{"id":25419,"date":"2014-04-10T08:39:42","date_gmt":"2014-04-10T12:39:42","guid":{"rendered":"http:\/\/www.technologyinvestor.com\/?p=25419"},"modified":"2014-04-10T09:03:41","modified_gmt":"2014-04-10T13:03:41","slug":"please-change-your-passwords-please-direct-your-trades-to-iex","status":"publish","type":"post","link":"https:\/\/www.technologyinvestor.com\/?p=25419","title":{"rendered":"Please change your passwords. Please direct your trades to IEX."},"content":{"rendered":"
Sometimes it goes up. Sometimes it goes down. Yesterday it went up. No logic. No reason.<\/span>
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Last year the S&P went up 32%. This first quarter it went up 1.81%. Things are changing. It’s still doing well against its 200-day moving average:<\/div>\n
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\"S&POverTwoYears\"<\/a><\/div>\n
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On the other hand, APO has breached its 200-day moving average and looks positively sick. I’m out of APO.<\/div>\n
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\"APOTwoYear\"<\/a><\/div>\n
But I’m still largely in BX, which has a much better chart and some nice broker analyst recommendations (price target $40).<\/div>\n
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\"BXOvertwoyears\"<\/a><\/div>\n
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Going with Limit orders. <\/span><\/strong>There are two reasons to use limit orders:<\/div>\n
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1. You may snag a “buy” more cheaply.<\/div>\n
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2. You’re protected from being sold out cheaply in the next flash crash.<\/div>\n
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Lately, I’ve found that limit orders — especially those to buy<\/strong> a stock — don’t seem to work. I put in an order\u00a0 — even at the offer price — and suddenly, the price goes higher. <\/strong><\/div>\n
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I watch my screen incredulous at how I’m being screwed.<\/div>\n
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If you read Michael Lewis’ book, Flash Boys, (and you should), you’ll find that things mysteriously happen when you indicate to the market that you want to buy or sell. That mysteriousness costs you (and everybody else) billions on dollars. You are front-runned by high frequency traders. Which is why I’m strongly recommending that everyone direct <\/strong>their trades to IEX, a new exchange mentioned in Michael’s book.<\/div>\n
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So far, two retail brokers — Interactive Brokers<\/strong> and TradeStation Securities <\/strong>— have announced they’ll allow you to direct your trades to IEX. I’m guessing the next one will be Schwab, <\/strong>based on this amazing statement from Schwab (b<\/span><\/strong>olding <\/strong>added by me.):<\/span>
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\"Charles<\/a> Company Statement<\/div>\n
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High-frequency trading is a growing cancer that needs to be addressed<\/strong><\/p>\n

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April 3, 2014<\/p>\n

Schwab serves millions of investors and has been observing the development of high-frequency trading practices over the last few years with great concern. As we noted in an opinion piece in the Wall Street Journal last summer, high-frequency trading has run amok and is corrupting our capital market system by creating an unleveled playing field for individual investors and driving the wrong incentives for our commodity and equities exchanges. The primary principle behind our markets has always been that no one should carry an unfair advantage. That simple but fundamental principle is being broken.<\/p>\n

High-frequency traders are gaming the system, reaping billions in the process and undermining investor confidence in the fairness of the markets. It\u2019s a growing cancer and needs to be addressed.\u00a0<\/strong> If confidence erodes further, the fuel of our free-enterprise system, capital formation, is at risk. We can\u2019t allow that to happen. For sure, we still believe investing in equities is a primary path to long-term wealth creation, and we believe in the long-term structural integrity of the markets to deliver that over time for individual investors, which is all the more reason to be vigilant in removing anything that creates unfair advantage or undermines investor confidence.<\/p>\n

On March 18, New York Attorney General Eric Schneiderman announced his intention to \u201ccontinue to shine a light on unseemly practices in the markets,\u201d referring to the practices of high-frequency trading and the support they receive from other parties including the commodities and equities exchanges. He has been a consistent watchdog on this matter. We applaud his effort and encourage the SEC to raise the urgency on the issue and do all they can to stop this infection in our capital markets. Investors are being harmed<\/strong>, and they shouldn\u2019t have to wait any longer.<\/p>\n

As Michael Lewis shows in his new book Flash Boys<\/span>, the high-frequency trading cancer is deep. It has become systematic and institutionalized, with the exchanges supporting it through practices such as preferential data feeds and developing multiple order types designed to benefit high-frequency traders. These traders have become the exchanges favored clients; today they generate the majority of transactions, which create market data revenue and other fees. Data last year from the Financial Information Forum showed this is no minor blip. High-frequency trading pumped out over 300,000 trade inquiries each second last year, up from just 50,000 only seven years earlier. Yet actual trade volume on the exchanges has remained relatively flat over that period. It\u2019s an explosion of head-fake ephemeral orders \u2013 not to lock in real trades, but to skim pennies off the public markets by the billions. Trade orders from individual investors are now pawns in a bigger chess game.<\/strong><\/p>\n

The United States capital markets have been the envy of the world in creating a vibrant, stable and fair system supported by broad public participation for decades. Technology has been a central part of that positive story, especially in the last 30 years, with considerable benefit to the individual investor. But today, manipulative high-frequency trading takes advantage of these technological advances with a growing number of complex institutional order types, enabling practitioners to gain millisecond time advantages and cut ahead in line in front of traditional orders and with access to market data not available to other market participants.<\/strong><\/p>\n

High-frequency trading isn\u2019t providing more efficient, liquid markets; it is a technological arms race designed to pick the pockets of legitimate market participants.<\/strong> That flies in the face of our markets\u2019 founding principles. Historically, regulation has sought to protect investors by giving their orders priority over professional orders. In racing to accommodate and attract high-frequency trading business to their markets, the exchanges have turned this principle on its head. Through special order types, enhanced data feeds and co-location, professionals are given special access and entitlements to jump ahead of investor orders. Last year, more than 95 percent of high-frequency trader orders were cancelled,<\/strong> suggesting something else besides trading is at the heart of the strategy. Some high-frequency traders have claimed to be profitable on over 99 percent of their trading days.<\/strong> Our understanding of statistics tells us this isn\u2019t possible without some built in advantage. Instead of leveling the playing field, the exchanges have tilted it against investors.<\/strong><\/p>\n

Here are examples of the practices that should concern us all:<\/p>\n