[MRSallee]

Disclosure: I know almost literally nothing about trading stocks. (The following will likely prove it.)

Seems to me that automation should be a massive benefit to everyone in stock trading, except for the folks whose jobs are directly displaced by it.

The relatively small number of people in this profession command massive salaries, largely because of their position as a bottleneck for financial dealings. They are gate keepers, highly educated gate keepers, and their relative scarcity means that the management of money is really, really expensive.

If algorithms can do the job, well, it's much easier to duplicate an algorithm. Shouldn't automation increase competition, the expertise and leverage of a relatively small and powerful employment sector duplicated and spread out, to the point that the cost of trading stocks becomes essentially zero?

So while my 401k may be run by a human hedge fund manager who's competing against automation, and is likely to lose this "battle against the high frequency traders," shouldn't I hope that my hedge fund manager is replaced by automation, rather than finds a way to beat it (or make it illegal)?

[shaftway]

The point isn't that an algorithm is doing it. It's that algorithms are actively poisoning the system with orders that couldn't possibly trade. By stuffing the pipe with these orders, timely information to other traders is delayed; the article states that the delay can be on the order of 30 seconds.

If I'm spending a half billion to colocate in an exchange's data center because it'll trim a few microseconds off my data transit time, I'd be pretty pissed if I was suddenly delayed by 30 seconds.

[tutufan]

Indeed you would. Which is why this sort of illegal behavior rarely happens. (Keep in mind that none of this is anonymous or forgotten--the exchanges and SEC know exactly who did what when.)