketplace?

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