Is the market rigged?

Is the stock market rigged?

That question has been plastered or delivered in every possible media source since Michael Lewis made the statement on 60 minutes on Sunday evening. Laying out the case against high-frequency-trading (HFT), Mr. Lewis contends that these robotically run trades rob profits from retail investors (you and me), by skimming small percentages off of each and every trade. One half of 1% might not sound like a sound of money, but when you conduct billions and billions of trades as HFT shops do — it adds up to serious money. Michael Lewis is certainly not the first person to criticize the rise of HFT firms. Many investigators, journalists, and market analysts have speculated that large percentages of market volume (trading) is generated simply from HFT firms trading back and forth with each other — a process known as “churning.”

What exactly is high-frequency trading?

From Investopedia:

A program trading platform that uses powerful computers to transact a large number of orders at very fast speeds. High-frequency trading uses complex algorithms to analyze multiple markets and execute orders based on market conditions. Typically, the traders with the fastest execution speeds will be more profitable than traders with slower execution speeds.

Michael Lewis’s statement of 60 minutes, however, led to a firestorm of criticism and analysis on what exactly HFT firms do, how they do it, and what the impact on the marketplace is. CNBC, Forbes, Bloomberg, and virtually every other media publication had experts weighing in on the topic of HFT yesterday. Additionally, this story coincided with two (2) other stories related to financial services. Yesterday, a story broke that the FBI was launching investigations into several HFT firms with regards to potential abuses of information. On top of that, Preet Bharara, the Manhattan-based U.S. Attorney General, spoke yesterday and indicated that a significant financial institution is about to be in serious legal trouble.

Is the market rigged? It depends who you ask.

Happy Reading!

http://www.businessinsider.com/preet-bharara-taunt-2014-3#!CkXh5

http://www.forbes.com/sites/moneybuilder/2014/03/31/is-the-market-rigged/

http://www.huffingtonpost.com/2014/03/31/fbi-high-speed-trading_n_5065622.html

http://www.forbes.com/sites/timworstall/2014/03/31/michael-lewis-is-entirely-wrong-about-high-frequency-trading-hitting-the-little-guy/