High Speed Trading and Naked Access
High frequency trading is the rave of the moment. It has been described as the self help bail out for a lot of financial institutions. Well, what is it? It is the process by which traders are able to more or less make sure bet trades using very fast computer software and robots. When a buy order is initiated or placed by a trader for a stock, these high frequency computers are able to capture this information and relay it to a high speed trader who then quickly buys that particular stock. By the time your buy order finally arrives, the stock purchased by the high speed trader is sold to you.
The amazing thing is that all this happens within 0.03 seconds and the high speed trader has just made a sure profit. This process is repeated over and over again within the course of the day and it is very easy to make a huge amount of profit running in the millions of dollars with a few high frequency trades. This strategy has been one of the most lucrative on the street in recent times and now accounts for more than half of stock trading volume.
What is Naked Access?
With regular fast trading the identity of who is making the high speed trade is known. However, with naked access, their identity is not known. This is made possible by regulated brokerage firms cutting deals with high frequency trading firms or other hedge funds firms, and letting them use their computer access codes to execute high speed trades.
These access codes are known as “market participant ID” and with this information the hedge fund or trading firms can trade directly on the stock exchange computers that match the order they have initiated without exposing their identity. This brings in huge trading fees and volume for the sponsoring firm but leaves the exchange in the dark about who made the trade.
Federal securities regulators are now looking into whether this arrangement threatens the market itself. But, trading firms that use these services claim that if the have to route their trades through a brokerage firms computer system, the split second delay will put them at a disadvantage. The next question is, how can an individual investor put these robots or high speed computers to use and make some money?Share Trading Facts:
These points give a cue to traders as to where prices will head for the day, prompting each trader where to enter his trade, and where to exit.
Beyond these costs are the opportunity costs of money and time, currency risk, financial risk, and internet, data and news agency services and electricity consumption expenses – all of which must be accounted for.
Although many companies offer courses in stock picking, and numerous experts report success through Technical Analysis and Fundamental Analysis, many economists and academics state that because of the efficient-market hypothesis it is unlikely that any amount of analysis can help an investor make any gains above the stock market itself.