Don’t you love that image of the shark, which is so befitting this article titled "High-Frequency Trading?" It evokes a sense of danger and rush that teeters on the edge. The man seems perfectly calm as he was pictured with the shark. See Sharkman demonstrates how to tickle a shark - and not lose your fingersif you need a distraction.High-frequency traders, just like short-sellers, often get a bad rap. I believe these activities do play a part in providing liquidity to the market. After all, why do they state that the upside risk is high short interest ratio? Or to put in another way, if all of us are buying to the climax, who else is going to buy? There has to be a balance of power somehow in order for the efficient market theory to work.
If a high-frequency trader were to push your stock price well below your intrinsic value, and you profess yourself as a value investor, then you should buy! Stick to your conviction and your purchase will be the key support level delineating on the stock chart.
In essence, just like the man pictured with the shark, if you know how to control your risk, derivatives are not that dangerous at all. Similarly for high frequency trading, if you have clarity in your investment process, a sharp precipitous drop in your beloved value stock should not deter you from buying.
See a great article on HFT, If You Hate High-Frequency Trading, You Should LOVE Dark Pools
(Excepts below copied in verbatim)
First, all dark pool trades, like any other trades, are required to be reported to the tape within 90 seconds. Second, all dark pool trades, like any other trades, in accordance with Reg NMS, are required to take place within the inside market - the NBBO - national best bid/offer. So, no matter how much Karl Denninger would like to construct an example where a stock is trading at $10 on the "open exchange" and there is a seller in a dark pool willing to sell shares at $9.90, which are instantly snatched up by Goldman Sachs (GS) for $9.90 to resell to the open market at $10 — that simply does not happen. The dark pool either routs the seller's order to the open $10 bid, the stock trades at $10 or better in the dark pool, or no trade takes place.
Third, and most importantly, trades in a dark pool, or in any other marketplace, only happen when there are matching supply and demand for shares at a given price. One misconception is that dark pools somehow unfairly allow buyers to buy large blocks of stock without moving the price. Huh? Yeah — they can buy large blocks of stock if there is someone willing to sell large blocks of stock. Otherwise, they can either raise their bid in the dark pool until they find liquidity, or not buy shares. It's impossible to buy "large volumes of shares" at "small volume prices."
An erroneous critique related to this third point is that "large supply of stock should make prices go lower in an open market." David Weidner's column on Marketwatch gives an example of this common thought error:
I believe it's totally consistent to have the view that both dark pools and high frequency trading algorithms which exploit the bids and offers they see on open exchanges are ok. However, I think it's logically impossible to be against both these pattern mappers and the dark pools which enable other traders to hide from them. Furthermore, I believe it's clear that individual investors are not disadvantaged by dark pools, and elimination of dark pools would result in higher execution costs.
