CHART: The Explosion Of High Frequency Trading Makes The Case For A Transactions Tax

This chart from the markets research firm Nanex shows the absolute explosion in high-frequency trading that has occurred over the last few years. This sort of trading, employed by large global firms like Goldman Sachs, allows for the churning up of quick profits, but with little economic benefit:

As Reuters’ Felix Salmon noted, “The stock market is clearly more dangerous than it was in 2007, with much greater tail risk; meanwhile, in return for facing that danger, society as a whole has received precious little utility.” This makes the case for a financial transactions tax, a small tax levied on stock trades that, while barely affecting normal traders, would hopefully slow down unproductive churning in the markets.

As Center for Economic and Policy Research Director Dean Baker wrote, “if a financial transactions tax reduces the volume of trading, and therefore the resources used by [the financial] sector, without harming the sector’s ability to allocate capital, then it will be making the sector more efficient and freeing up resources for more productive uses.” This summer, Rep. Peter DeFazio (D-OR) and Sen. Tom Harkin (D-IA) introduced legislation to establish a transactions tax.