If you are a day trader trading stocks to make money, then I would suggest to you that your days are numbered honey. Indeed, 50% of the stock markets volume comes from high-frequency trading algorithms. These computer systems sit in rooms as close as possible to the stock markets computers, often in the same building, and therefore their electrons initiating the trade get there ahead of everyone else. Not only that but these computer systems operate at incredibly high speeds, and they get the information first, and make a trade in real time.
They make trades in microseconds, and they do not hold stocks at the end of the day. I would submit to you that these trading schemes do not provide anything for America’s financial markets. They don’t stabilize markets rather they challenge the stability. On days of high volatility, they make things worse, and in the process they make billions of dollars by scraping the cream off of every trade, and the day trader at home doesn’t have a chance to compete with them. That seems rather unfair, and people are starting to take notice.
Worse, some of the largest banks in the country have set up high-frequency trading rooms with computers to get in on the action. Why should those large banks make loans to small businesses when they can make billions of dollars trading at the head of the line? It’s a much better business model than making loans to small businesses which may be risky. Now then this brings up another philosophical conundrum in that America stock markets were created to help capitalize American businesses and put our country on a proper footing to secure our economy.
In my humble opinion high-frequency trading undermines the market, and it causes a loss of confidence in our stock markets, and therefore causes lower investor and consumer confidence in our economy. About one-third of the performance of our economy happens to coincide with investor and consumer confidence. If we lose that one third, then we cannot expect to recover from a recession. Meanwhile, the frequency trading computers don’t care, and the people that own them are making money hand over fist, obviously there is no incentive for them to stop now. Why would they?
It appears that the regulators are dragging their feet on this issue, meanwhile each and every day more computers, better computer scientists, and more companies are getting in on the action. Which begs the question; are the American stock markets, or other stock markets around the world even legitimate anymore? Or has it just turned into a giant gambling casino run by computers, with humans left outside the loop? I’d like to leave you with that thought, and I hope you will please consider it and think on this.
Lance Winslow is a retired Founder of a Nationwide Franchise Chain, and now runs the Online Think Tank. Lance Winslow believes writing 24,500 articles by August 24th or 25th will be difficult because all the letters on his keyboard are now worn off now..