Brian King compares 1980s trading floors, where brokers made fat profits on wide bid-ask spreads, to today's high-frequency trading. Spreads shrank to pennies, killing per-trade margins and forcing traders to chase volume instead. Now computers execute millions of trades daily at scales no human could match.
if you looked back to the '80s, you could sometimes drive a truck through the spreads in stocks that were trading on the floor of the exchange, right? The floor brokers were making, you know, a lot of money. But then when all of a sudden automated trading started to happen and then they changed the spreads to where now you could actually trade in pennies, it really compressed how much money they could make. So then it turned into volume. So high-frequency trading is because now people are saying, maybe I can't make this giant spread, but now I make that smaller spread, but just many, many, many times over. And over. That's how they were able to make their money. But in order to do millions of trades in a day, it has to be a computer doing it.
