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Mike Konczal has a nice primer over at the Atlantic about high frequency trading.  You’re likely to hear a lot more about this subject in days to come, so it’s worth a few minutes to head on over and read it.

There are two aspects of HFT that are drawing attention.  The first is just the basic effect of ultra-fast, high-volume trading on equity markets in the first place.  The second is “front running,” the allegation that big players are able to gain access to stock prices a few milliseconds before the rest of us via flash orders, thus allowing them to enter orders early and make guaranteed profits.  Konczal’s conclusion:

As the debate unfolds, remember to ask yourself, (1) whose information is being exploited by whom and how, (2) does this make financial markets stronger and more efficient — say by providing liquidity — during a downturn when markets need them the most, and (3) what is this doing to the price mechanism — is it helping prices converge to fundamental values or driving them further away? The evidence currently looks like HFT is doing bad things on all three accounts.

As Konczal points out, if you ask the HFT community what benefit HFT provides, the answer is usually “liquidity.”  But this is an answer that should be treated very skeptically indeed.  Major stock exchanges are not notably illiquid except under very specific, limited circumstances, and HFT traders aren’t obligated to provide liquidity under these circumstances anyway.  And they won’t.  They’ll just flee, like everyone else.

So: cui bono?  As near as I can tell, HFT is just a pure, artificial money spinning machine with no value at all to the wider financial community.  In fact, as Konczal points out, it’s quite likely to make markets weaker and less driven by fundamentals.  This is worth keeping your eyes on.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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