The Gateway to Algorithmic and Automated Trading

Study by CFTC economist shows HFT firms profit against small traders -report

First Published 4th December 2012

According to a New York Times report, a yet-to-be-released study by the CFTC's chief economist shows HFT firms profiting when trading S&P 500 futures against smaller traders.

In a study that could add to controversy surrounding high frequency trading (HFT), the chief economist at the Commodity Futures Trading Commission (CFTC) has reportedly found that HFT firms make an average profit of as much as $5.05 each time they go up against small traders when trading S&P 500 stock index futures.

The New York Times reported on the yet-to-be-released study, by Andrei Kirilenko of the CFTC, and said the findings are still being reviewed by peers. The paper said the study has already encountering some resistance from academics.

But it also quoted CFTC Commissioner Bart Chilton as saying: "What the study shows is that high-frequency traders are really the new middleman in exchange trading, and they're taking some of the cream off the top."

The newspaper said Kirilenko and his co-authors, professors at Princeton and the University of Washington, chose the S&P 500 contract because it is one of the most heavily traded assets in any market and is popular with a wide variety of investors.

Kirilenko presented a draft of the paper at a CFTC conference last week, where he said the markets were a "zero sum game" in which the high-speed profits came at the expense of other traders, the New York Times reported.

The newspaper also quoted Terrence Hendershott, a professor at the University of California, Berkeley, as saying the study's importance had a limit because it focused on profits and did not take into account the benefits of HFT.