The ongoing volatility of stock prices on the Tokyo market has been attributed to the use of high-speed computerized trading with artificial intelligence. This technique, also known as high-frequency trading, is utilized by institutional investors to place a large volume of orders. While it provides convenience in buying and selling shares, it is believed to be a contributing factor to the volatility observed in stock prices.
High-speed trading involves the automatic placement of thousands of buying and selling orders every second. These orders are based on various factors such as stock prices, indexes, and even words used in online news. By leveraging AI technology, traders are able to process a vast amount of information and utilize it as a valuable resource for making trading decisions.
In Japan, high-frequency trading is primarily employed by European and U.S. hedge funds, and it constitutes more than 60% of the total number of orders placed and about 40% of the total value of stock sales on the Tokyo Stock Exchange, as stated by the Financial Services Agency.
Experts have raised concerns regarding the impact of high-speed computerized trading on stock price volatility. One expert, Professor Nakahiro Yoshida from a renowned university in Tokyo, suggests that these trading techniques may exacerbate the fluctuations in stock prices. He argues, “The rapid and automated nature of high-frequency trading can amplify market movements and create an unstable environment.”
On the other hand, proponents of high-speed trading argue that it brings liquidity and efficiency to the market, benefiting both investors and companies. Mr. Takashi Tanaka, an industry specialist, states, “High-frequency trading allows for quick execution of orders, reducing transaction costs and providing market liquidity, which supports the stability of the market.”
The Tokyo Stock Exchange and regulatory authorities are not oblivious to these concerns. They have been closely monitoring high-speed trading to ensure fair and orderly markets. The Financial Services Agency has implemented measures such as circuit breakers to temporarily halt trading in the event of extreme price swings. These measures aim to mitigate the potential risks associated with volatility in stock prices.
