11 Seconds?

The New York Times has an article about high frequency traders, and how they handled the Flash Crash.

It appears that they might have made it worse, because a lot of them just sold everything and shut down their computers when the market drop started.

That's not a big deal, that's what happens when you are in the middle of a panic, even one that only lasts about 15 minutes.

What shocks me is this:

These are short-term bets. Very short. The founder of Tradebot, in Kansas City, Mo., told students in 2008 that his firm typically held stocks for 11 seconds. Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said.

(emphasis mine)

I don't know what is more disturbing, the fact that these guys are buying and selling stocks 5½ times a minute, or the fact that they always make money.

Either they are front-running, they have access to inside information, or they are a Ponzi scheme, just like Bernie Madoff, and my guess is that it's the former. High frequency trading makes its money by seeing large trades, and then using shortcuts to buy before the buy, or sell before the sale.

I thought that this was illegal, and if it is not, then it should be.

Some speculation is unavoidable in any system where you have open investment, but there have to be limits.

H/t The Big Picture, who believes that the claim is "bullsh%$".