High-frequency trading now accounts for 70 percent of all US equity trading, an all-time record high.

High-frequency trading essentially involves using computerized trading strategies to execute transactions and is characterized by very short holding periods (i.e., less than minute).

The so-called “flash crash” from last May was partially blamed on high-frequency trading.

Although such trading was probably inevitable due to the trajectory of high technology and the internet, some market observers are extremely concerned about the impact of this practice upon the overall stock market.

Joe Saluzzi, co head of equity trading Themis Trading, believes high-frequency trading is turning the financial markets into a casino and more importantly is raising serious questions about the true valuation of securities.

“[The] trading eco-system has changed,” he told CNBC. “No longer do [the] owners of the market set price and find that price discovery point, rather it’s determined by ‘renters’ [that is] hyper-speed traders [with] 22-second holding periods, who at the end of the day they go home and could care less what a company [really] does.”

Saluzzi complained that high-frequency traders are simply “chasing momentum” by exploiting intra-day pricing inefficiencies between asset classes (i.e., options, futures, stocks, etc.)

“[When] institutional holder no longer set [stock] prices you have to question [the underlying] valuations,” he stated. [You have to wonder] is price being accurately reflected?”

Saluzzi added that while most traders and investors are happy that the market has been steadily rising since last August, the problems inherent with high-frequency trading are not going away and could create more volatility and other issues in the near future.

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