Traders Exit High-Speed Lane --- Firms Reduce Use of Computer-Driven Strategies as Volatility and Volume Wane
When stocks collapsed in a free fall last May, the fear was that the market had been taken over by high-speed computers that had run amok.</br></br>A year after the "flash crash," which saw the Dow Jones Industrial Average plunge 600 points in less than 10 minutes, the stock market is a much quieter place.</br></br>Companies that use fast-trading, computer-driven strategies, which were painted by some as culprits of the collapse, have curtailed trading. So, too, have many long-term investors, for whom the trauma of that May 6 afternoon was the final straw after a decade of stock-market turmoil. In their absence, trading volume and volatility have plunged, further deterring high-frequency traders.</br></br>High-frequency strategies "have less to work with, so they don't participate, which creates less volume," said Will Mechem, a managing partner at high-frequency trading firm Pan Alpha Trading. "This would seem to be a vicious cycle."</br></br>In the first four months of this year, average daily trading volume of stocks listed on the New York Stock Exchange and Nasdaq Stock Market is down 15% from 2010's pace, running at an average rate of 6.3 billion shares a day. Volume has been edging lower throughout the year, with April's daily average of 5.8 billion shares marking the slowest month since May 2008.