Is working at HFT's Halal?

Everyday Islamic Finance Business and Career Questions
#1

Alsalamalaykum,

I am writing to ask if any of the mufti’s here have any fatwa’s or insight on working for high frequency trading firms (Jane Street Capital, Hudson River Trading, Optiver, etc…) as a software engineer or an algo developer?

For example, HRT’s main purpose (according to their website) is to provide liquidity:
As a liquidity provider, HRT develops automated trading algorithms designed to provide the best prices to our clients. Our diverse trading strategies allow us to provide substantial liquidity across a variety of time horizons. HRT enhances our clients’ execution quality by customizing our liquidity to provide meaningful price improvement and maximize fill rates. We earn our partners’ trust through the accountability and transparency that a disclosed trading relationship fosters.

and an Algo Developer would be doing the following:

Algorithm Developers are responsible for building and maintaining the models that drive our trading. A typical day involves applying rigorous statistical analysis to vast quantities of market and financial data to produce provably predictive trading models. You will run models live on our high-performance trading infrastructure, and analyze their daily performance to maintain ongoing profitability. Working in close collaboration with fellow algo developers and core developers, you will research, develop, and test novel order execution and model training methods to increase trading efficiency.

Looking forward to hearing you answer.

Jazakum Allah Khair.

#2

Assalamualaikum,

I am not a mufti or a scholar, but I do have many years experience trading in the financial markets.

Many HFTs strategies are manipulative and predatory in nature. They use their algos, and superior bandwidth and computer power to:

  1. locate cluster of orders in the exchange,

  2. they trip/fill the orders to create artificial demand or supply, depending on whether the market is rising or falling, and

  3. they immediately enter orders on the opposite side of the market to take profits.

HFTS usually operate during pre-market and opening sessions, driving market sharply up or down for the day, creating huge gaps on the daily chart. If you see this type of price action, they usually reverse sharply the following trading sessions, because the action that initiated them are artificial with the primary motive to “trick” retail traders and capitalize on their herd mentality.

As such, I believe this kind of activity is prohibited in Islam. You can watch the video linked below to get a better understanding on different key players in the market.

Allah Knows Best.