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Controlling risk in a lightning-speed trading environment

Author

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  • Carol L. Clark

Abstract

A handful of high-frequency trading firms accounted for an estimated 70 percent of overall trading volume on U.S. equities markets in 2009. One firm with such a computerized system traded over 2 billion shares in a single day in October 2008, amounting to over 10 percent of U.S. equities trading volume for the day. What are the advantages and disadvantages of this technology-dependent trading environment, and how are its risks controlled?

Suggested Citation

  • Carol L. Clark, 2010. "Controlling risk in a lightning-speed trading environment," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Feb.
    • Handle: RePEc:fip:fedhle:y:2010:i:feb:n:272
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    File URL: http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2010/cflmarch2010_272.pdf
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    Citations

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    Cited by:

    1. Dorothea Schäfer & Marlene Karl, 2012. "Finanztransaktionssteuer: ökonomische und fiskalische Effekte der Einführung einer Finanztransaktionssteuer für Deutschland; Forschungsprojekt im Auftrag der SPD-Fraktion im Bundestag," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 64, number pbk64, January.
    2. Chakrabarty, Bidisha & Moulton, Pamela C. & Wang, Xu (Frank), 2022. "Attention: How high-frequency trading improves price efficiency following earnings announcements," Journal of Financial Markets, Elsevier, vol. 57(C).
    3. Ferdinand Fichtner & Kerstin Bernoth & Franziska Bremus & Karl Brenke & Christian Dreger & Burcu Erdogan & Hendrik Hagedorn & Vladimir Kuzin & Katharina Moll & Maximilian Podstawski & Jasper Scheppe &, 2010. "Sommergrundlinien 2010," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 77(26), pages 2-28.
    4. Dorothea Schäfer, 2012. "Financial Transaction Tax Contributes to More Sustainability in Financial Markets," Discussion Papers of DIW Berlin 1198, DIW Berlin, German Institute for Economic Research.
    5. Hsieh Fushing & Shu-Chun Chen & Chii-Ruey Hwang, 2014. "Single Stock Dynamics on High-Frequency Data: From a Compressed Coding Perspective," PLOS ONE, Public Library of Science, vol. 9(2), pages 1-12, February.

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