Concerns should be raised about the impact of high-frequency trading.
That undermines the stock market and distorts the entire investment system.
Many of us know about people becoming wealthy by investing in publicly-traded securities. Recently we have heard about high-tech companies that became public corporations by issuing shares that were traded on the stock exchange. That has taken place in North America.
In other nations, companies have relied more on loans from banks rather than floating shares on the stock exchange.
Here the investment process is the mechanism whereby companies become publicly owned and then can proceed to begin capital spending that is integral to the operations of a free market. That is the main function of the stock market.
A company may wish to augment its operations. It can obtain the capital for expansion by putting up for sale some part of the ownership of the company.
This gets down to the root of our economy.
What has taken place over recent decades is a gross distortion of this methodology. More and more a controversial approach relies on super-fast computers and complex mathematical equations to make hundreds of rapid-fire trades in less than a fraction of a second.
High frequency trading (HFT)on the overall market that accounts for the huge volume that takes place on the stock exchanges. Defenders of this highly-automated approach to stock trading point out high-frequency trades mostly compete with other computers and that trades, hundreds of thousands of them, depend on a fluctuation of a fraction of a penny.
Hence, the HFTs mean that gigantic volumes that are generated entail a tiny change, but if a switch is only a minute part of a penny, on colossal volume it means profits/loss that the traders are seeking.
There was a recent scandal involving Thomson Reuters, which sold key market data to high-paying clients literally two seconds before everyone else had access to that data. Then these HFTs were able to capitalize on this, while the general public was not able to do so.
One has to ask whether or not these shenanigans are what constitute the investment picture nowadays.
These HFT trades use a variety of tactics that seem far removed from the original purpose of the stock market.
Certainly investors must realize that the stock market resembles a casino, where transactions appear devoid of any intrinsic merit. Governments simply must clamp down on this manipulative behaviour that diminishes the investment foundations of our economy.
HFTs mean that real money is made behind the scenes, making it difficult for the average investors to participate in the stock market.
As Maclean’s magazine has written, “what is important is investing in the right tools to make sure that we have the appropriate protection in place.”