Delays in the system often meant that traders had difficulty completing their

Delays in the system often meant that traders had

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Delays in the system often meant that traders had difficulty completing their trades on time. Badla provided a way around the lack of liquidity in the secondary market by allowing those without enough money currently to still enter into transactions. It was a buying of stocks with borrowed money with the stock exchange acting as an intermediary at an interest rate determined by the demand for the underlying stock 4. Why was badla banned? Was this a good move? It was banned because foreign investors thought it was “out of line” with international practices and because it was thought that a futures and options
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exchange would replace it. This was not a good move because it increased liquidity, and because nothing has been put in place to replace it. C. Read “High Frequency Trading Explained Simply” (17.2) and “How the robots lost” (17.3) and answer the following: 1. What kind of traders are HFTs? What kind of trading do they do? High frequency traders try to profit from the price movements caused by large institutional trades. They buy when the price is below trend and sell when the price is above trend, which tends to reduce the price fluctuations. The trades are executed by computers in microseconds, using algorithms to analyze market conditions and orders to determine moves. They don’t keep the securities, but sell them back moments later. - (short selling) 2. When HFTs started out, whose lunch were they eating? The market makers on the floors of the exchanges who manually posted offers to buy and sell stocks with handwritten tickets. HFTs had a better idea of where prices were headed, and it executed trades within one second, far faster than what anyone else was doing. Whenever a stock’s price changed, HFT computers would trade on the offers humans had entered in the exchange’s order book before they could adjust them, and then moments later either buy or sell the shares back to them at the correct price. 3. Why have profits of HFTs been falling steadily? Trading volume and volatility are essential to HFTs’ profits, and have been reduced by their existence in markets. By seeking out price disparities across assets and exchanges, speed traders ensure that when things do get out of whack, they’re quickly brought back into harmony. As a result, they tamp down volatility, suffocating their two most common strategies: market making and statistical arbitrage. HFTs may also scare away investors with random glitches that cause big losses. It costs more to be faster as more HFTs compete, and regulations have increased with some markets imposing fees and looking into whether it constitutes manipulation. 4. What has been the impact of HFTs on the different types of human traders? On the overall quality of the market?
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