How to Stop the Bankers from Ripping You Off

banker xThe advent of high speed trading has been a boon for the bankers. Because of the insanely high computing power available today, these bankers have trade systems that can spot your trade coming in milliseconds, fast enough that they can buy shares before you do and then sell those shares to you making pennies or even tenths of pennies. With more than a few billion shares trading every single day, it doesn’t take a rocket scientist to figure out there’s money to be made.

Best of all, for the banks, it’s no longer humans that do the trading, but super computers that need no benefits, no wages, no unions just a reliable source of power and super high speed internet access.

It’s these same banks and also hedge funds that engage in algorithmic trading. With this type of trade the computers rely on pre-programmed patterns of stock trading to make trades in an instant based on assumptions programmed in by the bankers. The result is wild trading in stocks, the kind that leaves the regular investor scratching his head.

Problem is that so many firms use these algorithms and that can spell disasters for stocks that might be the target of the these programs from either the buy or the sell side. Even market circuit breakers are useless because they are so wide.

The Securities and Exchange Commission has been looking into these types high speed and algorithmic traders but to little avail. If done ethically, these trades wouldn’t appear out of the ordinary.

However, because of a large network of hedge funds and institutional traders the market, the little guy – you and me are getting squeezed as the traders tend to all place the same bets at the same time causing massive price movements both to the upside and to the downside.

A recent example of this is PlugPower (PLUG), which manufactures batteries for various applications ranging from industry to automotive,

The shares have traded in a 52-week range of less than 50 cents to more than $8. Half the investment community thinks the shares are garbage and the other half think they’re going to the moon. The result is very heavy volume and that is what the bankers need to generate trading profits. As PLUG reaches certain support levels, massive buying comes in and when it reaches certain resistance levels, the shares soar.

This type of trading can go on for weeks and push the shares all over the place. Al the while the individual investor is getting whipsawed as nothing makes sense. Shares can drop 20% in a minute and soar by more than 20% few minutes later, creating a false sense of security and insecurity at the same time. While you are on the sidelines in euphoria or panic, these program traders are sucking in or selling out millions of shares every minute making money purely from the share price volatility that they are responsible for creating.

The problems that need resolution are two fold. First, the regulators need to make sure that everyone has access to market news at the same time. I recently wrote about how some market participants can actually pay to get news seconds faster than you or me.

Second, there needs to be an enforceable ban on allowing technology that lets institutional investors get and trade on retail customer orders at lightning fast speeds, basically scalping each trade for a profit.

Both of these issues are under investigation by the New York Attorney General’s office. However, any resolution will likely take months or years…if ever. In the meantime another individual has come up with an alternative solution to level the playing field – one that I will share with you in the next issue.

To your wealth,

Banker X.

P.S. from Midas Legacy Editor: Through his Washington contacts, Banker X exposes insider trading activity and sends appropriate specific BUY recommendations to subscribers to his C.H.I.R.P. service.

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