Explain Like I'm Five

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ELI5: Why is high frequency trading allowed? (lemmy.ca)

submitted 2 months ago by Eiri@lemmy.ca to c/explainlikeimfive@lemmy.world

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I don't see how it's a benefit to capitalism or companies or, well, anyone, really, to allow people to make thousands of trades a day for minute profits on each.

My gut feeling is that the stock market would not suffer, and less resources would be wasted, if trades and updates to stock prices were limited to, say, one batch per hour.

There are probably reasons the system is the way it is though.

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[–] JohnDClay@sh.itjust.works 1 points 2 months ago* (last edited 2 months ago)

People would trade stocks with each other in between those hour intervals. It'd become another after hours trading. It might cut down on the change rate though since it'd make high frequency trading more annoying and cumbersome.

But slowing the refresh rate of trading I think would also make it take longer for stocks to settle after a shock. I think the limited trading windows is one of the things driving Bitcoins volatility? Increasing the time between when something happens and when the effect is felt would decrease the damping on the system.

Edit: sorry I missed the eli5, this is not a super simple answer