Michael Lewis’ new book “Flash Boys” is all about High Frequency Trading (HFT.) High Frequency Traders, he says, with advanced computers make tens of billions of dollars by jumping in front of investors. ”
I am not sure “rigged” is the right word. Traders have been trying to get ahead of the “flow” for ages. Its just that technology finally caught up recently and now allows firms to do what they used to do more efficiently. Barry Ritholtz of TBP points out that trading has always been a zero-sum game.
The defense came hard and fast. William O’Brien, president of BATs Global Markets: Its like GM writing a book saying it’s unfair for the automotive industry that Elon Musk created a new car.
High-frequency traders account for 40 to 70% of all trading on every stock market in the US. The numbers for India are said to be similar. And since HFTs only intermediate trades, it is hard for them to lose money. Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years.
How can individual/retail investors protect themselves from getting skimmed by HFTs? First, understand that you can’t avoid them. So stop trying to trade intra-day and lengthen your investment horizon to at least a couple of months. Second, know that the “skim” is a few pennies/paisas and affects you in a meaningful way only if you make a lot of trades.
Josh Brown of TRB:
The stock market hasn’t become rigged, IT STARTED OUT RIGGED.
- High-Speed Traders Rip Investors Off
- It’s a shameful vilification of the entire industry
- Rigged? High Frequency Trading Is Legalized Theft
- Speedy New Traders Make Waves Far From Wall St
- “The Stock Market is Rigged!”
- HFT vs. Punters (stockviz.biz)
- Will the real arbitrageur please stand up? (stockviz.biz)
- Information is not an edge… (stockviz.biz)