How Aequitas thwarts high-frequency traders, explained with Timbits

Flash traders exploit split-second inefficiencies to make miniscule profits. Here’s how they do it

In Joe Castaldo’s feature about Aequitas—Canada’s newest securities marketplace, launching on March 27—he explains the basics of how high-frequency trading works:

Some [high-frequency traders] learned to exploit the time it took for orders to reach the various exchanges to get a picture of the market a split second before anyone else. They could see, for example, that one player was making a large order of stock at, say, $20 per share. They could then race to purchase shares in a different marketplace and sell it back to that investor at $20.01. To do this, traders needed an incredible speed advantage—these trades happen in microseconds—and couldn’t do so without some help from the companies that operate stock exchanges.

How does that look in practice? We asked CB’s Timbit bureau chiefs Cormac and Ella to explain.

READ THE FEATURE: How Aequitas plans to build a kinder, gentler stock market