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Every investor is a victim of the fraud known as high frequency trading.
But when bestselling author Michael Lewis speaks about the “legalized front-running” of orders on the market, he isn’t talking about every single order. Front-running every order may be possible, but it wouldn’t be lucrative.
Instead, high-frequency traders make most of their money from large institutional investors: mutual funds, ETFs, hedge funds, endowments, and pensions. They’re front-running large block trades of at least 10,000 shares.
When you place an order to buy 5 shares of Google (Nasdaq: GOOG), there’s probably not a high-frequency trader running in front of it.
When Vanguard decides to purchase 75,000 shares of Altria (NYSE: MO), the dynamic changes. And those traders will use their technological speed advantages to turn a quick profit.
But there is also an upside for the institutions.
It’s no secret that the big institutions with direct financial ties to an exchange or dark pool, also benefit from high-frequency trading. The large volume of commissions and having access to market data before everyone else lend to unruly financial benefits. There is no doubt the system is flawed when those willing to pay exchanges the most money for timely information reap the greatest rewards financially.
Free markets are founded on the concept that every investor, no matter how big or small, has an equal opportunity to make money. According to Michael Lewis, high-frequency traders are essentially bribing the stock exchanges. These traders are their best customers, and use that relationship to obtain this valuable information.
So the real question is this: how can investors beat computers and the engineers designing the complex systems behind high-frequency trading?
The answer is simple.
The best defense is to buy and hold stocks for the long-term.
If you are not frequently buying and selling stocks, there is nothing for high-frequency traders to make money on. High-frequency traders prey on active trading, capitalizing on the inefficiencies in the various exchanges and dark pools.
If you’re simply holding a stock, there is no way for them to profit from you.
Face it, you don’t have the infrastructure to compete with high-frequency traders in a millisecond market, so make your investing time frame longer and take away any advantage they have. Even if they take the pennies you might pay for getting front run, you will keep the dollars to be made owning great stocks for a long period of time.
I know you want to start protecting yourself from high frequency traders right now.
Our team has prepared two special reports to help you protect yourself against high frequency trading. These reports include:
- 10 Strategies for Protecting Your Wealth from Wall Street’s Sharks
- HFT-Free Investing: Making IEX Work for You
When you click here today, you can learn how to immediately access these special reports. Plus, I’ll immediately send you one of the few remaining copies of Flash Boys: A Wall Street Revolt. The book is absolutely free – my gift to you.