High Frequency Trading

Here is an interesting article on the problem of High Frequency Trading(FHT). For those who are not familiar with the term, FHT is a trading action used by large banks that utilizes computer algorithms to instantly recognize key market data and make transactions based on movements in that information, effectively allowing the bank to instantly trade on share price movements. This generates huge profits, as the banks have the capital needed to make a profit on a miniscule price move.

The problem with this system is the huge contribution in market volatility, notably so in the May 6, 2010 Flash Crash, where the Dow Jones nearly instantly plunged six hundred points. I remember this being attributed to a "fat finger", but to me it looked like a near catastrophic failure of this system, which I'm sure has minimal security measures installed.