The High-Frequency Conspiracy
NEW YORK ( TheStreet) -- This starts as a review of the stunning book by Sal Arnuk and Joe Saluzzi, Broken Markets, available on Amazon. This book is a super study of the rise of high-frequency trading, those "black boxes" you hear so much about that helped to cause the flash crash in 2010 and continue to dominate much of the volume that you see trading in the open exchanges.
The book does a tremendous job parsing the events that occurred in the last five years that allowed our equity markets to be overrun by computer programs, and why that "franken monster" is robbing you every time you decide to put in an order for any stock, particularly the largest cap, highest volume stocks traded on the major exchanges.
The few firms that control the vast majority of high-speed, high-volume trading programs all pay a premium to gain the edge that they use to siphon off milli-cents from every trade that every retail and institutional customer,
Broken Markets outlines the conspiracy that has emerged between those firms looking for the quickest access to the electronic nexus of trade and the rebates and incentives that exchanges have delivered to entice these black boxes in.I don't use the word conspiracy lightly, but conspiracy is what it is. In the for-profit model that emerged for exchanges in the last half of the last decade, volume and the fight for volume growth has been the lone priority for those equity exchanges. In that battle, they have delivered to a small but powerful group of HFT traders an undeniable number of advantages in trading including rebates and "first looks," as well as accommodations in dark pools and large block orders. To get a full understanding of all of these practices and how they work, please read the book -- but the bottom line is that every investor who decides to engage in the stock markets today is doing it and in effect "paying for the privilege" to these HFT firms -- they literally haven't had a losing day in years. The destruction of investor confidence in this flim-flamming is obvious, what has been less obvious has been the destruction of a fantastic financial services industry in the process: For years, being a stock broker or asset manager or trader in institutional sales was a career worth aspiring to, and a proud one. The rush to HFT by the exchanges has destroyed this industry and destroyed the reputations of those left remaining.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV