2 Great Articles on High-Frequency Trading and Gold Prices
The May issue of Futures Magazine arrived in our mailbox yesterday. This month's issue sports a new look, including sturdier paper, higher quality photographs and charts, and a fresh new page layout. It's really beautiful. However, it's the content of a few articles that really stood out this month. They clearly have a finger on the pulse of the financial industry.
In fact, we're starting to wonder if the staff at Futures Mag has a crystal ball in their office. Today (May 6, 2010) we saw massive price action and volatility as the DJIA swung down nearly 1,000 points before recovering to end the day down ~350 points. High frequency trading (HFT) and gold were the topics of the day, and in this month's issue, Futures Mag offered some great articles that are exceptionally relevant considering today's developments.
High Frequency Trading
This month's issue has a great article on high frequency trading (i.e. computers that place a high number of trades very rapidly in response to changing market conditions). HFT's can employ a number of fast-order-placement strategies in order to take advantage of market inefficiencies (i.e. big spreads). They are also able to place and cancel orders very rapidly in order to make it appear that there is strong buy or sell pressure when there's really not.
It's a tough, competitive game, but these trading methods appear to be getting more and more common. According to Futures Mag, more than 60% of US equity trades in 2009 were conducted by HFT's although they are used by a relatively small number of firms. If they are driving a lot of the liquidity then big, gapping price moves can occur if they decide to either momentarily stop trading or if they start trading in the same direction.
The Role of Gold In The World
There are 2 articles in this month's issue of Futures Mag that deal with the gold market and the timing could not be better. During today's worldwide market meltdown, the price of gold rose above the $1,200 level and appears to be headed higher as a flight to safety takes hold (gold has always been recognized as an alternative currency and thus is used as a hedge against the devaluation of national currencies).
The first article is an interview with a precious metals expert who has over 30 years in the industry. The interview offers some good information on the history of gold prices, how gold is correlated to the dollar and to the Euro, and the possible effects of regulation on the gold market.
The second article gives some great insight into how gold is valued fundamentally, including a nice set of charts showing the forces of supply and demand.
One of Our Favorite Trading Tools
Futures Magazine has always been one of our favorite trading tools. The articles are well-written and easy to understand, and they tend to be oriented towards the intermediate and advanced market trader rather than the casual investor.
Futures Mag combines insider news about the trading industry with such advanced topics as investor computing, option pricing theory, and quantitative analysis. Whether it's the brainy topic of high frequency trading or the issue of gold as a global currency, they always seem to be out in front of the latest issues to face the financial markets industry.
For the entire Futures Magazine articles, CLICK HERE.