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"The insiders are able to move faster than you," Lewis said on "60 Minutes" on Sunday night. "They're able to see your order and play it against other orders in ways that you don't understand. They're able to front run your order."
The advantage adds up to less than a second -- in some cases a fraction of a millisecond -- but thanks to the powerful computers masterminding the trades, it's enough time to make serious money.
This isn't new, it started in the 1970's with the introduction of computers to the market. It most often affects high frequency trading and/or arbitrage. If you are trying to day trade and arbitrage on small gaps you will lose. It doesn't affect long term strategies and investing that much, outside of stupid moves like the flash crash (and recovery) that triggered automatic sell offs.
This kind of thing is part of basic investing classes and education for quite awhile.
The shock at his comments seem to be more to do with American's basic lack of knowledge of how the market and exchange work. Americans need to better educate themselves in finance in general, so they will not be shocked by basic operations of the markets that have been in place for a long time. I don't think it is right...but it is what it is.
This does not really effect the Mom & Pop investors that want to buy a few hundred shares of stock. If they are utilizing limit orders, it does not matter to them that high frequency traders are front running the large block trades for fractions of pennies. Now to the large institution buyers, yes they should be upset and sounds like they should utilize that newly created exchange. I'm wondering if the BATS exchange will or could install that spool to curb the high frequency advantage, they would not want to loose share if more large traders direct trades to another exchange.
previous post is correct.
1. It has to be jump in and jump out right after that.
2. It has to be big orders, If I placing a 10K order then 0.01% would be just $1 - nobody would be interesting building a complicated system to steal a buck from me. By telling that I do not disregard that there are many hedge funds with much bigger orders.
3. It does not work behind of a day-trading. Even if you place a trade for a couple of days it is already should not bother you a lot.
Much easier would be a system that would allow seeing stop loss orders. Then with small funds (it would be big funds for us but relatively small for a big big player) you may drug the price to the big gathering of stop losses where you would cover your short position and buy at low... Nobody talks about that, but I am pretty sure that there are a couple of big players who does it. Think about the fact that biggest brokerage companies (Ameritrade, optionXpress, eOptions and etc) are powered by investment companies...
Michael Lewis sparked a lot of new controversy over HFT, and he has the right to do it. High frequency trading allows people to make profit without taking the same risks as everyone else. It's just not right and unfair.
Unfortunately the SEC won't do sht about it, because there is nothing to do. HFT will always be here with technology and 70% of all trading that happens is because of HFT.
No wonder the normal joe isn't in the market like he was in the 1990's. It's like a dog trying to compete with a wolf to catch some prey.
Although I must say, he did do a great job promoting his book lol.
Much easier would be a system that would allow seeing stop loss orders. Then with small funds (it would be big funds for us but relatively small for a big big player) you may drug the price to the big gathering of stop losses where you would cover your short position and buy at low... Nobody talks about that, but I am pretty sure that there are a couple of big players who does it. Think about the fact that biggest brokerage companies (Ameritrade, optionXpress, eOptions and etc) are powered by investment companies...
There are systems designed to take out stop losses.
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Michael Lewis Is Right, Market Is Rigged
