DIGITAL AMERICA

Stock Market

// Posted by on 06/04/2015 (6:28 PM)

During the inception of electronic trading, traders who worked for large corporations usually had   at least four or more computers monitors on their desk. Why? So they could watch the American, and Foreign exchanges and to trade stocks at a faster pace. The computers allowed brokers to watch the highs and lows of fortune 500 stocks in real time, and monitor financials/industry news.  They didn’t waste time switching from different screens.  For Traders speed is extremely important and electronic trading allowed for them more efficiency, and time management. It also put those traders who had faster servers, and more assets ahead of the game, when it came to placing orders with the exchanges.

As the article High-Frequency Trading: Networks of Wealth and the Concentration of Power, revealed, small investors had a difficult time trading instantaneously on the exchange; as, they didn’t have faster computers, and their assets were a lot smaller.  Initially, the smaller investor had trading using a broker; which caused for delays if your broker’s firm didn’t have seat on the NYSE. For example, by the time the broker took the order from their client’s, entered it in the system, and then initiated the order with the exchange; the price had changed, thus putting limitations on taking, and placing orders on the open market. However, if your brokers firm had a seat on the exchange the electronic transfer was sent immediately to the floor of the NYSE.

(See Richmond Times Dispatch: Business section: The Stock Market at Work: 7/9/1995)

For me that sounds a bit unfair, and unregulated. In order to level the playing field for smaller investors, SOES was enacted by the NASDAQ which somewhat allowed smaller investors who were shut out from immediate carrying out of their buy/sell orders, via electronic trading. Nevertheless, even with SOES, the exploitation of electronic trading could not be prevented. Some traders, who had more efficient and faster computers, then the NASDAQ market makers, used them to buy and sell stock at a gain before the NASDAQ market makers changed their prices in the system.

Now with even faster trading methods, known as High Frequency Trading (HFT), electronic trading has become more radicalized, and impacted the world of securities trading in a major way. For example, the hours of the American exchanges: are from 9:00 am, and close at 4:00pm (Monday through Friday). But, now with online trading home computers and firms are now able to buy and sell stock after hours in any market, even on the weekends. From big businesses, to small investors their computers do the thinking by placing market, limit and stop orders. Sounds fair, but it’s not, because the hierarchy of the playing field didn’t change.  You would think the determining factor on stock bids would be the price, but that is not true. Due to HFT, if all bidders are equal in price then whosevers order came in first will come before the successive bidders. Another radical factor about HFT is if bidding orders are equal in price, and arrival time, then the determining factor for the bid will be the size of the order. So, I ask whom do you feel has the capability of having faster servers and more assets; big corporations or smaller investors? 


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Comments:


Rosatelli said...

Hi Bonnie,

The answer, you may find some give, is that smaller investors should simply put their money with large corporations so they can access these types of trades. Do you think that’s a solution? How do you think Golumbia’s article on HFT fits in with the arguments that Saskia Sassen makes? We discussed HFT a bit on Monday as an example of how networked assemblages can concentrate power and how that power is separate and distinct from the nation state. I hope this is beginning to make sense as a we collect more and more case studies. Were we will eventually end up, and what I encourage you to think about, is where this leaves American culture and society. Are we changed, is our culture changed, by the way the markets work? (Even though it is almost invisible to most Americans?)

// 06/04/2015 at 8:18 pm

Lois said...

Hi Bonnie,

I definitely think the advantage is heavily weighted to the big corporations who have more money to spend on technological advances and increasing the speed of their hardware systems. Unfortunately, with HFT the small investor doesn’t really have a strong stance in today’s market. It may seem unfair, but with the fast changing technological advances it seems that it is every man/woman for themselves.

You mentioned that the playing field didn’t change…but with the advances in hardware/software and speed playing a major factor in trading, do you see these as changes in the playing field? Curious about your thoughts on that.

-Lois

// 06/04/2015 at 8:43 pm