Today I’m going to share a some shocking information about another tactic that’s being used by Wall Street’s high frequency traders. And I’ll explain how an outdated SEC rule actually makes this predatory trading tactic completely legal.
High frequency traders already have a technological advantage that lets them beat us to the market to place orders. But they also have a distinct information advantage. As recently reported by The Wall Street Journal, these traders have made special arrangements to get early access to the news.
In most situations, high frequency traders are making big profits by trading on information that you and I don’t even have yet. And this is just another part of the $20 billion scam that’s costing investors like you and me money with every investment.
I’m not talking about insider trading. That’s illegal, and even high-frequency traders haven’t figured out a way around that roadblock. But they’ve come pretty darn close.
High-frequency traders have figured out how to trade on information contained in press releases. And they can do so in mere milliseconds.
They’re able to do this by building computer programs that quickly scan news releases, and then place trades based on the contents of the news. And it all happens in the blink of an eye.
Such a program might seek out words such as “increasing guidance”, “raised estimates” or “increased earnings”. The computer program will also identify the company that is featured in the press release. Once the computer finishes scanning the words, it makes a trade based on the information.
High frequency trading firms that use these programs have a massive advantage over the regular investor. I don’t care how fast you can read – there is simply no way a human can beat these computers to the punch.
The fact is that they’ve removed the human element. Traders at these firms aren’t reading press releases or analyzing the news. They don’t have to – the computers do all the work for them.
But what’s really scary is that even if a human could read as quickly as a computer…even that wouldn’t help. Because the high-frequency trading firms have a solution for that impossibility too. They pay newswires a fee so that they can get the story first.
It is hard to believe that this is legal. At the heart of the problem is the Security and Exchange Commission’s fair-disclosure rule or Regulation FD. The rule is well intentioned: it requires that the public and market professionals receive information at the same time.
However, when Regulation FD was passed in 2000, high frequency trading didn’t even exist. And the rule doesn’t address whether fractions of a second matter. That means that newswires are able to sell this information to anybody that is willing to pay a few thousand dollars a month. That’s not a realistic sum for most investors. But for high-frequency trading firms, that amount of money is peanuts.
Early this year a Wall Street Journal article reported on the unfair advantage that high frequency trading firms have over individual investors when press releases are bought for a fee. “High-frequency traders have been paying to get direct access to market-moving news releases, a practice that can give firms the ability to trade fractions of a second ahead of less fleet-footed investors.”
Nearly every newswire service has been selling preferential access to its news stories. In response to the criticism in the WSJ article, Business Wire decided to stop selling direct feeds to high-frequency trading firms.
But not all newswires have ended the practice. There is still more work to be done, because the fact of the matter is that this is just one of the many advantages that high-frequency trading firms have over regular investors.
High-frequency traders use a variety of tactics to rake in huge profits. In Michael Lewis’ just released bestseller – Flash Boys: A Wall Street Revolt – he reveals just how these traders steal from investors every day.
It’s crucial that every investor understand the latest tactics being used by Wall Street’s high frequency traders. That’s why I’ve made special arrangements to send you a hardcover copy of Flash Boys: A Wall Street Revolt.
I’ve secured just 500 copies of Flash Boys through a special deal with the book publisher. And I want to send you a free copy of the book today (retail price $27.95).
In addition to the report, our team has prepared two special reports to help you protect yourself against high frequency trading. These reports include:
- 10 Strategies for Protecting Your Wealth from Wall Street’s Sharks
- HFT-Free Investing: Making IEX Work for You
In addition to sending you a free copy of Flash Boys, I want to get these two special reports in your hands today. To claim your copy of the book and bonus reports, just click here now. Supplies are limited…I encourage you to respond immediately to secure your copy.