Report: HFT costs ordinary Australian investors $1.5B per year


Ordinary investors Down Under are losing an estimated $1.5 billion each year due to the effects of high-frequency trading, according to new research.

Lobbying firm Industry Super Network (ISN) came to the figure by taking a quarter of all share market trades and multiplying that by the average spread between the bid and offer price of Australia's top 200 stocks. ISN claims that this spread is what ordinary investors could take advantage of if there was no HFT in Austalia's markets.

But the findings are under dispute. Dr. Alex Frino from the Macquarie Graduate School of Finance is quoted saying the report wrongly assumed HFTs are extracting the bid-offer spread from everyone on every trade.

"Just because they are benefiting from the bid-offer spread does not mean that they are ripping value out of the market. It offers a reward for ­providing valuable liquidity in the ­market," according to Frino.

HFT is a serious subject in Australia, which is a mature market that managed to avoid much exposure to the credit crisis of 2008 thanks to its keen risk mitigation practices. Almost every week a new headline appears about concerns over HFT, which is the trusted method of trading stocks with ambitious firms and funds in the U.S. and the United Kingdom. According to media reports, the Australian Securities and Investments Commission decided last week that it wouldn't proceed with plans to place speed limits on small trades.

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