Nothing Biblical About High Frequency Traders Feeding on Investors
Market babel and high frequency trading means market insiders use noise and confusion to mislead and create a false reality. All the while they are telling investors the benefits of pickpockets.
Rather than serving the best interest of investors, U.S. stock market controllers, facilitators and intermediaries conspire to take a slice of investor assets. Then these schemers audaciously speak their babel telling you that it is all good for you. They claim you could not have the benefits of a robust market without them getting rich feeding on your assets!
This post continues the White Top View Series, High Frequency Trading. The White Top series began with the 1st post linking to the CBS News program segment on, 60 Minutes, Exposed! Market Rigging and High Frequency Trading. The program put high frequency trading and a rigged stock market on the public agenda. Links to all parts of the White Top View Series, High Frequency Trading are at the end of this post.
The fascinating book, Flash Boys, tells the tale. This well written, superbly researched work by author Michael Lewis, tells investors just how predatory the system has become. Without doubt Flash Boys certainly raised the collective blood pressure on Wall Street!
Market Babel and High Frequency Trading With Double Speak and Nonsense
The Biblical story in Genesis 11 1-9 tells the story of the Tower of Babel. There a common language became many. Then, without the ability to communicate, building their tower to heaven could not continue! We clever humans always look for the easy way!
The plan in Babel was incredibly simple. What better way to get to heaven then simply build a tower to reach it? That project didn’t end so well with the people unable to communicate with one another. They experienced chaos and failure. Ever since that biblical experience, we use babel to describe chaos, noise and confusion. Babel is simply all incomprehensible nonsense communication.
Speaking babel to hide, dodge or obfuscate the truth is well underway in our time. As always, we humans continue looking for the easy way. High frequency traders certainly are well ahead of the rest of us in finding the easy way to certain and huge profits! To keep their schemes secret so the predatory feast can continue, they use babel to explain it to you and me.
Using babel with a straight face they imply that you, me and all others not in on the game do not have minds capable of understanding such complex matters. It remains all part of their smoke, mirrors and nonsense strategy. I assure you there is nothing wrong with my fine mind or my understanding. These perps successfully sell nonsense at a very high price while picking every other picket in the market.
Phantom Arguments sell High Frequency Trading
- Better volumes
- Superior price discovery
- Market making
- Narrowed price spreads
Market babel most often cites these big four ghost “benefits” of high frequency trading, volume, price discovery, market making and price spreads. The implication being that you and thus markets are better off because high frequency trading is a fact of stock market life. It is all nonsense; there is no benefit to you.
Profits are the only benefit of high frequency trading. Those profits are not for you or any other investor. They are from all other investor pockets and deposited into the accounts of high frequency traders. You get none of them. Not now, not ever. The exchanges, banks, brokers and high frequency traders do just fine with this arrangement. But all at high cost to all other investors.
Volume Helping Who?
In today’s markets, huge portions of the total stock market volumes are due to high frequency trading. That claim is correct. The implication being that without high frequency trading, volumes would plunge and markets would stall. We have to look deeper into the babel surrounding this particular ghost. As, on the surface the volume claim seems perfectly logical. However, as so often happen in the market, things are not what the uninformed think they are.
The facts of high frequency trading life are quite different from what you see on the surface. Without orders from real investors, high frequency trading volumes would be zero. All the smoke, mirrors and drama of high frequency trading happens only because, and only after, a real investor puts a real order to the market.
The key point here is that no significant volume happens until real investors place actual orders. High frequency traders react to that information. When high frequency trading technology detects a real order to buy or sell, from a real investor, they race ahead of the order to buy (or sell) that specific stock. Then they turn around and immediately sell it to the investor. That means for every share purchased by an investor, the high frequency trader buys and sells a share.
As a result, the exchange statistics show three shares traded for every share purchased by the real investor. That produces a dramatic tripling of volumes, compared to what would happen without high frequency trading! Yet doing so provides the real investor with no benefit at all.
Virtually all high frequency trading volume depends on finding orders from real investors to prey upon. That is why no high frequency trading activity happens around the very quiet or thinly traded listings. Such listings offer high frequency traders no opportunity to take their significant skim from investor activity.
Thus, only actively traded stocks attract high frequency trading activity. Claiming that high frequency trading activity adds volume that benefits investors is a phantom claim.
Next time we discuss the three other big ghost benefits of high frequency trading.
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Links to the White Top View Series, High Frequency Trading
Part 2: High Frequency Trading and You