One criticism of speed traders is that they use sophisticated algorithms to detect the moves of big institutional investors and then jump in front of their large orders. Speed traders can then profit from buying and then quickly selling a stock for a slightly higher price to the bigger, slower investor.
Joe Brennan, global head of equity investing at Vanguard Group, the world’s largest mutual fund company, said the majority of high-frequency traders “play within the rules” and even “knit together” the fragmented market by ensuring that prices stay in line with each other across different trading venues. That makes the markets more efficient and lowers trading costs for many participants, he said.