High-Frequency Trading

Every twitch of a stock ticker is a deal being struck somewhere on the market. Buyers and sellers compare information and expectations of future value to create fair prices for the exchange of stocks and other commodities.

Information and Market Pricing

Though most economists recognize that human emotions keep markets from being perfectly efficient, our modern exchanges do combine vast amounts of information to help determine workable prices. Those buying want the best value they can find, while those selling want the highest amount others will pay.

Some changes in market prices are the result of efficiency—new information is discovered and is rapidly assimilated, altering the value of assets. Other changes are driven by emotion or poor judgment—fear or greed leading people to pay too much or sell for too little. Traders closely watching price movements cannot always tell which change is which. To them, the market moves randomly.

Download article to continue reading: High-Frequency Trading