Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Art Cashin on How High-Frequency Trading Has Changed Markets

I recently met up with Art Cashin, director of floor operations at UBS and a regular on CNBC for years, on the floor of the New York Stock Exchange.

One of the biggest changes to hit trading in the last decade is the shift from human traders to computers, or high-frequency traders. Computerized trading has turned the Dow Jones (DJINDICES: ^DJI  ) into a jittery mess, causing several plunges over last few years for no apparent reason.

Here's what Cashin had to say about the change (transcript follows):


Morgan Housel: With the shift away from human traders to high-frequency trading, does that make the market more stable, more prone to volatility? What are the major changes?

Arthur Cashin: Well, you're talking to an old fogey in the business, and having done 50 years, I tend to think that it makes it potentially susceptible to volatility in the sense that you like to have humans in control. I don't think many of the viewers would like to get in an airplane with no pilot in it. The concept of an autopilot is wonderful, but in a stormy sky late in the evening, you like to know that there's some human thought and interaction.

We saw some of that in the now fabled Flash Crash, and luckily because of the human interaction and people questioning, wait a minute. This doesn't look quite right. There's something wrong here. I don't think this person wants to sell this at whatever price. So because of that here on the classic New York Stock Exchange floor, nothing traded at a penny. People stepped in and said, wait a minute. Let's slow it down for a minute. Let's find out what the client really means.

Now this is always a difficult game. As a human trader, you've got to really get a sense of what's going on. If there has been some major event that could cause prices to suddenly turn disruptive, you can't stop completely and independently. You've got to do it within the environment that you see.

So maybe I'm prejudiced in being a human, but I tend to think that having that kind of human interaction benefits. It prevents Chernobyls, financial Chernobyls from happening.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2413757, ~/Articles/ArticleHandler.aspx, 9/26/2016 3:23:16 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,118.52 -142.93 -0.78%
S&P 500 2,148.13 -16.56 -0.77%
NASD 5,264.73 -41.01 -0.77%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/26/2016 2:55 PM
^DJI $18111.06 Down -150.39 -0.82%