Momentum trading is dead: Here’s why you can no longer trade high frequency trading (HFT)
It’s been almost three years since trading volume for high frequency traders (HFCTs) spiked in the United States, but the phenomenon has persisted despite the rapid decline in the global market.
It’s hard to pinpoint exactly when the market peaked.
In fact, it was just last month that a market crash in China sent a ripple of panic through the global markets, sending prices plummeting from $200 to under $10.
“I believe it was in November that the first signs of HFT started to appear,” said Kevin Lefkowitz, a broker at brokerage Cantor Fitzgerald.
That was the day after the Nasdaq stock market imploded.
“The market had collapsed and then it took off again.”
In the meantime, the trend of high frequency capital controls and restrictions on HFCTs was picking up momentum.
Lefkewowitz told Business Insider that it took “many months” before HFCs began to recover.
“It was a huge shift, but I think the timing was right for it,” he said.
Since the crash, high frequency markets have seen a steep drop in volume, but not a huge one, according to Lefkoowitz.
“We had about 2,000 HFCT trading volumes in February, but then that was just a rounding error.”
Lefckowitz noted that he expects HFC volume to pick up again in coming weeks, but he’s already seen a spike in volume for trading in the U.S. He believes that a spike could occur as soon as this weekend, if not as soon after.
HFC trades are typically used to trade a specific stock.
Traders are allowed to trade stocks on the day of the trading and sell shares on the same day, as long as the price of a particular stock is equal to or greater than the price the trader is trading.
The most recent trading volume spike occurred in February and March when HFC trading spiked, according the New York Fed.
While it’s not uncommon for high-frequency trading to spike, Lefkes warning comes as the trading frenzy over HFC stock is expected to continue.
“What I’m worried about is when this trading frenzy becomes more of a one-way street and people think it’s going to go away,” Lefkosowitz said.
The New York Stock Exchange reported on Wednesday that high frequency trades spiked more than 50% during the first six months of the year.
But the report does not appear to show any specific reason for the spike.
Lefecker said he doesn’t see it as an “existential threat” to high frequency.
The Wall Street Journal reported that the Federal Reserve Bank of New York has been watching the HFC market closely and has warned the Federal Deposit Insurance Corporation about the risk of HFC traders.
“This is an emerging problem that is going to continue to grow and we’re not quite there yet,” Lefeckowitz said, according The Wall St. Journal.