Computers rule Wall Street

Monday, August 15, 2011
By Paul Martin

By Ken Sweet
CNNMoney

The computers have taken over Wall Street, and they’re taking investors on a wild ride.
This week, the Dow swung back and forth more than 400 points on four straight days. Trading volume is at or near record levels.
It’s not fast-talking traders on the New York Stock Exchange behind the action. The majority of trading is done on large server farms based in New Jersey and elsewhere.
“These types of moves are certainly greater than anything we’ve seen in the last 10 years, and it’s absolutely because now the majority of the orders are being done by these high-frequency trading robots,” said Sal Arnuk, co-founder of Themis Trading, an independent brokerage firm.

High-frequency trading, also known as algorithmic or programmed trading, relies on software to determine when to buy and sell shares, usually based on a particular pattern or technical level in the market. These trades can happen several times a minute.
High-frequency trading makes up 53% of all trading in U.S. stock markets, up from 21% in 2005, said Larry Tabb, president and CEO of market research firm Tabb Group. Other estimates put it even higher, at around 65%.

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