Small investors ripped off by high-frequency trading

Based on Will Deener, “As a financial columnist I enjoy figuring out what stocks are moving, what market sectors are “moving and what trends are emerging.”

Having done this for several years, I like to think I have a good understanding of what makes the market tick.

But alas I don’t, or at least not to the level I would like. That’s because I’m not a mathematician, computer programmer or an electronic trading prodigy with reflexes honed on video games.

In recent years, the stock market has morphed into a vast network of high-speed trading firms operating lightning-fast computers with much of it devoid of human interaction.

The idea that market fundamentals, such as earnings and interest rates, drive the market has almost become quaint. Instead, high-frequency trading firms gorge their computers with mind-boggling formulas — called algorithms — that tell them when to buy, when to sell and when to stand pat.

And know this: The trading orders, which are executed in one-millionth of a second, have nothing to do with whether a stock is fundamentally sound. It is, sadly, more about who has the better algorithm.

Clever Ph.D.s in physics and math are the new masters of this alien universe, and small investors who think they have an edge in this game are delusional.

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