1) High Frequency Trading Programs account for 70% of market volume
High Frequency Trading Programs (HFTP) collect a ¼ of a penny rebate for every transaction they make. They’re not interested in making a gains from a trade, just collecting the rebate.
Let’s say an institutional investor has put in an order to buy 15,000 shares of XYZ company between $10.00 and $10.07. The institution’s buy program is designed to make this order without pushing up the stock price, so it buys the shares in chunks of 100 or so (often it also advertises to the index how many shares are left in the order).
First it buys 100 shares at $10.00. That order clears, so the program buys another 200 shares at $10.01. That clears, so the program buys another 500 shares at $10.03. At this point an HFTP will have recognized that an institutional investor is putting in a large staggered order.
The HFTP then begins front-running the institutional investor. So the HFTP puts in an order for 100 shares at $10.04. The broker who was selling shares to the institutional investor would obviously rather sell at a higher price (even if it’s just a penny). So the broker sells his shares to the HFTP at $10.04. The HFTP then turns around and sells its shares to the institutional investor for $10.04 (which was the institution’s next price anyway).
In this way, the trading program makes ½ a penny (one ¼ for buying from the broker and another ¼ for selling to the institution) AND makes the institutional trader pay a penny more on the shares.
And this kind of nonsense now comprises 70% OF ALL MARKET TRANSACTIONS. Put another way, the market is now no longer moving based on REAL orders, it’s moving based on a bunch of HFTPs gaming each other and REAL orders to earn fractions of a penny.
First of all, post 8 contained the most accurate info out of all the comments thus far.
I trade large accounts. What’s strange to me is that most of the people commenting reak of some kind of entitled mentality. What makes you deserve to earn money in the stock market? Who told you that if you stuffed your money into it you would see growth in your account? Do yourself a favor and read Bear, or Fooled by Randomness. People that make a substantial amount of money trading securities are not buy and hold traders. Traders who make money in the markets are the ones who exploit the market. If you think this is unfair… Well too bad. It is what it is. The market does not owe you anything. Either spend time learning how it works, or get eaten by the market and all the automated trading that goes on in it. (by the way, to avoid most of the ‘problems’ that are caused by automated trading, just trade higher time frames) Unfortunately most of you reading this lack the constitution to become experts in the field.
Post Script:
Do yourself a favor and discard the buy and hold mentality. It is no way to secure your financial future.
“real” financiers get their money as part of the IPO and directly thereafter. After that, large account traders are called in to glean the tall wheat. Crumbs for the rest of us.
31,
The Stock market is SINK OR SWIM, and all the stuff in the middle..
UNDER that ideal… SINK THEM..
They KNEW the risk…SINK THEM..
#31 You reek of an entitled mentality.
Stock markets are supposed to put money with productive investments. If, as you say, it is all about momentary advantages that purpose is lost. The financial industry used to be subordinate to production and not the other way around. I think the old way was better.
Of course the little guy often gets shafted in markets due to information imbalances and poor understanding of risk. That isn’t the point.
In the tech bubble many useful things were produced, but everyone went a bit too far believing their own hype. The same thing is true today in finance.
#34 – well said.
BEFORE Utilities were released to the OPEn market..
they were regulated.
AS a utility they made profit and used it to fix everything and pay everyone.
AFTER the dereg, they went to the stock market..WHY? To make money? HOW?? by investments or investors??
AS an investor, you want your investment to GO UP..to GO UP the product has to increase value, the ONLY way for Utilities to be worth more..RAISE THE PRICE of GOODS to raise profits, SO YOU CAN PAY INVESTORS??
Strange. as I see it, without investors, they WOULD HAVE MORE MONEY..