In the area of algorithmic trading alone, industry estimates by the Aite Group predict
that by 2010, 50% of U.S., 28% of European and 16% of Asian order flow will be executed automatically via trading algorithms [1]. With about 8.5 billion shares currently being
traded daily in the US this would equate to the automatic trading
of $120 billion of stock in current money terms.
* [1] Algos 3.0, Developments in Algorithmic Trading, Traders Magazine 2007. Special Report.
SourceMedia’s Custom Publishing Group.
Computational Intelligence Magazine, from IEEE
For a very general overview of Algorithmic Trading, hit this Wikipedia entry.
If you want sort of an “insiders look” at all this, head over to Advanced Trader magazine.
To see the very limited amount of research on the impacts, check out these various book resources:
Google Books on Algo Trading
Amazon
I’ve seen almost no analysis of how algo trading impacts economies. WIth 30-50% of the money changing hands in the stock market every day based on these algos, it would seem highly improbably that algo trading isn’t a significant departure from traditional/human-based trading behavior.
How much of these wild stock swings are the result of velocity algos going nutso?
How do we verify the algos do what we want?
Also note that the average trade size has dropped from 1200 to 300 – this matters a lot. Large volume trades typically are indicators to human traders. With large trades vanishing, the data stream is different than it used to be.
If someone has some clear, understandable research (not HowTos) on algo trading theory, send it along.
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