Monday March 31 2014
An alert student spotted this article on high speed trading featured on sixty minutes last night.
Essentially high speed computers anticipate a buy, jump in with an order front running your order, and then sell you the stock back at a higher price. The higher price is not a dollar or two but fractions of a dollar, but in massive quantity, it adds up ato a tidy sum. Michael Lewis has written several books on the markets including Liars Poker about bond trading at Salomon Brothers.
Years ago outsiders charged the New York Stock Exchange was rigged by the market making specialists who set prices and were allowed to see the buy and sell orders. The idea was that the specialist dealing one stock maintained an orderly market.
In 1987 big traders were using arbitrage and portfolio insurance. This was later blamed as one of the causes of the crash. Actually I vividly remember the day. The market was down 200 points a huge move at the time that morning. By Noon it had come back and I guessed would close down 50 points for the day. And then the two idiots that ran the NASD and NYSE announced they might close the exchange. Needless to say then everyone wanted out and the real crash began in earnest closing down 508 plus points in one day.
Comments