Cool Heads Over Itchy Fingers

05/12/2012 9:00 am EST


Gregory Morris

Sr. VP, CTA, and Chairman of the Investment Committee, Stadion Money Management, Inc.

High-frequency traders enjoy a real advantage over retail investors, but obsessing about that edge is unwise, says Gregory Morris, chief technical analyst at Stadion Money Management.

We’re talking about high-frequency trading with Greg Morris. Greg, what sort of an impact do you see high frequency trading as having made?

Well, actually, in a nutshell I think it’s more of a media event than anything. I look at a lot of charts, a lot of technical measures. I don’t see it showing up anywhere.

I think because of the nature of the fact that these high-frequency traders are getting their quotes fractions of a second earlier than the rest of the world, I think there’s a level of unfairness there that will probably be dealt with eventually. However, as long as they’re generating huge commissions for the investment banks, it’ll probably be on the back burner for a long time.

I think what it is, we see people worrying about it because they think they want to blame something for bad investment decisions. I don’t think they can blame high-frequency trading for that.

It does provide liquidity, but it’ll only provide liquidity in the large-cap stocks that already have it, because these high-frequency traders, I don’t think, are going to trade in small-cap stocks. So that argument kind of kicks itself around, you know. There’s always liquidity in high-cap stocks and everybody says well, it provides liquidity. Well, it provides liquidity in high-cap stocks, so it’s kind of a moot point I think.

Can investors or traders look on a chart and see any impact of high-frequency trading?

I don’t think you can. I like to show a chart sometimes that has no dates, no prices, no names on it, and I say, "What can you tell me about this chart?" Well, they can’t even tell me whether it’s a daily chart, a weekly chart, or a 15-minute chart, and they can’t tell whether it’s a stock or a commodity or market average.

You don’t know anything about it by looking at the prices. You don’t know anything about earnings reports when they come out on that chart. You don’t know when they occurred; you don’t know whether they were good or bad. You don’t know anything about FOMC announcements.

Everybody thinks that all those things move the market. Well, they might for a day or two, but they don’t affect the long-term trends in the markets. So when I see a chart, I just see an uptrend, followed by a downtrend, followed by an uptrend, so…

So if investors who are hearing a lot about high-frequency trading are perhaps scared or angry about this, what should they do?

I think they should probably try to just put it behind them, because there’s nothing they can do about it. There’s absolutely nothing they can do about it.

I mean they can contact their Congressman and express their concerns that it’s not fair, but they can’t do anything about it as far as trading and investing goes. And I think really, they’re worried about something that really probably has no effect on what they do.

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