This past week, the Dow swung back and forth more than 400 points on four straight days.  Trading volume is at or near record levels, and the majority of  trading is now done through the phenomenon of ‘High Frequency Trading’ on large server farms based in New Jersey and elsewhere.

High frequency trading is what it name implies: buying large volumes of shares and selling them off quickly to make few cents per share or less in profit. It is also known as algorithmic trading where proprietary formulas on computers look for anomalies in a vast number of stocks and trade accordingly.  These trades happen several times a minute.

 High-frequency trading makes up 53% of all trading in U.S. stock markets, up from 21% in 2005, said Larry Tabb, president and CEO of market research firm Tabb Group. Other estimates put it even higher, at around 65%.

Gary Wedbush, executive vice president and head of capital markets at Wedbush Securities, told Bloomberg News on Friday that more than 80% of the firm’s orders since Aug. 1 have come from high-frequency trading clients, at five times the typical volume.

Nearly everyone on Wall Street is involved in algorithmic trading in some form, Tabb said, including large banks, hedge funds and mutual funds.

“These firms often piggyback on large orders, so it can amplify a stock’s movement,” Arnuk said.

The Securities and Exchange Commission in a report blamed high-frequency trading in part for the May 6, 2010 “flash crash,” when the Dow fell nearly 1,000 points in minutes.