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ELI5: Why is high frequency trading allowed? (lemmy.ca)

submitted 2 months ago by Eiri@lemmy.ca to c/explainlikeimfive@lemmy.world

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I don't see how it's a benefit to capitalism or companies or, well, anyone, really, to allow people to make thousands of trades a day for minute profits on each.

My gut feeling is that the stock market would not suffer, and less resources would be wasted, if trades and updates to stock prices were limited to, say, one batch per hour.

There are probably reasons the system is the way it is though.

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[-] Steve@startrek.website 11 points 2 months ago* (last edited 2 months ago)

HFT is not what you think it is.

High frequency traders are like a grocery store.

Without a grocery store, you would have to drive around to multiple farms to source all the food you want to buy, burning gas all the way and when you get there theres 5 other people fighting over the last egg and bidding it up to silly prices.

HFT matches up buy and sell orders efficiently, and the people who run these operations take a cut. If they take too much, someone else will undercut them in a race to the bottom (which is good for regular customers)