Money Bots: The Truth Behind High Frequency Trading
Al Jazeera (2021)
With high frequency trading, the performance and value of a company becomes irrelevant – all that matters is competing trades faster than anyone else. With money bots, many stocks are held only a few seconds before being resold.
This documentary concerns the trading “bots” that are programmed to carry out complex high frequency stock trades without any human input. The bots are triggered when conventional traders (eg pension funds) issue large orders. Because they can consummate trades much faster, the bots buy the desired stocks and then sell them to the pension funds at a higher price. Because high frequency trading is totally unregulated, this is perfectly legal.
At times high frequency trading can have real time effects on the whole market, as in May 2010, when high frequency trading caused several stocks on the Mercantile Exchange to crash before the entire exchange was shut down. A second “flash crash” occurred in February 2018, when trading bots caused the Dow Jones to lose 1500 points in a few hours (the highest percentage loss in history)
The most interesting part of the film concerns the computer scientists who developed the algorithms (1991) allowing money bots to instantly capitalize on large orders submitted by human traders. The bots were based on an app they originally developed to predict the outcome of black jack and roulette games.
In all cases, success in high frequency trading depends more on location (as close as possible to the designated exchange) and access to the highest speed networks than on true predictive ability. According to whistleblowers interviewed in the film, the most successful high frequency traders have employed “cheats” of some type.
The film can be viewed free at https://www.msn.com/en-ca/video/movies/money-bots-the-truth-behind-high-frequency-trading-featured-documentary/vi-AAKbJXL