The typical high-frequency firm earns a profit of well under one-hundredth of 1% per transaction, say traders and analysts.
A tax rate of just 0.01% “would instantly wipe out HFT,” says Manoj Narang, chief executive of Tradeworx, a high-frequency firm in Red Bank, N.J.
With high-speed traders accounting for roughly two-thirds of all volume, such a result would likely be highly disruptive to the market.
Big investors like mutual funds and pension funds contend that they are victimized by rapid-fire traders who move faster and make giant orders harder to fill. U.S. securities regulators have begun requesting internal computer information from high-frequency trading firms.
If you are an individual investor who buys and holds, the main cost you incur in a market dominated by high-frequency trading is psychological: You have to watch, day after day, as billions of shares slosh around at blinding speed and disturbing volatility.