Nasdaq passes a new high

The NASDAQ composite index has passed a new high, leaving the record set during the dotcom bubble way behind. But it is interesting to compare the fortunes of NASDAQ with the story of high frequency trading.

In fact, the origin of high-frequency trading can be traced back to the late 1990s, the period when the dotcom boom was gathering ever more momentum, and the NASDAQ was soaring.

The US Securities and Exchange Commission authorised electronic trading in 1998. In that year, the NASDAQ composite peaked at just over 2,000.

By the following year, 'high frequency trading' was taking place, but it took several seconds to execute a trade.

The NASDAQ peaked on March 10 2000, with an end of day high of 5,048. Then it crashed, falling by some 75 per cent over the next 18 months. It then gradually began to recover, before crashing again in late 2008 and early 2009.

But the period of the dotcom boom did see massive investment into internet companies, and also technology in general. Although dotcoms crashed, the legacy of that investment remained.

Maybe the investment of that period accelerated technological evolution, making the high-frequency trading speeds that we have become familiar with today possible.

The NASDAQ finally passed its dotcom record in April 2015, before falling back. It then climbed back, hitting new highs, for example on Tuesday, 15 August 2016, the NASDAQ Composite closed at 5,262.02, a new record closing price.

Meanwhile, the latest technology is enabling high frequency trading in nanoseconds – where a nano-second is one billionth of a second.

Some have argued that the recent jump in the NASDAQ to a new record shows that the promise of the dotcom era has now been realised. What is clear is that some of the technology advanced since then has made it possible to have high frequency trading an order of magnitude faster than that seen during the dramatic period of the dotcom boom. But then again, maybe the dotcom boom made it possible.