KBS to investigate high-frequency traders exploiting market gaps
The KBS program Current Affairs Window will investigate the reality of high-frequency trading (HFT) and how these traders profit from market volatility and the panic of individual investors.
KBS1TV will broadcast Current Affairs Window on November 3 at 10 PM to examine how high-frequency traders exploit price gaps. The program investigates how these entities used ultra-short-term arbitrage to profit during the July market crash when individual investor accounts were halved.
KBS1TV will broadcast Current Affairs Window on Tuesday, November 3, at 10 PM.
During the KOSPI plunge this past summer, individual investors fell into a state of panic. While these retail investors were selling at a loss out of fear, others were reaping profits using an entirely different formula.
The program poses a new question: while individual investors press a single order button, who are the entities pouring out thousands of orders to exploit momentary "gaps" in the blink of an eye?
Through interviews with domestic and international capital market experts, financial authorities, and foreign investment firms, the program tracks the reality of "high-frequency trading (HFT)." It explores how "those who know one second into the future" make their money.
A windfall in the hell of retail investors
At the end of May, "single-stock leveraged ETFs" first appeared on the Korean stock market. These products track twice the daily stock price return of underlying assets such as Samsung Electronics or SK hynix, meaning profits are doubled when prices rise, but losses are also doubled when prices fall.
During the market crash in July, the accounts of individual investors were halved. However, at the very moment individuals were gripped by fear, some found a major business opportunity. The program examines what exactly occurred within Samsung Electronics, SK hynix, single-stock leveraged ETFs, and the individual stock futures and options markets.
Three formulas for success that exploit gaps
Contrary to advice to invest long-term based on corporate value, high-frequency traders (HFT) look only at prices. Their weapons are "ultra-short-term prediction" to forecast one second ahead, "ultra-short-term arbitrage" to target moments when prices mismatch, and market "volatility." When the market fluctuates and retail investors throw their stocks away in fear, the resulting "price gaps" become the ultimate prey for these traders.
Managed overseas, but orders are placed next to Yeouido exchange
Foreign high-frequency traders operating on the global financial stage do not reveal themselves clearly. Instead, they use "Direct Market Access (DMA)" by placing dedicated servers in securities firm data centers located within the KT Cloud building near the Korea Exchange in Yeouido. Before an individual can even check market prices on a mobile phone, machine algorithms have already completed their analysis and orders.
The two faces of the umbrella seller
Foreign high-frequency traders refer to themselves as "market makers" who provide liquidity to the market. Much like selling umbrellas when it rains, they claim to provide liquidity when the market is unstable.
However, these entities had no obligation to protect the market. When the government raised investment thresholds at the end of July, causing the number of individual investors to decrease, high-frequency trading in the ETF market plummeted by 60% in just one month. Like an umbrella seller with no duty to stay in place, they receded like an ebbing tide once the rain stopped.
“Those who know one second into the future” will be broadcast on KBS1TV on November 3 at 10 PM.
Covers K-pop for SPECIALTIMES GLOBAL, and also writes Culture and K-Variety stories.
Comments 0
Comments are currently disabled.