Computer Algorithms, Market Manipulation and the Institutionalization of High Frequency Trading

The article discusses the use of algorithmic models in finance (algo or high frequency trading). Algo trading is widespread but also somewhat controversial in modern financial markets. It is a form of automated trading technology, which critics claim can, among other things, lead to market manipulat...

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Bibliographic Details
Published in:Theory, culture & society Vol. 33; no. 1; pp. 29 - 52
Main Author: Arnoldi, Jakob
Format: Journal Article
Language:English
Published: London, England SAGE Publications 01.01.2016
Sage Publications Ltd
Subjects:
Algorithms
Errors
Finance
High frequency trading
Institutionalization
Manipulation
Markets
Mathematical models
Program trading
Protection
Studies
Technology
Trading
Vulnerability
information technology
technologization
post-social
virtuality
late capitalism
finance
financial markets
ISSN:0263-2764, 1460-3616
Online Access:Get full text
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Summary:The article discusses the use of algorithmic models in finance (algo or high frequency trading). Algo trading is widespread but also somewhat controversial in modern financial markets. It is a form of automated trading technology, which critics claim can, among other things, lead to market manipulation. Drawing on three cases, this article shows that manipulation also can happen in the reverse way, meaning that human traders attempt to make algorithms ‘make mistakes’ by ‘misleading’ them. These attempts to manipulate are very simple and immediately transparent to humans. Nevertheless, financial regulators increasingly penalize such attempts to manipulate algos. The article explains this as an institutionalization of algo trading, a trading practice which is vulnerable enough to need regulatory protection.
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ISSN:0263-2764
1460-3616
DOI:10.1177/0263276414566642