What (If Anything) is Wrong with High-Frequency Trading?

This essay examines three potential arguments against high-frequency trading and offers a qualified critique of the practice. In concrete terms, it examines a variant of high-frequency trading that is all about speed—low-latency trading—in light of moral issues surrounding arbitrage, information asy...

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Bibliographic Details
Published in:Journal of business ethics 2023-08, Vol.186 (2), p.369-383
Main Author: Mildenberger, Carl David
Format: Article
Language:English
Subjects:
Arbitrage
Business and Management
Business Ethics
Education
Electronic trading systems
Ethics
High frequency trading
Latency
Management
Original Paper
Philosophy
Qualifications
Quality of Life Research
Trading
Citations: Items that this one cites
Online Access:Get full text
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Summary:This essay examines three potential arguments against high-frequency trading and offers a qualified critique of the practice. In concrete terms, it examines a variant of high-frequency trading that is all about speed—low-latency trading—in light of moral issues surrounding arbitrage, information asymmetries, and systemic risk. The essay focuses on low-latency trading and the role of speed because it also aims to show that the commonly made assumption that speed in financial markets is morally neutral is wrong. For instance, speed is a necessary condition for low-latency trading’s potential to cause harm in “flash crashes.” On the other hand, it also plays a crucial role in a Lockean defense against low-latency trading being wasteful developed in this essay. Finally, this essay discusses the implications of these findings for related high-frequency trading techniques like futures arbitrage or latency arbitrage—as well as for an argument as to why quote stuffing is wrong. Overall, the qualifications offered in this essay act as a counterbalance to overblown claims about trading at high speeds being wrong.
ISSN:0167-4544
1573-0697
DOI:10.1007/s10551-022-05145-7