So Business Insider, obtained some “inside” information on a form of gambling that the players on Wall Street are doing and as with the Banks in 2008, there will be pain when they crap out. I of of the law and order type Conservative am still quite angry that no bankers went to jail for the gambling that was done with the World’s economy in the past decade and am shocked I tell you, that Democrats who rail against the banks and bankers didn’t use their time in control of the Country to frog march a group of them to jail. I am of course not shocked that now those same banks and bankers are stuffing money into the coffers of the Democrat Party (yes they are indeed the Party of the rich). I digress, lets move on to this new venture that is being played on Wall Street, that will take American’s investments to the bottom of the pile quickly if 1.) its true and 2.) if it is not stopped. Wall Streets Latest Trading Scam That Could Cost You Billions
Many trading orders these days are executed by computers. Like human traders, the computers break big orders into small chunks (say, 100 or 500 shares) and then match them with orders on electronic stock exchanges. The reason the orders are broken into chunks is so they won’t move the market too much. Stock trading is relatively illiquid, and big orders can drive the price of a stock sharply up or down. Since the dawn of Wall Street time, clever traders have tried to hide the amount of stock they ultimately want to buy or sell to avoid having their own orders move the market sharply against them.
In recent years, such “algorithmic” electronic trading execution has grown in popularity, and a number of electronic trading strategies have sprung up to exploit it.
In one of these strategies, called “liquidity rebate trading,” a program analyzes the incoming order flow on an electronic exchange to try to spot a big institutional order that is just hitting the market (apparently this is relatively easy to do). The program then front-runs the order by modestly outbidding the institution for the stock and then turning around and selling it to the institution at a higher price than the institution would have otherwise paid.
Front-running is an age-old cheating technique: A trading firm gets a big order from a client and, before it executes it, buys some of the same stock for itself. Front-running is, in fact, what many Wall Street insiders thought Bernie Madoff was doing before they discovered he was running a Ponzi scheme. This new form of electronic front-running, however, is to traditional front-running as a Playstation first-person shooter 3D game is to a game of bridge.
The goal here, moreover, is not to make money by scalping ticks (buying a stock at $20.00 and selling it to the institution for $20.01). It is to get a “rebate” offered by the electronic exchange for order flow. To court order flow, exchanges offer 1/4-cent per share rebates to market-makers who actively increase trading volume. If you buy a stock for $20.00 and sell it for $20.00 and get a 1/4-cent per share rebate per share…and you buy and sell millions of shares…you can make a lot of money.
And that money drives up the cost of execution for traders who are buying the stock to hold it for more than a few milliseconds.
I encourage those with an interest in and a knowledge of this type of gambling to go over the Business Insider and read the entire paper written on this wild ride masking itself as real trading.