* U.S. crude shows high correlation to equities
By Emma Farge
GENEVA, March 21 (Reuters) – High-frequency traders have caused U.S. commodity futures prices to disconnect from market fundamentals of supply and demand since the 2008 financial crisis, according to one of the authors of a forthcoming U.N. report.
Also known as black-box players, they plug algorithms into computers to generate numerous, lightning-speed automatic trades that are designed to make money from arbitrage on razor-thin price differences and movements.
An increasingly high correlation between commodities and equities, caused largely by high-frequency traders, means that prices for oil and other U.S.-traded contracts are more exposed to "sudden and sharp corrections", said a draft report seen by Reuters.
High-frequency trading is estimated to account for over half of all U.S. equity trade volumes and a smaller but rising share of commodity futures trades.
The study suggests that these players have penetrated deeply into energy and agricultural markets with the growth of electronic trading.
Keep reading: INTERVIEW-High-frequency trading distorts commodities prices | Reuters.
