Financial journalist Felix Salmon says High-Frequency Trading is changing Wall Street. They’ve become ingrained in the financial system — but are also increasingly complex and difficult to regulate. On Fresh Air today, Terry Gross talked with Felix Salmon who wrote a recent Wired Magazine article.
In the mid-’80s, Wall Street turned to the quants to invent new ways to boost profits. Their methods for minting money worked brilliantly… until one of them devastated the global economy.
“The downside is they don’t have a smell test. They don’t have the basic common sense that most of the rest of us do. So back in May, for instance, we had this incident known as the flash crash, where the stock market plunged over 500 points in the space of about 5 minutes. And no one really knows why that happened.”
Virtually all large asset managers and hedge funds rely to some degree on quantitative methods. By 2010, High Frequency Trading accounted for over 70% of equity trades taking place in the US and is rapidly growing in Europe and Asia.
Steve Kroft from 60 Minutes looks inside the secretive world of high-frequency trading.