5/13/2014 12:45 PM ET|
So what if the stock market is rigged?
High-frequency trading may hurt hedge funds, but it hardly matters to individual investors focused on long-term goals.
There have been claims about the market being rigged for institutions and against individual investors for years, but they have become much louder since the release of Michael Lewis's best-selling book "Flash Boys," which details how high-frequency traders have wormed their way into the market, developing an information edge that gives them a window of milliseconds where they can front-run a trade, making the cost fractionally higher for the investor/institution that placed the order.
That's just one piece of the case for the market being rigged; you can make others, and while some of them sound like raging paranoia, all of them have a basis in real actions that at the very least seem shady.
You could also spend a lot of time fighting those cases and trying to debunk them.
As an individual investor, however, you are better off giving into it. Don't fight it; simply accept that in some ways the market is working against you.
There's not much doubt that high-frequency traders are skinning investors, just as market-makers -- the guys who maintained liquidity in stocks for decades -- did in the past.
Those sharpies, presumably, are winning. They are getting theirs.
It doesn't mean you can't get yours; you just can't win playing their game.
For all of the criticism of high-frequency trading -- most of which has focused on "flash crashes" rather than front-running -- there's a lot of evidence that the action they have created actually has been good for investors.
Laurence Siegel, director of research for the CFA Institute, penned a piece last week in which he noted that "it's possible to imagine a kind of [high-frequency trading] that is completely harmless and in fact beneficial."
He compared the situation to what has happened with automobile sales, where the evolution of Internet sites has created a second middle-man. There's the dealer who sells you the car, but also the website that gets paid for its listing, a cost passed on to the consumer. Theoretically, the additional middle-man should raise costs but in practice, Siegel argued, costs are down due to increased competition.
Since high-frequency trading improves liquidity, there's a case to be made that it improves pricing. Whether some or all of that benefit is lost due to the front-running and other nefarious activity is an open question.
But truthfully, for a small investor it doesn't matter much.
John Rekenthaler of Morningstar.com recently noted that big investors -- specifically hedge funds -- are the ones suffering from the issued covered in "Flash Boys."
"Hedge fund performance has plummeted since the mid-2000s, when [high-frequency traders] came to prominence," Rekenthaler said. "There are several reasons why, including the possibility that before [high-frequency traders] were hatched, hedge funds were the de facto micro-traders, using their superior resources and technology to beat retail day traders."
Not surprisingly, hedge-fund managers are among the people beating the drum loudest about the market being rigged.
That's proof that this is more of a rich man's worry than an average investor's concern.
High-frequency traders don't care about the 100 shares of Procter & Gamble (PG) you're trying to buy, or even the 500 or 1,000 shares of Johnson & Johnson (JNJ). There's no real money for them in your trade.
Meanwhile, even if you are convinced they're out to get you, the worst you wind up facing is an extra penny or two of costs. On that 1,000-share trade, that's $20 max; nobody wants to pay more than they must, but hold those brand-name stocks for years and those few dollars are negligible. (Moreover, it could be a wash, a give-back of the benefit you received due to improved liquidity.)
Distasteful? Sure. A reason to avoid the market? Hardly.
The stock market is not a zero-sum game, or a winner-take-all poker tournament. Over time, if the market rises as the economy grows, everyone can profit.
There will be different degrees of success, but individuals need to focus on what they can do to reach their goals, not on what some bad guys are doing that could reduce -- but not eliminate -- their personal progress.
If you want to compete with the big boys -- if you're going to be an active trader, trying to play a speed game to capture market anomalies and minute-by-minute opportunities -- then you're the chum in the shark tank.
Focus on long-term goals and ignore market noise, however, and you can coexist with the predators; you quickly realize that whoever is responsible for actions that lead to claims that the market is rigged is simply part of the sounds you are brushing off.
The big issue for individuals isn't whether the market is rigged, nor even that they get perfect pricing so that they don't miss out on a single pizza's worth of potential gains, it's simply whether they can use the market to reach their goals.
It would be great if investors didn't have to face these questions, if we felt that the market was as fair as possible in all situations. But even if that Utopia exists now -- as chairman of the U.S. Securities and Exchange Commission Mary Jo White suggested last week -- most investors wouldn't believe it anyway.
That's fine. There's nothing wrong with believing in market monsters, especially if you take steps to avoid fighting them personally. Worry enough about them to diversify and be cautious, but don't obsess about the market's perceived fairness; you have enough to worry about in just reaching your goals no matter the obstacles, real or imagined, standing in the way.
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High-frequency trading may hurt hedge funds, but it hardly matters to individual investors focused on long-term goals."
This has to be the most ignorant statement I have seen in Years. Of course it matters if the Markets are Rigged because eventually when ignored the Bubble Will Burst. The longer it's ignored, the Bigger the Bubble. How quickly some forget just a few short years ago.
We are literally Knee Deep in a Massive Debt Bubble that's only going to get Worse. Some folks want you to ignore that Fact just because we are in the Mother of all Bull Markets. That also will eventually end. High Frequency Traders are Not needed for any so-Called liquidity, that's a Myth spread by them. Automation and Computerization absent of Corruption is needed.
Lowering the bar is a lousy way to meet your goals.
Self regulating markets ...my A$$.
Wall Street is like playing in a Casino:
If you stay in the Casino long enough "You Will Lose"
"Everyone Knows and Everyone Plays"
"So what, if the market is rigged?" Well, oh my god is what. It is one thing for corporations, lock, stock, and barrel, to decide to pullout en masse from offering pensions, but completely another thing for the government to come and say "We got this." and then not have it at all.
Offering personal, privately funded 401K pensions, and then turning the responsibility for protecting those nest eggs over to a fully rigged, manipulated, and scammed financial markets run by professional money managers, speculators and snake oil salesmen (and women) is criminal.
There are just some things you do not do. First, you don't steal candy from a baby. And second, you don't steal from the pensions of old people.
You want to be a war-mongering baby killer? Fine. Let the Military Industrial Complex spread American democracy around the world one smart bomb at a time. But you don't "under-fund" (meaning: openly steal from) the pensions promised to public employees. You just don't do it.
This government ought to be ashamed of itself (if it had any shame or pride to begin with). The criminal politicians and banksters, the moneyed elites, the corporate oligarchs need to be driven from the face of this Earth for their behavior. The FED should be dead.
But the system is just as rigged as ever since the Crash of 2008. Nothing has changed. The game remains the same.
Those that invest billions sway the market their way, rigging it to line their pockets. They know when they will buy huge or sell huge.
This is insider trading. This is the rig...
The individual can only hope a bubble doesn't wipe them out or a credit crunch doesn't hurt them so bad that markets become crap overnight like in 2008. ....or the FED changes its mind and the market knee jerks to wipe out any yearlong gains an investor may have made...
The statement 'so what if the sorck market is rigged' is shiester speak for 'sit down, pigeon'
Spoken like a tried and true market whore shill!
IS the Stock Market Rigged... or " Did it Just Reinvent Itself "
From the moment our grandparents returned from the War (World War II)
jobs were a key factor in their lives..All they wanted was a chance to have a home,
and family and a good paying job.
The home and family was the easy part but finding a good paying job well that was another story.
There were jobs out there but not ones that paid that well and most of our vets were of high school
or less in educational standards..
So,, Along came the unions, they were there before but now they had a force that have seen a battle and new what it took to win a war. And A war it was..
First it was a wage war, then a benefits war, then an hourly war, and an equality war (equal pay for same sex)..Then another wage war and so on and so on..
The average man was happy taking their paycheck to the bank and depositing what was left over
into a "Savings Account". at an interest of 3 to 3 1/2% and all was well..But no one was putting money into the stock market except the rich..
So, how could the Stock Market change that? 401K's were the answer..Remember the benefits war that the unions had insisted upon and the companies gladly agreed to ..
Get the average man to invest into the Market by a 401k plan and you have everyone involved in the growth of the market..
Banks reduced there interest rates sighting a need for more revenue to off set bad loans given for home ownership.
Companies stifled raised due to pore profits, inventories were shorted and job lay offs took place due to lack of sales, but the Stock Market grew due to more interaction with the average man, by their 401K programs..
Now everyone is hooked "Like An Addict on Crack" How does this cycle end, ,,VERY BADLY
The working man was meant to be just that "The Working MAN".What you fought for "Is Over"..
You said it Montana,
It just figures with some of these "progressive, Nazi wannabe dictators". "The president didn't say these things, and even if he did, he didn't mean to LIE.
I'm sorry, a lie is a LIE. And there's no getting around it.
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