Price Propaganda: The so called “free market” is controlled by computer programs not people!

What is “High-Frequency Trading”, and How Does It Distort the Markets?

This is a topic that professional stock traders know a lot about, but the public knows nothing about.

Saluzzi explains that 70% of the volume in the stock markets are from computer program trading.

The program traders make money from making trades, regardless of whether stocks go up or down.

Specifically, the program traders collect an average of a quarter of a penny per share every time they buy. Even if they sell it at same price a fraction of a second later, they make another quarter of a penny when they sell. Over billions of trades, this adds up to real money.

The program traders claim that they are providing liquidity for the markets. But they aren’t. They’re simply providing volume (remember, 70% of the volume in the stock markets are from computer program trading). This distorts basic information about the markets, and confuses real investors’ view of what is going on.

But when things are truly bad in the markets, the high-frequency traders will probably pull out of the market until things come down. So when it counts, they will pull out of the market, withdrawing liquidity.

The New York Stock Exchange, Nasdaq and other big stock exchanges rent space on special servers for the program traders, so they make money from this.

Saluzzi says that one way to curb this manipulation and distortion of the markets is to force program traders to wait 1 second between buying and selling a stock. In their make-believe world, a second is an eternity . . . so forcing a 1-second delay would reduce the attraction and profitability of program trading.

Watch the 8-minute interview.

Goldman Sachs is by far the largest program trader in the market, twice as large as the next biggest.

Remember, Saluzzi is talking about a legal trading activity – an activity which is known and accepted among traders and regulators. He is not even talking about other types of programs which can manipulate the market in even more dramatic ways.

 

 

Corporate Media Spotlights Distortion of Market by High Frequency Trading

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer [My Comment: Tyler Durden has shown that Goldman Sachs is by far the largest program trader in the market, twice as large as the next biggest. Tyler also publicized the issue of high frequency trading long before almost anyone else, so I am really just summarizing what he has previously said] …

Yet high-frequency specialists clearly have an edge over typical traders, let alone ordinary investors. The Securities and Exchange Commission says it is examining certain aspects of the strategy.

“This is where all the money is getting made,” said William H. Donaldson, former chairman and chief executive of the New York Stock Exchange and today an adviser to a big hedge fund. “If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage”…

PCs have been unable to compete with Wall Street’s computers. Powerful algorithms — “algos,” in industry parlance — execute millions of orders a second and scan dozens of public and private marketplaces simultaneously. They can spot trends before other investors can blink, changing orders and strategies within milliseconds.

High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profits — and then disappear before anyone even knows they were there…

High-frequency traders also benefit from competition among the various exchanges, which pay small fees that are often collected by the biggest and most active traders — typically a quarter of a cent per share to whoever arrives first. Those small payments, spread over millions of shares, help high-speed investors profit simply by trading enormous numbers of shares, even if they buy or sell at a modest loss…

The rise of high-frequency trading helps explain why activity on the nation’s stock exchanges has exploded. Average daily volume has soared by 164 percent since 2005, according to data from NYSE. Although precise figures are elusive, stock exchanges say that a handful of high-frequency traders now account for a more than half of all trades…

While markets are supposed to ensure transparency by showing orders to everyone simultaneously, a loophole in regulations allows marketplaces like Nasdaq to show traders some orders ahead of everyone else in exchange for a fee…