“Two recent studies of latency arbitrage suggest the stock-market structure needs a remodel if it’s ever going to stop billions of dollars going from unwitting investors into the pockets of high-speed trading firms,” Rob Curran reports for Fortune.
“‘Latency’ refers to the time it takes for a stock quote to get from an exchange’s server to a trader’s screen. This varies from exchange to exchange and from trading computer to computer. Latency arbitrageurs take advantage of these inconsistencies,” Curran reports. “It’s well known that some high-frequency computer geeks at firms like Getco LLC take advantage of latency, just as it’s well known that some Blackjack-playing computer geeks count cards in Las Vegas casinos. But it’s never been clear how much this type of trading costs the little guy on Wall Street.”
“Terrence Hendershott, a professor at the Haas business school at the University of California at Berkeley, wanted to find out,” Curran reports. “According to his study, in one day (May 9), playing one stock (Apple (AAPL)), Hendershott walked away with almost $377,000 in theoretical profits by picking off quotes on various exchanges that were fractions of a second out of date. Extrapolate that number to reflect the thousands of stocks trading electronically in the U.S., and it’s clear that high-frequency traders are making billions of dollars a year on a simple quirk in the electronic stock market.”
Read more in the full article here.
[Thanks to MacDailyNews Reader “Edward W.” for the heads up.]
Isn’t this what they did in the movie Office Space?
The Corporate structure and by extension stocks exist to provide the capital that businesses need to grow and operate. The structure also exists as a way to liquefy the assets of a business. Both add value to this socio-economic structure. In order for high frequency trading to exist, it should have to contribute some value to the structure. It doesn’t. It is just a way to extract money from humans by using machines that can react quicker than we can.
A privileged few plundering the retirement funds of Millions, and of course it’s all legal and no one goes to jail. Imagine if they got their hands on Social Security
Plundering the retirement funds of millions? Really?
How, exactly? If I buy a stock at $50, and just sit on it, how does it matter what the value of the stock price does until I want to sell? I’m sure you’ve heard the term “paper loss”, right? The stock price *does not matter* except at the point in time that you buy and sell.
As far as high frequency trading, it is not “plundering” anything. Stock prices change constantly, and high frequency traders take advantage of that. Unless you suggest that stock prices become static and change only once a day, or perhaps remove electronic handling of transactions altogether, there’s pretty much nothing that can be done. Besides, high frequency traders are still placing a bet that the price of a stock is trending upwards when they get involved. If it’s trending downwards, they can lose a good deal of value very quickly.
No, but the point if this article is that at a minimum you, as a small investor, will tend to be at a pricing disadvantage when you buy that share, and later when you sell it.
The system as it is now let’s bigger/faster firms rob millions of people a small amount each.
And I for one would *love* to have investment control over my Social Security. I would happily give up all guaranteed benefits from the SSA if I could gain investment control over the contributions made by me and my employers. I’m not a financial professional by any means, but even I can make a better return than what the SSA does. They have to play conservatively with all of their funds. I can adjust my risk down as I get closer to retirement, but have riskier investments (and therefore higher yielding) while I’m younger. Even with low-risk investments, though, I can get a better return than what they offer. I’d even happily agree to continuing the same contribution rates as I do know, and have restrictions on the investments so that I can’t take any of them prior to retirement unless I become disabled.
Millions of Americans would love to have investment control over their Social Security account. And if they did, many would be better off. Especially during boom times. And many others would go broke. Especially during economic downturns.
And the rest of us would have to create a safety net to provide for them so we don’t have dead carcasses of starved citizens rotting in the streets. But guess what? That’s what Social Security is.
It would either be the height of short-sighted right-wing stupidity to gut a safety net and then have to build another to support it. (I know, I know, let them starve, right? The French government tried that just before their heads were removed.)
Why would you assume that everyone is as clueless as you?
It’s fools like you that SS was set up to keep from hurting themselves. If you screwed up and lost it all you would become a burden on someone, somewhere. Maybe society, maybe your grandkids. SS protects society from the burden of impoverished seniors. Putting it into the hands of fools and Wall Street gamblers would be the worst possible waste of resources. Better to just abolish the system, watch one generation of older Americans starve to death and be done with it.
Wall Street is only for cheats, fools and suckers. The best return you’ll ever get is by staying away.
Bitter much?
I’ve invested towards my retirement, and stocks and mutual funds provide a *far* better return than a savings account, treasury bond, or stuffing cash under your mattress.
But, you need to take time and do some research. If you don’t have the time or inclination to learn about it, then yes, of course, you should stay away.
Is anyone surprized by this?
Obscene.
Level the playing feilds by heavily taxing short term traders, gamblers and by disabling gaming advantages.