First, there are algorithms designed not to lose money while executing a trade that’s been placed by a human. If you try to buy a large block of shares all at once, for instance, you might find that there aren’t enough potential sellers and you’ll have to wait for others to show up. Other computers may see that you’ve got this large unfilled order and exploit it, perhaps by snapping up shares and selling to you at a profit. To avoid this problem you can ask a computer to slice up your big trade into smaller, more subtle pieces. Then there are algorithms designed simply to make money by finding buyers and sellers with a little margin between them. Third, there are algorithms which find statistical relationships between different shares or bonds, and when the statistical relationship fails to hold - even for a moment - they jump in and make a bet that normal service will be resumed. These are called statistical arbitrage algorithms. So far, so good - it would be hard to find many people in finance who would consider these three types of high-frequency trading to be immoral. But there are two rather more predatory strategies. One is called algo-sniffing. Here, a super-fast computer tries to find other computers going about their everyday business of buying or selling shares, and figures out what they’re going to do and when. The algo-sniffer can then get ahead of the game and exploit the slower computer. And of course you could have algo-sniffer-sniffers and algo-sniffer-sniffer-sniffers in a high-frequency arms race. No wonder speed can be so important. Algorithms play a key part in financial life And finally, a particular sub-category of the algo-sniffer is the spoofer, which deliberately makes fake offers designed to lure other computers to show their hands, then cancels the offers. Spoofing might be illegal, or at least against the rules of stock exchanges, but it’s hard to prove that it’s going on. Andrew Haldane, executive director for financial stability at the Bank of England, is increasingly interested in how high-frequency trading works - and what the future might hold. “What we have out there now is this complex array of multiple mutating interacting machines, algorithms. It’s constantly developing and travelling at ever higher velocities. And it’s just difficult to know what will pop out next. And that’s not an accident waiting to happen, that’s an accident that has been happening with increasing frequency over the last few years.