Jason’s Ranting & Raving

Those who don’t read have no advantage over those who can’t.

Outrage: Flash Trading is leeching profits from investors

Posted by jaystile on July 27, 2009

I started learning about flash trading when an accusation that the source code for these auto-trading applications was stolen. As I continued to read the news, I found another article describing how these auto-trading applications behave.

If you’re not willing to read the article, let me sum it up for you. The large brokerage houses get to look at all orders for 30 milliseconds before those orders are released for execution to the market. Their auto-trading programs inject trades (buying or canceling) before the original trade was executed. This is called ‘Flash Trading’. The injected trades can drive up the price of the stock you want to purchase or sell before you can sell. This takes some of the profit from you and gives it directly to one of the large brokerage firms. And they didn’t even have to do any research, just pay for the creation of smart algorithms.

I liken this to being able to place a bet on a roulette wheel just before the ball comes to rest. Except, you don’t have to use your own money. You get to borrow the bet placed by the other gamblers and take some of their winnings. Right now, I feel like the ‘other’ gambler. And I am pissed about it.

I suggest writing your representatives as a first step in exercising our democracy.
Senators: www.senate.gov
Representatives: www.house.gov


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