70% of stocks traded are held for an average of 11 seconds

[spinbaby]

That figure is mind blowing. High-frequency traders with ultra-fast computers are nothing but money harvesting operations that scam money off the rest of us. I found this article today that makes my blood boil.

http://www.wallstreetdaily.com/2011/04/04/high-frequency-trading-computers/

From the article:

Essentially, the problem stems from the fact that most of these HFT firms identify the same signals – and then trade on them together. So when signals are tripped, HFT firms all pile in at once to buy or sell.

This activity changes the price of the stocks in question and creates a self-fulfilling trend that earns profits for the HFT firms.

[Poll_Blind]

1. ^ This.

Times one million.

PB

[postulater]

2. Tax every transaction that is held less than a year.

[WCGreen]

5. As an accountant, I couldn't agree more,,,,

Althought they are taxed at the top rate of the individual via the Short term capital gains tax

[doc03]

10. As an accountant, you should remember that several years ago

it cost $50 or more to trade 100 shares of stock depending on the share price. Now I can trade any number of stocks over the net on my Vanguard account for just $3.00 a trade. The internet has brought the cost of trading down and added to short term speculation. They could put a $20 trading fee on all stock and commodity transactions and probably make a big dent in the deficit and trades would still be much cheaper than in the past. There is one Democratic Congressman (his name escapes me) that has been advocating that very thing but he gets zero support from either side..

[WCGreen]

13. that would be more of an investment professional than an accountant

although I do remember when you had to go through a broker to buy Mutual Funds...

I am all in favor of a transaction tax for flipping stocks...

[customerserviceguy]

19. As a very small investor

who only buys stock with what some would describe as lunch money, I'm not in favor of your suggestion. How about this for an alternative idea: Since we recognize holding an investment for a year to be worthy of favorable tax treatment, how about a surtax on positions that are held for a very short period of time, say, a week?

Should capture a lot of bucks from the day traders, or as this article might lead us to describe them, minute traders.

[Johonny]

20. I think the idea floated around

is to return to the small tax fee we use to have. It would be only like a penny or fraction of a penny. Not enough to really discourage low volume individual investors. But enough to generate a lot of money from high volume traders like these computer high volume traders.

[doc03]

24. Exactly, I think the Congressman that is pushing the idea only

wants a few cents. According to him it would generate millions every day and would help discourage speculation some. After all according to one of the oil CEOs that testified a few weeks ago at least $40 on the price of oil was due to speculation on the commodities market.

[doc03]

22. If you are a small investor that doesn't speculate

day to day or even by the hour a $20 fee on trades would be insignificant. Like I said a few years ago you had to use a broker to trade stocks and the minimum fee was in the area of $50 dollars or more to trade 100 shares plus a percentage of the sales price. Considering the inflation rate over the years the brokerage fee would be more $100 per trade today. A small fee of $20 wouldn't shut Wall Street down. I just picked $20 out of thin air if it was only $10 or even $5 it would generate millions every day. The internet has created the day traders that speculate hour buy hour and trade on just a few cents appreciation on the stocks or commodity (like gasoline). It also causes wild gyrations in the market with computer programed trades.

[customerserviceguy]

36. I usually only try to invest $50-$100 at a time

through Sharebuilder, so adding $20 to that would significantly increase my costs. Being as they charge only $4 for a purchase, and about $10 for a sale, that would more than double the costs of getting in and out of a stock that I think looks cheap today, but will do significantly better a year or so from now.

I'd pretty much be limited to using only mutual funds, then I have a 'basket' of things, at least some of which I wouldn't want.

[eridani]

30. Sounds good to me n/t

[KittyWampus]

15. Proposed "Tobin Tax" Democrats and AFL-CIO proposed this and oil based derivative tax.

The proposal to tax financial transactions is also known as a “Tobin tax,” after the late American economist and Nobel laureate James Tobin. Tobin proposed a transactions tax in the early 1970s to discourage currency speculation after the collapse of the Bretton Woods fixed-exchange-rate system.


http://thehill.com/homenews/house/56789-afl-cio-dems-push-new-wall-street-tax

[AngryAmish]

3. Should be illegal

HFT is there to provide liquidity and in theory to make markets when no one else will. WHich is fine and why market makers should make money. However, when things get rough they pull the plug. All the good, none of the bad. It is a scam.

[NightWatcher]

4. they need to put a transaction tax on each share traded

that would raise a shitload of funds and cut down on a lot of the speculation and phoney bologna that goes on there on Wall St

[bluerum]

6. Agree with the transaction tax. Index it to max out at 90% for less than 30 days.

Zero it out at one year. After a year simple reduced capital gains.

[louis-t]

7. Ever hear of those 'motivational seminars' with

Giuliani, Colin Powell, Joe Montana, etc? They have maybe 8 celebrity 'motivational speakers' (all repugs), they practically give the tickets away to fill an arena, then at halftime, they try to sell you a computer program for $6,000 that tells you when the big boys are buying and selling, so you can glom on. Big scam.

[RKP5637]

9. Yep!!! n/t

[louis-t]

44. I've tried to estimate the numbers.

8 guys each getting 10 to 20k speaking fee (maybe more), arena rental, security, advertising (big, glossy promotional material), insurance, the promoter gets a cut...has to cost at least $200,000 per event. Your entire office can go for $10 (used to be $100), capacity is around 20,000 (the one I went to was no where near full). Someone is making money on this besides the speakers. They only have to sell 100 units of their overpriced software, or whatever they're selling, to make a buttload of money.

[RKP5637]

8. So much for the old school of investing in companies. All we have today is

a gambling casino, and companies only interested in making quarterly earnings look good while the rest, integrity, employees, long term planning, sustainability all go to hell. The crooks have found business highly profitable.

Any small guy thinking he's going to win in the stock market is a fool unless having access to basically insider type trading tools. The whole house of cards is going to come tumbling down. I said that before the last recession (if it ever ended) and got out of everything, and I've got the same feelings again.

My prediction is it will come fast when it unravels. I don't think it will be a slow burn.

Huge profits are being skimmed off the top. A penny here and there really add up.

And guess what, few of the monied really give a F about this country or "we the people." That, should be painfully obvious by now to even those with their heads stuck way deep in the sand.

And many of the presidential hopefuls are clueless about fixing the economy. One can do the figures on the back of a napkin and they don't look good. Frankly, one of the few people that made sense to me when they talked about the economy was Trump.

The SEC isn't keeping up with this stuff or is complacent and congress is clueless or complacent.

It's what I call, for lack of a better term, a hollow economy.

[LoZoccolo]

11. I'm not sure that that's a bad thing.

It should create a more liquid market. If I was selling, I'd want someone to buy, and if I was buying, I'd want somebody to sell. This would increase the chances of buyers and sellers being available.

[Telly Savalas]

47. It should also create a more irrational market.

If someone buys and then decides to sell again within seconds then it's impossible for any rational value judgments emerging from the transactions beyond some hocus-pocus computer modeling done by a quant. Given their track record, I think it's pretty hard to not to characterize it as hocus-pocus, unless one really believes that we've been blessed with stable financial markets the last couple of decades.

Liquidity is definitely desirable, but this is screwy. Was it not the case that the last time the market dropped rapidly in a single day it was due to such computer systems going haywire?

[KittyWampus]

12. How can a society be stable over time with that amount of volatility in its life blood?

[SoCalDem]

14. transaction fee and mandatory "minimum hold time" for commodities

as well as PROOF that you expect to (and can accommodate) DELIVERY of said commodity:)..those two provisos could bring sanity to the "market"..

[KittyWampus]

16. Also, tax oil based derivatives. See link:

http://thehill.com/homenews/house/56789-afl-cio-dems-push-new-wall-street-tax

[onenote]

17. or maybe not. maybe they're held for several months on average

http://www.ritholtz.com/blog/2010/10/average-stock-holding-period-11-seconds/

[strawberryfield]

18. This can be easily shown to be complete BS

Go to yahoo finance and look up any major stock. Look for the daily average of shares traded, and the total shares outstanding. If this 11 second thing was indeed true, then the first number should be many times larger than the second number, but you will invariably find that it is the other way around.

[ProfessorGAC]

23. You're Looking in The Wrong Places

It's not complete BS. But, you won't find this activity in major stocks. It's in penny stocks, commodities, futures, options, and the like.

Those things are volatile on a minute to minute basis.

You can't do this kind of thing if you're buying IBM or Apple. But, there are thousands of other sorts of invesment instruments and few every day display the volatility needed to hit quick.

Now, if you think you're going to make 10% in 10 minutes, you're dreaming. But, if you can live with making a quarter percent in a half hour, and then do that 4 times a week, you'll be ok.

Of course, if you're chasing these things with big money, you'll be noticed by the other speculators and they will chase you instead of conducting their business as usual and all bets are off. (And yes, they are bets.)

But, it's not complete BS.

I do this as a hedge for retirement and i make about 30k a year doing it. I do then take that money and dump it into long term mutuals. You can't ride that train into mega money. But, you can pull enough out the system to make it worth the effort.
GAC

[strawberryfield]

25. The article said “70% of the volume on our stock exchanges”

I have no doubt that you as a day trader have held some investments for very short periods of time. I am contesting this idea of the 11 second average for 70% of the volume. Please note the phrase “stock exchange” in the article. It didn’t say 70% of penny stocks, commodities, options, or futures. I also noted the phrase “11 seconds” in reference to the word “average”. Now I did a little checking on a few of those penny stocks. I just randomly picked a few and looked at their average daily volume and their total shares outstanding, and found the exact same pattern that I did with the large stocks. I would think that if 70% was indeed 70% and the word average really means average, that that 70% shouldn’t be so hard to find.

[ProfessorGAC]

21. Um. That's How I Make My Money

If i make 1/8th percent in a few minutes, and then do that a 6 or 8 times a week 40 weeks a year, i make a healthy return after fees. I'm not working with millions of dollars, but just playing with $5k is plenty of money so my wife and i will be ok in retirement.

I don't make the rules. But, i know how to play the game by the rules they set up. And, one can automate their computer to do pull data, do the analysis, and ID the opportunities. Now, i know not everybody knows the math to develop the models, but i also know i'm not the only one who does know how.

The system is what the system is. Why does this make your blood boil? 99% of the money that goes into and out of the equity market every year doesn't actually generate any added capital to growth. It's been that way, absent the single industry booms, since the World War One.
GAC

[Heywood J]

26. "The system is what the system is", " I don't make the rules"

I don't think I need to remind you where that got us in the past.

[ProfessorGAC]

32. Sorry, That Doesn't Make Sense To Me

I'm not buying into any obviously suspiciously, and now we know for sure, fraudulent investment packets.

Everything is straight up and single element. The rules to which i referred were those that do not require any particular holding period.

I'm not participaing in anything shady like the mortgage bundles. Besides, those things didn't make investors money in a day.
GAC

[AlabamaLibrul]

27. I highly doubt you're doing proper HFT out of your basement. Scalping, maybe n/t

[ProfessorGAC]

33. Doubt Whatever You Wish

What i'm doing is small change though. I acknowledge that, and besides a lot of quick hit investment involves playing with nickels not hundreds, because too much capital thrown in at one time can cause the market to respond to THAT investment which changes the behavior causing the volatility in the first place. Sort of quantum, in that getting in changes the result.

But, if one is throwing 5 or 6 thousand in, nobody pays attention. But, there are LOTS of folks doing it. Many of the professional investors.
GAC

[JVS]

35. One major difference is that you don't have enough purchasing power to effect price much.

The bank's very action of buying it drives up the price.

[ProfessorGAC]

40. I Did Say That

My technique, and it's not unique, is to predict the volatility points. The whole point is to not do anything to disturb the "normal" market behvaior.

I said in two posts i'm not working with any big money. First, i don't have that much, and secondly, i'm too chicken to risk any serious money.

I'm just a dabbler, but i make enough to make it worth my time and, presumably, make us a little more comfortable in our twilight years.
GAC

[JackRiddler]

48. Well good for you. We all wish for a perpetual money machine. However...

This particular means of doing it shouldn't be allowed, because on a vast scale it creates instability and allows the vultures with the fastest software and the most liquidity (cough Goldman cough cough) to suck money out of the system without producing anything of value.

[cbdo2007]

28. I don't see how this "scams money off the rest of us"

Daily fluctuations happen for a multitude of reasons but over weeks/months/years the prices of companies are correct.

As long as you don't follow what they're doing and invest in good companies for the long term you will come out ahead. If you look at investing in the stock market as a get rich quick scheme like they do, you'll probably lose.

[girl gone mad]

34. They're frontrunning.

which makes it a scam.

Examples:

http://www.zerohedge.com/article/pipeline-executives-confirm-abusive-hft-practices-including-potential-front-running

[jmowreader]

46. It doesn't just make it a "scam"

Front-running is a form of insider trading and is illegal.

According to Harry Markopoulos' very informative "Why the world's largest hedge fund is a fraud" (which informed the SEC that Bernie Madoff was running a ponzi scheme) he describes on pages 8 and 9:

10. Red Flag #13: I believe that BM's returns can be real ONLY if they are generated from front-running his customer's order flow. In other words, yes, if he's buying at a penny above his customer's buy orders, he can only lose one penny if the stock drops but can make several pennies if the stock goes up. For example, if a customer has an order to buy 100,000 shares of IBM at $100, BM can put in his own order to buy 100,000 shares of IBM at $100.01. This is what's known as a right-tail distribution and is very similar to the payoff distribution of a call option. Doing this could easily generate returns of 30%-60% or more per annum. He could be doing the same thing by front-running customer sell orders. However, if BM's returns are real but he's generating them from front-running there are two problems with this:
A. Problem #1: front-running is one form of insider trading and is illegal
B. Problem #2: generating real returns from front-running but telling hedge fund investors that you are generating the returns via a complex (but unworkable) stock and options strategy is securities fraud.

I have NO idea why the SEC allows high-frequency trading to continue, seeing as how it fits exactly into the definition of front-running.

http://www.sec.gov/news/studies/2009/oig-509/exhibit-0293.pdf if you haven't read it...

[quaker bill]

38. Where does the money come from?

My guess is that profits taken from the market depress the price of equities on net. Who pays? Likely folks with slower moving funds, like 401Ks. The money one takes out comes from somewhere, this seems the likely source over time and on average.

[cbdo2007]

41. The result will be the same for the long term investor though.

Over a 10 year period, stock X is going to go from $1.00 to $5.00.

In between those 10 years it's going to go up and down and up and down and up and down 10,000+ times. High Frequency traders make or lose money on all of those 10,000 trades that they take part in, while the person who is holding stock X for the entire 10 year run still gets the same result.

Most day traders and HFT only take money from other day traders and HFT systems because those are the only people concerned with the daily/hourly/minutely(?) fluctuations so they are the only people buying and selling on a daily basis.

HFT don't change the course of a stock price or the market over the long term. That's why investing in the stock market works.

[quaker bill]

49. Not really

The market does not create money. Any money taken out through HFT comes from somewhere is gone once it is removed. If those dollars were still in the market the ultimate value for the long term investor would be higher.

All of these schemes are picking the bones of the bloated carcas. The bloated carcas is the 401K investor whose funds are stuck in the market by tax penalty and can only be moved within a limited range of options fairly slowly.

We were sold the notion that the 401K was a lovely thing. The bottom line is that it is an instrument designed to expose your retirement savings to predatory speculation and prevent you from withdrawing when you tire of being picked to death. Investing is different, because real investors understand that sometimes the best position to be in is "all cash". Real investing with post tax money allows that option, 401Ks don't and quite on purpose.

[donheld]

29. When will the masses catch on?

[jmowreader]

31. I just sent a letter to the White House

I referenced the link in the OP, asked the president to push for a 10 cent per share transaction tax on any stock held less than 2 hours, and gave him a surefire way to get it through Congress: tell the GOP you're protecting their campaign contributors' portfolios by keeping the HFT people from screwing them up.

[Fuddnik]

37. He just had a $35,000 per plate dinner with those guys this week.

Do you really think he's going to fuck them next week?

[mopinko]

39. many of these stock are being sold to fulfill options.

how many, i have no idea. but if your buyer exercises their option, and you don't already own it, you have to buy it and sell it to them. this happens in an instant. volumes on the futures markets have exploded.

[muriel_volestrangler]

42. UK has a 0.5% stock purchase tax; HFT accounts for up to 60% of US trading,

February 8 2011

Dame Clara Furse, former chief executive of the London Stock Exchange, is to head a British government study into high-frequency trading.
...
High-frequency trading accounts for up to 60 per cent of US equity markets, while the London Stock Exchange estimates that more than a quarter of its trades are driven by high-frequency trading.

But it has generated controversy in the wake of the “flash crash” in the US on May 6, when the Dow Jones Average plunged 1,000 points in 20 minutes before recovering.

Dame Clara said: “The evidence-based analysis that it will produce will help us understand how computer trading in financial markets could evolve and impact on financial stability. This is a fundamental issue for the efficiency and integrity of global financial markets and the economies they serve.”

http://www.ft.com/cms/s/0/d920abac-33a7-11e0-b1ed-00144feabdc0.html

http://www.hmrc.gov.uk/sdrt/intro/basics.htm

[snot]

43. And t.p.t.b. are trying to turn market oversight over to FINRA.

A lot of folks lost trust in the market after 2008 and never went back, and volume has been light since. Many of those same people are aware of this HFT.

Privatizing the SEC's main function and turning the hen house over to the foxes will only make matters worse.

U.S. exchanges were the most impt. for decades BECAUSE they were regulated and the world felt they could be trusted. Now we're allowing our dominance in that industry, too, to be jeopardized.

[zalinda]

45. I think it was in the video with the nurses picketing wall street

but one of them said that every transaction should have a sales tax added on to it, just like when we buy something at the store. That makes sense, it might stop the crazy trading and let the average person make a trade without a big penalty.

zalinda