Hard workers across the USA who are well educated and who can hardly make ends meet often get the feeling the stock markets are rigged when they see insiders being turned into millionaires and even billionaires overnight. These workers may be right according to author Michael Lewis who says U.S. stock markets are rigged, reports Reuters on March 31, 2014. Lewis claims in his new book "Flash Boys: A Wall Street Revolt" that the U.S. stock market is rigged to favor high-speed electronic trading firms who use their advantages to extract billions of dollars from investors.
With high-frequency trading (HFT) many banks and proprietary trading firms use sophisticated computer programs to send large orders into the market, while executing a small percent of them when opportunities arise to capitalize on price imbalances, or in order to make markets. Lewis says that the trading methods and technology which make HFT possible are actually all legal. Lewis claims these firms are using their speed advantage to profit at the expense of other market participants in the range of tens of billions of dollars.
The revelations by Lewis are unbelievable. He has commented in regard to these firms that, "They are able to identify your desire to buy shares in Microsoft and buy them in front of you and sell them back to you at a higher price." He says the speed advantage which faster traders have is milliseconds which can be valuable, making it possible to send around 10,000 orders in a flash. Even though these firms often make just fractions of a penny per trade, the high speed and volume of their trading activity allows them to make significant profits.
Money News also reported that according to Lewis the U.S. stock market really is a rigged game where high-frequency traders with advanced computers earn tens of billions of dollars by literally jumping in front of investors. Lewis says "it's just nuts" that these firms are allowed to do this. He claims the tactics used by these traders are too complicated for individual investors to understand. As long as this all remains legal it appears aspiring business people who get a line on high-frequency trading may make these jobs the most competitive to get in the country.