High-frequency trading emerged as a huge issue in 2009. And despite a lot of controversy and misunderstanding, it will continue to set the pace for trading leaders in 2010.

In a new report, Celent estimates that about 42 percent of domestic equity share volume "is related to high frequency trading by proprietary trading firms, hedge funds, and automated market makers." Proprietary trading firms account for about 48 percent of this volume, followed by hedge funds at 28 percent and automated market makers at 24 percent.

The issues here are pretty complex. The report does us a favor by summarizing the pros and cons. The pros are fairly obvious by now: "increased liquidity provisioning and narrowed spreads among certain stocks, faster speeds, and more volumes to U.S. exchanges." The cons: "increasing volatility in some stocks" (which may be seen as a positive for some), "adverse selection for some market participants, and "higher implementation shortfall costs." Conclusion: "on balance, HFT seems to create some very positive affects, while at other times problems related to a lack of concurrent responsibilities from market participants lead to some undesirable outcomes."

For more:
- here's the report

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