By Leah McGrath Goodman
A full two years after a trader, during a quiet lunch hour, engaged the algorithm heard round the world, Wall Street is finally accepting the inevitable and necessary presence of high frequency traders. Parallel liquidity crises in both the stock and futures markets that culminated in the flash crash of May 6, 2010, were widely blamed on high frequency trading, yet most fund managers readily admit there’s no turning back from price swings that are now nearing the speed of light.
||(Illustration by Brian Cronin) |
“High frequency traders can do a lot more work for a lot less money,” says Michael Mendelson, principal and portfolio manager at Greenwich, Connecticut–-based AQR Capital Management, a $52 billion asset manager that employs quantitative methods in most of its investment strategies. Mendelson, who headed up quantitative equity trading at Goldman Sachs Group before joining AQR in 2005, estimates...