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Opinion

Slow down

Slow down
June 7, 2013
Slow down

Such short-termism is rife at the moment, and nowhere is this more apparent than in the area of high frequency trading, in which traders use very fast computers to cram thousands of trading days into one. Supporters of HFT say that it is essential for improving market liquidity - forgetting the fact that they were pretty liquid before it even existed. Critics suggest it creates volatility and only benefits the well-armed few.

The rest of us, meanwhile, may even be suffering financial loss as a result. According to a new Australian study, HFT accounts for a fifth of volumes there and is costing the country's retail and long-term investors more than $1.5bn a year by distorting prices for those behind high speed trades in the queue. It's the first attempt to quantify the damage, but regulators still aren't convinced there's a problem. Regardless of the evidence, I'd argue that the reason HFT should be curtailed is more a qualitative one - that HFT just isn't in the spirit of stock markets' true purpose as a source of capital for companies.

Meanwhile, the language of finance seems to change with alarming regularity, too. During my four days of self-imposed exile, a new buzzword has spread like wildfire: tapering.

Tapering refers, of course, to the gradual easing off of QE-related bond buying that's expected to take place once the global economy gets back on track. Speculation over when this may happen is also creating wild market swings.

The expression is, in fact, borrowed from the world of competitive sport - athletes will gradually reduce their training in the build up to a competition to avoid burn out and deliver an explosive performance at just the right moment. Sadly, this is where I think the analogy falls short - the end of 'tapering' is more likely to result in an unimpressive slump than burst of speed. And as for Japan, it's starting to look more like the man who, having done very little exercise for years, heads to the gym for an over-ambitious turn on the rowing machine before collapsing into a sweaty mess.

We were all taught that slow and steady wins the race - and whether you're trying to fix an economy or invest your own money, I still believe that adage will hold true in the years to come; both are marathons, not sprints. Certainly, if you can't go away for a week without worrying about your portfolio, then something is very wrong.