“After watching Apple’s (AAPL) share price get whipsawed for years by market behavior seemingly disconnected from the company’s underlying value, you could almost hear the jaws drop on Investor Village AAPL Sanity Board last week when Charlie Gasparino used the New York Post’s op-ed page to come to the defense of high-frequency trading,” Philip Elmer-DeWitt reports for Fortune.
“In a piece titled ‘Michael Lewis’ high-frequency bull,’ Fox Business News’ combative senior correspondent slammed Lewis’ new book Flash Boys: A Wall Street Revolt as ‘utterly disingenuous’ and an ‘easy lefty’ take on advances in computer technology that Gasparino maintains have made the markets more efficient and lowered the cost of trading,” P.E.D. reports. “If there is any ‘ripoff,’ he writes, it ‘is of the rich, by the rich.'”
Read more in the full article here.
[Thanks to MacDailyNews Reader “Edward W.” for the heads up.]
Related article:
The market is rigged: Here’s how not to be a victim – March 31, 2014
HFT should be a crime… If you look at it one way, Scalping, it’s already a crime. But white collar crime has no punishment.
Actually, it’s not the frequency of the trade that’s the problem, it’s the velocity. Velocity is what gives lightweights momentum. That’s what the Flash Boys like, fast-moving, low-inertia transactions so they can alter the path to pass through their greedy Mitts.
According to the 60 minutes interview, HFT have the ability to see an incoming order and buy and sell before it hits. That sounds like a clear case of insider trading to me.
It’s actually based upon information transfer times.
Let’s say you’re trading through Chicago and the primary exchange for the items in question is in New York.
If you can get information to Chicago faster (even a few milliseconds faster) than the official system, you can beat the system knowing what’s going to happen before the official board in Chicago does. You launch a trade to beat the system. When the system catches up, you’ve made a few cents (things just don’t move that much in mere milliseconds). Do that a few million times a day and you’ve made a nice profit for the day.
All you need is a network between the two exchanges that is faster than the official system. They do exist and even faster ones (beating the system by even larger {though still exceedingly small} time frames) are being investigated and built.
Unfortunately, this kind of “electronically beating the system” is not illegal. And, unfortunately, unless you have tens of millions to invest to be part of these faster implementations, you’re left out.
This sounds like the system used in the movie The Sting to beat stock tickers
Not all trades are buy orders. Fully 50% are sell orders. HFT benefits investors by making the markets more efficient, not less, reducing transaction costs. Here it is explained…https://www.tastytrade.com/tt/shows/what-else-ya-got/episodes/10450
Furthermore, it’s bold of him to present his thesis that we’re all getting screwed when our markets are at record highs.
That’s our story and we’re sticking to it. If the Velocitraders were legit we’d study it in school. The fact that it’s hidden in the shadows is indictment enough. It has the same effect as insider trading, disadvantaging some players by having information that they don’t have. The fact that the brokerage houses have used their position in the exchanges to sell information about their customers, the fact that they want to buy or sell a stock, instead of just placing the order and executing the transaction invalidates the whole concept of free and fair markets. It undermines the idea of the stock market in every way. Once again the peoples man on Wall Street, the SEC, reveals themselves as incompetent and a bit slow.
I don’t think Michael Lewis is a “lefty” unless that is how he bats. His book did identify a firm that did not have a losing trade in something like 1200 days. That is a pretty amazing record in an “honest market”. As for Chrish1961 mentioning the current “high market” which is purely a function of the federal government pumping on average about 80 billion in “invented money” into the market every month. Apple, certainly one of the top performing companies from a profit and an outlook standpoint, with a very low P/E ratio, is certainly nowhere near a high. I think Apple is one of the most highly targeted companies by the HFT firms because the volume of trading is so high. I am no expert in the markets, but it is amazing to watch it go up and down in significant amounts for no real reason. Someone is making billions on the price fluctuations in AAPL and they benefit from the volatility and keeping it moving.
The problem with HFT is it gives one group an unfair advantage over another group. Therefore, to have a fair market, it should be made illegal.
Or, here’s a better idea, taxed out of existence. The shorter time period you hold a security the higher the taxes should be on the gains. Take the profit out of it and it goes away.
Read up on the latest dispatches from financial journalist Felix Salmon on Lewis’ book and HFT. His critique of Lewis is pretty blistering, and in many ways, spot-on. I’ve read a lot about HFT, and for the little guy, it’s much ado about nothing. As another poster said above, it’s the rich stealing from the rich, a battle of institutions.
But for the long term investor, this should not impact your strategy.
What value is added by the HFT firms? Why is it good for the small investor that more than half of trades made are HFT trades that last for less than a second?
It is amazing how lies are being portrayed as facts or selfish opinion as critical argument. Lastly, these so called unbiased critics take one argument and blow it out of proportion and used that to argue the entire thing is wrong.
How can anyone reasonable without personal gains argue that it is OK for the market to be taxed silently behind the scene. This used to be called “Protection” and right now those who want to stop paying the taxes are being attacked by goons for standing up against it.
Lastly, the stock market being up does not make scalping OK. Scalping did make the market go up; it did not reduce the cost of trades; and it did not reduce the gap between ask-bid, and they certainly do not provide liquidity when they clearly risk nothing when they obtain the stocks only when they know they can sell it to another party at a profit.
Despite what the selfish short sighted people like to say; profit at any cost is not good for our society and leads to short term excess that has long lasting impact on everyone.