Like any other form of high-speed trading, the Asian markets regard algorithm or "algo trading" with a healthy dose of skepticism. While the potential payoff is great, many Asian traders are concerned about removing the human element and thus unpredictable random factors from the trading equation. The underlying argument is that without a natural base level of volatility in the market, there is too much opportunity to skew the market to best accommodate a given business, such as oil, wheat, or other commodities and services.
Algorithm trading has only been practiced for around fifteen years, beginning when the Chicago Board of Trade permitted traders to engage in high-speed trading. This trading relies on algorithms and computer analysis, rather than human monitoring of a given market. It is much faster than human-based trading, with trades being brokered at speeds that beggar the imagination, such as milliseconds and even micro seconds. While most of these trades do not yield significant returns individually, the fractions of a base unit of currency each trade realizes translate into significant gains and losses over the course of a trading day.
Because of the newness of the technology and some of the questionable effects it could have, such as the so-called "Flash Crash" of 2010, the Asian markets have been slower to embrace algo trading than their Western counterparts. In America, this type of trading accounts for over seventy percent of all trading accomplished on the New York Stock Exchange every day. In Europe, these numbers top fifty percent. Currently, the Asian markets report less than fifteen percent high-volume computerized trading per day.
Algorithm trading is slowly gaining in popularity, but many market analysts based in Asia regard the underlying technology as too unreliable and unproven to be worth the inherent risks. Market volatility and destabilization are specters frequently raised when the issue of high-speed trading is broached. However, one may argue that the ability to react smoothly and fluidly to changing market conditions at the same pace as America and Europe may well be the only way to ensure Asia's place within the global financial constellation. As technology becomes faster and human error is removed almost entirely from the trading equation, Asia is faced with the thorny problem of whether it is more appropriate to retain their autonomy from computerization on the trading floor or if by doing so they risk jeopardizing Asia's standing as a global financial Goliath.
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