Price Discovery

Economists’ Fantasies, Planetary Nightmares

While debating a high frequency trader recently, I encountered the familiar rationalisations that high frequency trading (HFT) contributes to liquidity and price discovery in markets. Assertions about liquidity are hard to justify after the “flash crash” of May 6, 2010, where the “faux liquidity” of HFT disappeared when needed and the traditional market-making obligations of the old specialists were absent.