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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[–] wizardbeard@lemmy.dbzer0.com 30 points 2 months ago* (last edited 2 months ago)

It's a benefit to trading companies by allowing them to make marginal monetary gains off the minor stock price fluctations as they occur. Once you pay for the setup it's largely automatic passive income, at least until something happens and you have to mess with the algorithm.

"Free" money, no matter how relatively small, will always be attractive to a certain segment.

There's also the "power"/elitism aspect as this revenue stream isn't accessible to the average joe.

Edit: I'm not saying these are particularly good reasons, but the people with the money make the rules. It benefits them in the form of more money, so there you go.