High frequency trading (HFT) secrets exposed tells how investors learned of rigged stock markets. Like a secret private tax imposed across markets, HFT costs hit investors. That cost shock hit the largest professionally managed funds the most. In fact, those large funds were the prime targets although individual investors were also hit.
What you learn from this lesson:
High frequency trading secrets exposed:
Public exposure of HFT began with a well researched book followed by a prime time TV report. As a result, investors became informed by the media reports of the HFT secret exposed. With those reports investors were exposed to just how deeply HFT had seeped into all markets. By being informed, investors are better prepared to deal with the threat HFT poses to their wealth.
Frequently Asked Questions about high frequency trading secrets exposed
How did investors learn about high frequency trading?
Before exposure, high-frequency traders tried to operate secretly and hide their activity and advantages from investors. However, persistent investigation, excellent research, and quality reporting uncovered many inside deals and high-frequency trading market rigging secrets.
Investors learned how the technology could pick off a small personal account order or any open order from the largest fund managers. Using high-frequency trading technology, these market predators can take a slice of profit from any market order to impact all investors and markets.
How were the high frequency trading secrets exposed?
High frequency trading was a secret market rigging scheme until media reports exposed the plot.
The media exposure made their market rigging public knowledge. It took high-quality investigative journalism, built on ongoing in-depth research, to discover the secrets of high frequency trading.
The excellent media work informed investors about how high frequency traders rigged markets and skimmed investor orders. The scheme skimmed profits from trades of huge pension funds or clipped market orders of small individual investors.
Does high frequency trading affect low frequency trading?
Yes, because high frequency trading can affect all market orders including those of individual retail investors. Market changes let high frequency trading access, prey on, and skim any market order. But knowledgeable investors can eliminate that high frequency trading advantage by switching from market to protected orders. In contrast, large fund managers do not protect their market orders. However, small investors have that advantage over institutions and large funds. As well as individual investors, low frequency trading can also include computers programmed for low frequency trading. Their algorithms trade on longer-term market movements but any market orders generated are also affected by high frequency trading.
Is the stock market rigged by high frequency trading?
Yes, call it rigged or taxed, high frequency trading changes markets and investing. But consider, market rigs, manipulation, and cheating have always been parts of markets and investing. High frequency traders exploit the latest technology for their own advantage. But all through the centuries of stock markets, investors searched for and used technology for an edge. So as wise investors always have, we respond by informing ourselves and learning what actions to take to minimize high frequency trading effects.
How can high frequency trading hurt investors?
High-frequency traders leverage technology and paid-for inside information to profit from skimming investors' orders.
Their scheme targets large market orders of institutional funds and financial advisors but will pick off any individual open market orders.
Wise investors who avoid open market orders can evade these costs.
High frequency trading secrets exposed showed the power of media
First a book and the follow up media coverage produced the HFT secret exposed. That exposure let fresh air into dark corners of stock markets that hid HFT secrets. Uncovering those secret schemes exposed a hidden complex of pervasive and predatory HFT activity.
This lesson includes links to publications, media reports and videos exposing HFT. They show and explain how HFT predators feast on large and small investor orders. That HFT attack affects all investors from holders of the largest funds to small investment orders by you, your family and friends.
The more you know the better. Knowing can help you prepare to manage your portfolio and keep your money away from HFT. That helps you keep money where it should be, working for you, in your account.
High frequency trading finds their largest meals by targeting the biggest investment funds
The largest investment funds take the largest hits from HFT. That is because HFT makes more by feeding on the large trades of the largest trades. Those HFT hits drive large fund costs higher, in effect, picking the pockets of fund clients. Because large funds take more hits from the HFT imposed tax, those costs have more affect on the investors of those funds. That means that HFT costs affect millions of small investors that never even heard of HFT.
The HFT secret exposed came to light from excellent reporting and dogged investigation. It showed an important role of professional media needed to expose the HFT ripoff. The scheme was active under the noses of stock market regulators, but they did nothing. It turns out they were in on the scheme! See lessons 6, 7 and 8 that provide the details.
Technology used to rig stock markets
HFT insiders remained quiet and kept their secret hidden for years. But once HFT secret exposed, their response was to turn on a blather of misinformation. Lesson 11 covers the myth and misinformation response from HFT.
The massive HFT scheme was hatched and grew in silence. At least until the media made sure HFT secret exposed got lots of profile. Those reports first described HFT as one of the most mysterious forces in the market! Critics claim, HFT clips billions of dollars from investor orders across the market.
In the beginning, HFT built their first money making machines on the quiet. They required all in the scheme to keep the projects secret. Over several years, more and more market insiders learned of these schemes. But none blew the whistle on their discovery. Instead they joined in on the predatory greed party. Those greedy schemes and technology grew to spread HFT inside all financial markets.
The word gets out to grow investor awareness
A Pulitzer Prize winning columnist opened the first crack in the wall of HFT secrecy. On July 23, 2009, the New York Times published an informative piece by Charles Duhigg. His work, Stock traders find speed pays, in milliseconds, was the first call to pay attention to HFT.
That first general public exposure of HFT was a heads up to investors. The report said investor orders were exposed HFT. That initial report also said critics claimed possible price manipulations by HFT.
As millions became billions skimmed from real investors large and small, no action was taken. Although the door to HFT secret exposed had been cracked open, few understood and nothing happened.
It seemed that all reacted like I did. That was news from over there, so far away from me. Few seemed concerned. We all remained calm and carried on. Years would pass until broad media attention woke up and informed investors.
Canadian trader exposes market rigging technology
The HFT scheme got real public exposure from the diligent work of a fair minded trading desk manager. Beginning in 2007, Brad Katsuyama noticed his trading screen changed. He did the tenacious digging needed and found the truth. HFT secret exposed was now only a matter of time.
At the time, he was the Global Head of Electronic Sales and Trading for the Royal Bank of Canada. He worked in the New York offices of this major Canadian bank and investment dealer. He realized that something in the market had changed.
HFT secret exposed only happened because he persisted pursuing the truth. The changes he noticed on his screen included order flow and pricing. The orders involved were on the New York Stock Exchange (NYSE) and NASDAQ market. NASDAQ, now NASDAQ Inc., at that time was the National Association of Securities Dealers Automated Quotations. NYSE and NASDAQ are the leading U.S. stock markets. They hold the first and second place in U.S. trading volume and value. In other words, this was the big leagues. Yet there were strange things going on with trades.
The Canadian trader led his team to undertake a relentless investigation. Months of dogged research uncovered how HFT schemes worked. They exposed the shocking details of how HFT worked to rig markets. Both market insiders and exchanges were in on the schemes! Their investigation was a huge step needed before they had the HFT secret exposed.
It turned out many market insiders already knew! The story was real, but those inside the scheme had a natural conspiracy of greed, silence and self interest. That kept the profits high and real awareness low.
Few public investors had any real awareness before the public news of the HFT secret exposed hit the media. That included the sophisticated and well informed investment fund managers. All were in the dark. But that was about to change, soon major media paid attention.
Michael Lewis got Wall Street attention Flash Boys, A Wall Street Revolt
HFT secrets exposed began with the work of Michael Lewis. When this accomplished investigative author discovered Brad Katsuyama, the door to the HFT secret opened. He wrote the book, Flash Boys, a Wall Street Revolt. It tells how the small group of market traders at the Royal Bank of Canada exposed HFT.
“The United States stock market, the most iconic market in global capitalism, is rigged”
As pointed out in the book the HFT scheme hidden in plain sight. Released in early 2014, the book was the product of a year and a half of work. It caused a stir on Wall Street and set loose a hornet’s nest of inside response. But, at first it was a fairly local response.
The loudest responses from market insiders were denials and outright hostility. At first the broader public and media interest seemed limited. But some important eyes were watching and the broader media noticed.
Flash Boys, A Wall Street Revolt
This excellent read is available from Amazon. The Amazon.com description of the Flash Boys includes the following:
“Four years after his #1 bestseller The Big Short, Michael Lewis returns to Wall Street. This report is on a high-tech predator stalking the equity markets.
Flash Boys is about secrets discovered exposing HFT through a small group of Wall Street guys. They figured out that the U.S. stock market has been rigged. And only for the benefit of insiders! Post–financial crisis, the markets have become not more free but less. And markets are more controlled by the big Wall Street banks.
Working at different firms, these Wall Street guys come to this realization. As they discover one another, flash boys band together. They set out to reform the financial markets. They do this by creating an exchange in which HFT will have no advantage.”
The work of Michael Lewis got the attention of informed public investors. Regulators remained unresponsive and no significant changes happened in markets. But a change in awareness was afoot as the story hit the mainstream media.
60 Minutes public exposure high frequency trading
Public interest erupted when media interest increased. Especially after American media giant, CBS, broadcast the story on 60 Minutes. That flagship CBS News program exposed the stock market rigging scheme in a broadcast at the end of March, 2014. Click the link below to view the 60 Minutes segment:
Is the stock market rigged?
Reporting veteran, Steve Kroft lead the excellent 60 Minutes segment. It detailed how HFT uses fast communication technology to clip investor orders. 60 Minutes revealed how HFT systems front run investors after seeing their orders. They manipulate their orders to feed on investors.
The 60 Minutes report made the HFT secret exposed become common knowledge for investors. The HFT predators make money taking one small clip at a time from each investor order. Millions of clips, taking a penny or fractions of pennies at a time, added up to millions and billions of dollars. The scam uses automatic technology to trade stocks at the speed of light. Much faster than you and I can think or blink!
That speed gives a price advantage to these inside market systems. They use that advantage to cut in front of orders from investors large and small. Although exposed in the 60 Minutes broadcast of March 30, 2014, little changed. In fact the scheme grew becoming more than half of the volume of major markets.
Excellent read and in depth report
A Guardian article by Andrew Smith gives an excellent in depth report on HFT. The June 7, 2014, Fast money: the battle against the high frequency traders, piece is worth reading.
Feast on quotes from the work of Andrew Smith on quote stuffing and HFT:
“...technology driven feudalism...”
“...a new wild west running on rocket science...”
“...a market beyond human control…with no meaningful oversight.”
Brad Katsuyama & Michael Lewis talk
We round out our coverage of HFT media exposure with a link to a Churchill Club event. The Churchill Club is a Silicon Valley not-for-profit public benefit organization. Their purpose is to encourage innovation, economic growth and societal benefit. They put on events that ignite important conversations.
In January, 2016 they sponsored an HFT related event. Check this entertaining and informative conversation hosted by Ronnie Bernitsky of Sapphire Ventures. They discuss HFT and the need to respond to it. An Evening with Brad Katsuyama and Michael Lewis. Click to see or for more information search for the Churchill Club website.
YouTube has many HFT secrets exposed videos explaining various aspects of HFT. Click to see: Brad Katsuyama explains IEX and HFT.
Understand to deal with high frequency trading
The effects of HFT market rigging impact you and your financial future. That means HFT has a direct effect on your finances today as well as your future and retirement savings!
Stock market values and trading affects everyone, everywhere. That includes people that think they have nothing to do with the stock market. Every pension, investment fund, government and social program has ties to financial markets. That includes many ties to stock markets.
The effect on people in direct contact with the markets are more immediate. Together we all pay the costs of HFT, like a universal tax. But the gains only flow one way. The HFT schemes gets all the upside.
Regulators have no response
Notably absent from the secrets discovered exposing HFT story are regulators. Where are the regulators? Sadly, few regulators did more than make noises and clear throats.
Major market regulators have taken no meaningful action. The players wizards backing computer trading schemes proposed and paid regulation fees. Regulators collected increased fees, but none made a move to protect public interest.
No regulator seems alert enough to deal with this massive attack on market fairness. It seems no integrity will get in the way of HFT profits.
No sensible informed person believes the market is, or ever was, a level playing field. But high frequency trading has been a huge tilt and gross assault on capital markets.
Don’t hold your breath expecting any regulator response. They will provide no leadership or resolution. The scheme produces far too much money from the markets. Such a great shake down gets the most aggressive defense and the smartest lawyers money can buy. That defense will continue to the last profitable dollar.
The HFT market changed short term and day trading forever. When meek regulators accepted high frequency trading, my short term trading days ended. Now my stock market activity focuses on investing rather than trading. That shift produces income for growth rather than seeking to grow capital.
Investigating high frequency trading
From time to time, there are reports that investigators are probing HFT. For the most part it seems to mean very little. The list is long. It includes FBI, U.S. Securities and Exchange Commission (SEC), U.S. Justice Department and the Attorney General of New York State. Don't stay up late expecting any action. It has been many years with no action.
With HFT well established in stock markets with no regulator action, I expect more of the same. Regulators seem to have nothing but lip service for fairness, trust and transparency. Regulators have enabled, rather than dealt with HFT rigged markets. But hope springs eternal...
High frequency trading response reports began with IEX Group
Responses to HFT first came from Brad Katsuyama and partners. They founded the IEX Group to build a fair and transparent stock exchange. In addition there are a growing number of other responses to HFT. Lesson 12 covers the many developing responses to HFT.
Now You Know: High frequency trading secrets exposed
You know that the public exposure of HFT began with a well researched book followed by a prime time TV report. As a result, suddenly informed investors were shocked by media reports of the secretly developed HFT scheme. One positive result of those reports were investors became aware of just how deeply HFT had seeped into all markets. That first step of awareness helps investors begin the process of becomming informed. Hense, investors are becoming better prepared to deal with the threat HFT poses to their wealth. This lesson was sourced from the Ultimate Guide To Stock Market Investing Success by White Top Investor.
You also know the answer to the question: How did investors learn about high frequency trading?
The HFT secret and market rigging exposed by media reports helped investors know and learn of this threat to your wealth. Quality reporting, persistent investigation and excellent research first discovered and exposed HFT. The resulting media storm informed investors how HFT can pick profits off their trades. In fact, HFT technology can pick off any trade from the smallest to large trades of giant funds. The lesson provided many details and discussion of the high frequency trading secret exposed.
In addition you know these takeaways from:
High frequency trading secret exposed:
High frequency trading secret exposed tells how investors learned of rigged stock markets. Like a secret private tax imposed across markets, HFT costs hit investors. That cost shock hit the largest professionally managed funds the most. It is those large finds that are the prime HFT targets although individual investors also get hit.
- HFT secret exposed uncovered market rigging to the public. Serious exposure came after 2007 when Brad Katsuyama noticed his trading screen changed. The Global Head of Electronic Sales and Trading for the Royal Bank of Canada, did something. He led his experienced team to dig out the HFT truth.
- Charles Duhigg of The New York Times was first to report. Headlined as Stock traders find speed pays, in milliseconds.
- In early 2014 publication of the Michael Lewis book, Flash Boys, a Wall Street Revolt. It tells the Brad Katsuyama story of discovery and response to HFT. That made wall street and many investors aware.
- HFT secrets exposed got public attention when major media took interest. U.S. TV news program, 60 Minutes broadcast 60 Minutes - Is the stock market rigged? at the end of March, 2014. Awareness rocketed, political heads turned and regulators frowned but nothing happened. HFT carried on and grew.
- Investors need to know what to do about HFT. Superior investors need awareness not detailed knowledge about HFT. How to respond and protect your investments are the most important part of the lessons you need to learn. The lessons of this course examine HFT in depth to give you the needed knowledge and answers. That will help make money work for you. Lesson 13 presents a helpful small investor strategy.
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High frequency trading explained, lesson links:
Introducing high frequency trading explained Lesson 1
Racing for profits drives high frequency trading Lesson 2
Markets and technology built HFT Lesson 3
Technology powers high frequency trading Lesson 4
High frequency trading secrets exposed! Lesson 5
Laws and ethics beat investors Lesson 6
Market management burns investors Lesson 7
High frequency trader 3-Way ambush Lesson 8
Fair and foul high frequency trading Lesson 9
High frequency trading strategies, risks and regulations Lesson 10
Misinformation myths of high frequency trading Lesson 11
Markets technology and laws respond to high frequency trading Lesson 12
Investors deal with high frequency trading Lesson 13
FAQ about high frequency trading
Next lesson,
Laws and ethics beat investors
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Lesson code 510.05.
Copyright © 2013-22 Bryan Kelly
Copyright © 2013-22 Bryan Kelly
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