Robo-trading: the superfast stockbroking strategy that affects your retirement funds

Advocates of HFT argue that it provides additional liquidity and so narrows the gap between buying and selling prices. Yet when market conditions turn adverse, HFT firms can switch off their robo-traders and then liquidity vanishes – as we saw in the “fla

The image of a crowded trading floor with brash young stockbrokers shouting into telephones has ceased to be representative of how most financial assets are traded. Most of today’s trading has migrated from trading floors to virtual electronic exchanges. The benefits include a more efficient system, because they provide liquidity and transparency, and also better price execution. However, in the past few years, an insidious new trend, “high-frequency trading” (HFT), has developed and is spreading stealthily.

A few critical factors explain the rapid development of HFT: the increase in computing power available to investment banks and trading firms, for example, and the deregulation of many stock exchanges in the United States and Europe.

HFT firms employ smart programmers to develop algorithms that can assess market conditions and enable computers to issue thousands of buy and sell orders automatically in less than a second. In this world, speed is everything. Certain exchanges are renting space to trading firms to allow them to locate their computers as close as possible to the exchanges, in order to reduce what is known as “latency”.

In another effort to obtain a speed advantage (of roughly six milliseconds), a dedicated transatlantic cable is being laid to connect London with New York.

Some exchanges are also selling real-time price information to the HFT firms, allowing the latter to obtain prior knowledge of order flow. This enables them to place buy or sell orders ahead of the average individual or institutional investor. (This is analogous to being in a line to buy tickets for the theatre and, as you approach the front of the queue, a tout appears ahead of you to buy the last ticket for, say, £30, then immediately sells it to you for £35.)

These speed and information advantages allow HFT firms to reap millions of dollars of low-risk profits by, in effect, “scalping” pennies off each trade. Because of the huge volume of trades, this adds up to billions of pounds overall.

So what does this mean for you and your retirement funds? Advocates of HFT argue that it provides additional liquidity and so narrows the gap between buying and selling prices.

Yet when market conditions turn adverse, HFT firms can switch off their robo-traders and then liquidity vanishes – as we saw in the “flash crash” of 6 May 2010, when the US market fell by 9 per cent in minutes. Even in normal market conditions, the algorithms used by HFT can increase the volatility of stock prices, which in turn affects the price for those investing your pension money.

What can be done? One simple idea is to limit trading firms’ ability to buy and sell in time increments of less than a second, or to impose a tax or tariff on trades that are held only for such a short time frame.

What is certain is that if nothing is done, pensioners who have saved all their working lives will lose out to the robo-traders that determine most of the current action in the stock markets.

Most financial assets are handled in a very different way to this nowadays. Image: Getty

This article first appeared in the 17 October 2013 issue of the New Statesman, The Austerity Pope

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It’s obvious why Thais can’t resist our English footballers. But they want our schools, too

The only explanation is . . . our footer must be great and exciting to watch.

At Bangkok airport, sitting in the Club lounge, as I am a toff, I spotted a copy of Thailand Tatler, a publication I did not know existed. Flicking through, I came across a whole page advert announcing that RUGBY SCHOOL IS COMING TO THAILAND.

In September, Rugby will open a prep and pre-prep department, and then, in 2018, full boarding for ages up to 17. How exciting – yet another English public school sets up a satellite in Thailand.

But I was confused. Just as I was confused all week by the Thai passion for our football.

How has it happened that English public schools and English football have become so popular in Thailand? There is no colonial or historical connection between the UK and Thailand. English is not the Thais’ first language, unlike in other parts of the world such as India and Hong Kong. Usually that explains the continuation of British traditions, culture and games long after independence.

When I go to foreign parts, I always take a large wodge of Beatles and football postcards. I find deprived persons all over the world are jolly grateful for these modern versions of shiny beads – and it saves tipping the hotel staff. No young Thai locals were interested in my Beatles bits, but boy, my footer rubbish had them frothing.

I took a stash of seven-year-old postcards of Andy Carroll in his Newcastle strip, part of a set given away free in Barclays banks when they sponsored the Premier League. I assumed no one in Thailand would know who the hell Andy Carroll was, but blow me, every hotel waiter and taxi driver recognised him, knew about his various clubs and endless injuries. And they all seemed to watch every Premiership game live.

I have long been cynical about the boasts that our Prem League is the most watched, the most popular in the world, with 200 countries taking our TV coverage every week. I was once in Turkey and went into the hotel lounge to watch the live footer. It was chocka with Turks watching a local game, shouting and screaming. When it finished, the lounge emptied: yet the next game was our FA Cup live. So I watched it on my own. Ever since, I’ve suspected that while Sky might sell rights everywhere, it doesn’t mean many other folk are watching.

But in Thailand I could see their passion, though most of them have no experience of England. So the only explanation is . . . our footer must be great and exciting to watch. Hurrah for us.

Explaining the passion for English public schools is a bit harder. At present in Thailand, there are about 14 boarding schools based on the English public-school system.

Rugby is only the latest arrival. Harrow has had a sister school there since 1998. So do Shrewsbury, Bromsgrove and Dulwich College (recently renamed British International School, Phuket).

But then I met Anthony Lark, the general manager of the beautiful resort where I was staying in the north of the island. He’s Australian, been out there for thirty years, married to a Thai. All three of his sons went to the Phuket school when it was still Dulwich International College.

His explanations for the popularity of all these British-style schools included the fact that Thailand is the gateway to Asia, easy to get to from India and China; that it’s relatively safe; economically prosperous, with lots of rich people; and, of course, it’s stunningly beautiful, with lovely weather.

There are 200,000 British expats in Thailand but they are in the minority in most of these British-style public schools – only about 20 per cent of the intake. Most pupils are the children of Thais, or from the surrounding nations.

Many of the teachers, though, are from English-speaking nations. Anthony estimated there must be about five thousand of them, so the schools must provide a lot of work. And presumably a lot of income. And, of course, pride.

Well, I found my little chest swelling at the thought that two of our oldest national institutions should be so awfully popular, so awfully far away from home . . . 

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 27 April 2017 issue of the New Statesman, Cool Britannia 20 Years On

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