High Frequency Trading has taken the spotlight as one the most-maligned practices on Wall Street. Since the Flash Crash of 2010, and more recently, Knight Capital’s brief and near-fatal blowup, there’s been no love lost for “Wall Street’s Doomsday Machine.” From time to time, people ask us what we think about all the hullaballoo. Truth is, we don’t really have much of a dog in this fight. Discussions about the regulation of HFT usually take place in the world of stocks – not our domain.

Beyond that, it’s not really what managed futures is all about. HFT and systematic trend following CTAs both use computer algorithms, but that’s where the similarities end. HFT programs typically issue thousands of orders per second, and frequently hold positions for only a few seconds. Their objective is to profit off of small variations in price – earning a tiny profit on each trade, multiplied over thousands or tens of thousands of trades per day. These HFT programs are usually competing against each other to make these trades as quickly as possible – leading to a virtual arms race of faster computers and connections to the markets.

But for managed futures, algorithms are used in a very different way. Systematic trend following CTAs employ algorithms to help determine their entry and exit points into a trade.  This kind of algorithmic trading isn’t the “10,000 canceled orders per second” variety of HFT. Trend followers are hoping to ride big outlier moves, holding their trades for days or weeks at a time. Algorithms in the world of systematic trend followers are simply the mathematical, pattern-recognizing tools that CTAs use to identify potentially profitable trades.

So, in a world where strict HFT regulations come to pass, we can’t think of any CTAs who would find their strategy in danger. We’re not sure where we stand on HFT overall –there’s credence to both sides of the argument, and the jury is still out on what kind of regulatory oversight, if any, is needed. But as far as managed futures is concerned, their strategies would be unaffected either way.