High Frequency Trading: Is it a Fair Game?

(http://www.tradedecider.com/user/blogs/TD%20Blog/2009/09/30)

By Corinne Speckert, TradeDecider.com

written on September 30, 2009 04:34, last update 6 months ago

What happened to the days of battling out prices, face to face, on the exchange floor? Well, those days may be scarce, but the people aren't missing, they've just been replaced by the new hires: high-frequency trading computers.

These new computers are booted with powerful algorithms, which transmit millions of buy and sell orders at once, leaving those without them in the dust. In addition, high-frequency trading computers have the ability to intercept competitor's orders — enabling their users to manipulate share prices.

Although proponents of high-frequency trading argue that it makes transactions cheaper for everyone because it provides a constant flow of securities, it has recently been at the center of controversy, as critics claim it creates an unfair playing field — with retail investors receiving the shorter end of the stick.

One edge high-frequency traders have is the ability to scan dozens of public and private marketplaces simultaneously — enabling them to change orders and strategies within milliseconds. One apparent way these fast-acting machines finagle funds out of average investors is by issuing and then subsequently canceling orders, in effect, driving up prices and then selling them back to traders at inflated levels.

High-frequency traders also profit off exchanges, which acquire small fees of around one-quarter-a-cent per share and go to the largest and most active traders. Multiply those fees by millions of shares and it's easy to imagine how a quarter-cent can become a huge gain and ultimately, give these traders an advantage.

High-frequency trading was authorized by the Securities and Exchange Commission in 1998 in attempts to open the market and compete with the New York Stock Exchange. Despite good intentions, it soon became apparent that there was a concentration of profits among a few dominating high-frequency traders — leading to the regulation of flash orders by the SEC.

Flash orders are beneficial to high-frequency traders because they provide an inside glimpse of market actions, but with the SEC now considering a ban on these sneak-peak helpers, we'll soon find out how beneficial they in fact are.

The financial hedge-fund giant, Goldman Sachs, said that high-frequency trading accounted for less than one percent on its total revenue in the first half of 2009. Despite the small percent, that still totals up to around $232 million — hot off the high-frequency trading floor — and that doesn't account for the company's high-frequency trading of options and commodities, which are estimated to account for more than 15 percent of daily trading volume, according to the wire service, Reuters.

Goldman Sachs isn't the only firm cashing-in. Among some of the financial giants profiting off this fast-track method is the hedge fund, Citadel, which is the high-frequency volume leader, controlling around 25 percent of daily trading activity, Reuter's states.

Beyond that, high frequency trading brought in about $21 billion in profits last year, according to the research firm, Tabb Group. So, if it's generating all this money, what's the problem? The problem, according to the New York Times, is that only a handful of traders are making that money and it's at the expense of small investors.

Note: Because of my lack of experience in financial writing, Phillip Pham, the CEO of TradeDecider, Inc., did not credit my name for these writings. Should anyone have questions regarding the authorship of these writings, please contact Phillip Pham at (408) 693-9358 or through e-mail at dtprophet@yahoo.com and philip4av@gmail.com

Progam Trading: Do Small Investors Have a Chance?

(http://www.tradedecider.com/user/blogs/TD%20Blog/2009/10/01)

By Corinne Speckert, TradeDecider.com

written on October 01, 2009 18:42, last update 6 months ago

Although program trading has been linked to past controversies, such as the 1987 stock market crash, it has been growing in popularity by not only large financial institutions, but also by average investors — now, accounting for around 30 to 46 percent of daily trading volume.

Program trading is essentially the simultaneous trading of large-volume securities, which typically consist of at least 15 stocks and have a total value exceeding $1 million.

Unlike other programs that work to assess a stock's value, program trading assesses stock prices based on buy and sell execution levels as opposed to fundamental or economic reasons such as dividends, growth prospects or interest rate movements.

These execution levels are based on the difference between the most active S&P 500 Index Futures Contract, minus its actual index, which is based on cash and ranges from $5 to -5 as its expiration date draws near.

The top players dictating these buy and sell signals along with the S&P 500 are the NYSE, Chicago Mercantile Exchange and the Chicago Board Options Exchange, which work by trading off each other's corresponding options.

Despite claims that program trading increased the market's volatility, it has prevailed, according to the Library of Economics and Liberty, due to three main factors.

1. Investors learned that trading diversified portfolio securities as opposed to individual stocks can help reduce risk.
2. Institutions are holding and trading higher fractions of equity.
3. A decline in trading costs due to technological advances.

One misconception investors may have about program trading is that it's fully controlled by computers — this is not the case. Although program trades are executed by computers, the buy and sell decisions behind them are made by people who use these computers to aid their trading decisions.

Among the financial giants capitalizing on this technique are Goldman Sachs — the number one firm in program trading — Credit Suisse First Boston, UBS Securities, Barclays Capital and Morgan Stanley.

Program trading has been associated with multiple trading strategies, with index arbitrage being among the most controversial, as traders try to profit off price discrepancies between the stock and futures/options markets and has been used as a tool by institutions with large and diverse stock portfolios.

In response to claims against program trading, time limits for its use have been set by the NYSE, which limited computer-generated trading hours. Time limits can be found at http://www.nyse.com

Although the big guys have the power of arbitrage, average investors can still benefit off program trading by following the stock market. By being aware of how stocks are weighted — on buy and sell sides — and ensuring your actions are aligned with those of the majority of traders — you too, can be a dominant player in the program trading game.

So, if it's that easy why isn't every investor taking advantage of this powerful trading method?

That's because the strategies associated with program trading — as well as the powerful algorithms behind them — are unknown to most traders except those working in Wall Street, who aren't likely to share their golden goose. If you have the time to obediently watch the market, you can be successful, but most people don't have that time — leaving the mega giants to continue their domination trend.

Note: Because of my lack of experience in financial writing, Phillip Pham, the CEO of TradeDecider, Inc., did not credit my name for these writings. Should anyone have questions regarding the authorship of these writings, please contact Phillip Pham at (408) 693-9358 or through e-mail at dtprophet@yahoo.com and philip4av@gmail.com

Short-selling Stocks

(http://www.tradedecider.com/user/blogs/TD%20Blog/2010/01/26)

By Corinne Speckert, TradeDecider.com

Written on January 26, 2010

Short-selling is overwhelmingly thought of as negative by many investors, financial institutions and by the U.S. government – and, it's now without reason. Despite benefits associated with this trading method, short-selling and its counterparts have had their fair share of controversy.

The practice of short-selling has recently been caught up in a battle of tug-of-war. Critics argue it has forced share prices down and destroyed market confidence, while proponents hail it valuable – claiming it ensures the accurate portrayal of stock prices in relation to investor demand.

So, which way do you go? In this article we'll discuss the fundamentals of short-selling and then we'll get to its pros, cons and the current regulations facing it.

Short-selling is the selling of a borrowed stock that has an anticipated loss in value, so the trader can sell it at a higher price and buy it at a lower one – keeping the monetary difference generated through the exchanges.

When short-selling was first approved by the Securities and Exchange Commission in 1938, it was thought to benefit the market, but after the U.S. government needed to bail out numerous major financial institutions in 2008, its popularity dwindled as banks and companies claimed it contributed to heavy declines in share prices.

Among some of the institutions opposing short-selling is the investment firm, Lehman Brothers, who, after taking a hard hit during the mortgage crisis of 2007, claimed that short-sellers had spread rumors to drive down their stock's price – ultimately, leading them to file for bankruptcy in September. Although it is impossible to confirm the validity of the Brother's claim, it is also very likely.

Short-selling has many benefits – such as, providing markets with extensive information by evaluating market downtrends – and it also has downsides, as it can be used to manipulate share prices by crooked traders. This method, named the “short and distort” by its Wall Street users, capitalizes on rumored misfortune and a bear market in attempts to manipulate stock values.

The short and distort method is essentially a smear campaign lead by short-sellers who spread rumors of loosing shares in attempts to bestow fear in holders by distorting a stock's true value. This allows traders using this method to sell the rumored stock at a higher price and then – after devaluing it through false information – to buy it back at a lower one.

The panic caused through the short and distort method sequentially leads to heavy looses by slandered financial firms, as well as average day, swing and long-term traders who falsely sold their stocks and therefore missed out on its potential profit.

Another controversial technique associated with short-selling is naked short-selling, which the S.E.C marked as illegal in July. Naked short-selling is similar to the original, except traders don't determine that a stock is borrowed before selling it. This saves short-sellers from fees associated with borrowing and allows them to manipulate stock prices by disregarding a stock's normal supply/demand pattern.

In attempts to counteract and regulate the negative effects associated with short-selling, the S.E.C adopted regulation SHO in 2005. In 2007, the S.E.C further amended this measure to include naked short-selling in order to eliminate existing loopholes enabling its illegal use. An outline of SHO regulations can be found at www.sec.gov/spotlight/keyregshoissues.htm.

Despite regulations, which Wall Street and Congress say have helped curve manipulation associated with this method, it's still under scrutiny, as the S.E.C announced five proposals to further regulate short-selling in April and started talks regarding toughening regulations on naked short-selling in September.

Of the five proposals, one entails imposing a bid-test, which would only allow short-selling if there was an increase in a stock's last bid price. Another proposal would use circuit breakers to prohibit short-selling for the rest of the day, once a stock's price had declined by at least 10 percent.

Despite the controversy associated with short-selling, hedge funds still argue about its necessity, saying it adds liquidity to the market. The investment firm, Goldman Sachs, further argues that more regulations would only hurt investors instead of helping them.

With heavy hitters on both sides of the short-selling debate, the ultimate question comes down to: Do its pros outweigh its cons?

Basically, short-selling is helpful to traders and financial firms because they're able to receive negative news sooner. This gives them the chance to play damage control by allowing them to either sell a failing stock for a profit, or get out without too heavy of a loss.

Other critics argue that its practice – through selling borrowed stocks instead of their own – is unfair, but on the other hand, this option helps maintain the market's balance by allowing buyers to borrow shares. If short-selling didn't exist, buyers who couldn't find shares would need to increase their bids, which would widen bid/ask spreads and ultimately create a warped market with random pricing.

As the S.E.C spends the next few months determining the extent of regulations imposed on short-selling, this method's future may not be clear, but something that is inescapably apparent is the necessity of traders to protect themselves from the scandals intertwined with this beneficial, but potentially harmful method.

Note: Because of my lack of experience in financial writing, Phillip Pham, the CEO of TradeDecider, Inc., did not credit my name for these writings. Should anyone have questions regarding the authorship of these writings, please contact Phillip Pham at (408) 693-9358 or through e-mail at dtprophet@yahoo.com and philip4av@gmail.com

Long-term Trading

(http://www.tradedecider.com/long_term_trading)



By Corinne Speckert, TradeDecider.com

With an erratic stock market, long-term trading is not only appealing, but in the long run it can be more profitable than short-term trading because the time that accompanies long-term buying and selling allows traders to take advantage of the market rebounds and superior returns that aren't present in other methods.

Long-term trading has a much slower and steadier pace than that of day or swing trading, where traders hope to cash in on multiple stocks within a short period of time. In contrast, a long-term trade shoots for one larger gain over a longer period of time — decreasing the amount of risk as your stock becomes more stable.

One of the most tempting aspects of long-term trading is that it doesn't require the amount of dedication that short-term does. Short-term traders are often confined to their computers, watching the live market throughout the duration of a trade, whereas long-term traders have the luxury of time. The time to make thought-out decisions, to look for new opportunities and information and the time for other obligations, such as full-time jobs and families.

Going the long-term trading route can also help stabilize your mood, because you're not as vulnerable to the stock market's volatility as day and swing traders are. Sitting in front of a computer, watching as stock prices continually fluctuate between your stop-loss and exit-limit, can take a toll on your emotions and ultimately, can negatively impact your trading strategy.

Furthermore, the focus required to manage the order of entries, exits and stop-losses present in short-term trades can consequently cause traders to miss out on new opportunities found in other stocks. Fortunately, long-term traders don’t need to worry about missing potential opportunities because they have the time to carefully watch for new ones, which helps them avoid making hasty decisions. In addition, long-term traders have the benefits of diversification and portfolio management, which help to reduce risk.

Although, there are many benefits associated with trading in the long-term, there are a couple downsides to this method, such as you can't expect to make money as fast as you would with short-term trading and you may also lose some control over your money as it matures.

While you may lose some control over your money in the beginning, on the flip side, as a long-term trader you have room to actively manage a position for several months because you're not restricted to the buy-and-sell method of your short-term counterparts.

Despite the differences between short-term and long-term trading, there is one inescapable similarity - you need to have a trading plan. Unfortunately, finding that perfect strategy that meets all your needs can be a lengthy task to take on.

Our system

Fortunately, through my Proprietary Algorithmic Trading System you don't need to spend endless hours compiling information for a trading plan, as you can easily follow trades through my system and receive current and valuable information to help you choose the right stocks for your trading goals.

Our team first uses fundamental analysis to select stocks with potential high price increases in the long run. After selecting the best stocks to fit our members’ needs, our system then uses technical analysis to provide us with the entry and exit prices to help guide our clients’ trading decisions.

To ensure that our clients are aware of trading opportunities, our trading system sends trading alerts to let our members know which stocks are progressing and provides articles detailing the reasoning behind our chosen stocks. In addition, our system ensures that you have the most valuable information to aid your investment decisions because every trade is tracked and analyzed by our trading computers — guaranteeing we're always current on the motion of stocks.

To help our clients better understand the workings of our site, we're currently offering a free one-month trial of our Premium Membership Service. If you decide our site doesn't align with your investment plans, then simply cancel your membership before the end of your trial term and you won't be charged.

If you do, however, feel that our system compliments your trading goals, then the only cost you face through subscribing to our site is the subscription charge, which you can make back and more, by using our services.

Note: Because of my lack of experience with financial writing, Phillip Pham, the CEO of TradeDecider, Inc., did not credit my name for these writings. Should anyone have questions regarding the authorship of these writings, please contact Phillip Pham at (408) 693-9358 or through e-mail at dtprophet@yahoo.com and philip4av@gmail.com

Swing Trading

(http://www.tradedecider.com/swing_trading)

By Corinne Speckert

Swing trading is often related to an art form. There's no specific formula to aid successful trading decisions and even after committing oneself through research, there's no way to flawlessly predict market behavior.

The art of swing trading differs from its day and long-term trading sister methods, as swing traders hope to make short-term gains within a few days or weeks. They further develop their artistry by researching and evaluating current holdings, by being aware of market and sector sentiment and by being decisive in their enter and exit points – and it doesn't stop there.

Successful swing traders generate their creativity through trial and error – they not only evaluate their daily trading activity, but they improve it by being aware of their mistakes, choosing the right stocks and through participating in the market most likely to meet their needs.

In order for swing traders to accurately assess a stock they dedicate hours of time – usually starting at around 6:00 a.m. – researching the market.

If traders hope to utilize market information, they need to understand its volatility and its fundamental and technical components. In order for traders to know when to successfully enter and exit trades, they need to be able to separate themselves from their emotions.

Consequently, without the right information and tools, individual traders rarely master their craft, as they don't possess the needed background knowledge or the resources to see them through.

Proprietary Algorithmic Trading System

Luckily, through subscribing to our site, our dedicated and qualified team of professional traders can provide you with the needed tools to be victorious in the world of swing trading. Our Proprietary Algorithmic Trading System analyzes all the forces that impact the market by using fundamental and technical indicators to provide us with a solid trading plan, allowing you extra time to spend on other activities. You no longer need to be glued to your computer, researching the market – our system and team does the work for you.

By using our site, you can become a lucrative trader. All you need to do is follow our trades, which is made even easier because our system posts alert signals on our Web Site to help our members decide whether to go long, short or close a trade altogether. Furthermore, we send e-mail alerts to our members to help ensure that profitable trades are seldom missed.

Our system has the ability to make trades based off of the most recent and relative stock information because every trade is tracked and computed by our algorithmic computers.

Our work doesn't stop there. Our team knows the value of education, especially when dealing with money. In order to ensure that our members are comfortable with the stocks they're trading, we provide current articles on the stocks we'll be trading the following day. Furthermore, a portion of our previous week's trades are posted on our Web Site each week – enabling members to evaluate their performance.

Subscribe today and receive a free 2 week trial of our Premium Membership Service. If you're hooked after your trial period, you're guaranteed total access to our site and material for a nominal fee, which is comparative to pocket change based off of the profits you can rake in through using our site. If you should decide against joining our site, just cancel before the end of the trial period and you won't be charged.

Here, at TradeDecider, we don't play games. We value our art, take pride in our craftsmanship and know we can help you fine tune your skills until you reach your desired trading level.

Note: Because of my lack of experience with financial writing, Phillip Pham, the CEO of TradeDecider, Inc., did not credit my name for these writings. Should anyone have questions regarding the authorship of these writings, please contact Phillip Pham at (408) 693-9358 or through e-mail at dtprophet@yahoo.com and philip4av@gmail.com

Day Trading

(http://www.tradedecider.com/day_trading)



By Corinne Speckert

It isn't easy to become a top-player within the day trading field. As a day trader, you need to use the right trading systems and you need to have access to the right tools, such as a trading desk and expensive analytical software. Beyond that, you need to religiously research numerous news sources in order to be up to date on the motion of stocks.

According to Investopedia.com, around 80%^[1] of day traders loose money, meaning, the above tools are vital. Unfortunately, the needed software is costly and the amount of research needed to stay ahead of the game is often too time consuming — this can cause rookie traders to partake in the field without the needed tools to make knowledgeable trades with.

In order for day traders to succeed they need to have an edge over the market, but for those of us short on time and copious amounts of money, that edge is often out of reach.

Fortunately, I have personally developed a trading system that takes these pressures off your shoulders. Through my Proprietary Algorithmic Trading System, the needed tools to succeed as a day trader are no longer out of your reach because they're all built into this one-of-a-kind system, which works to guide your decisions without forcing the inconvenience of extensive research and costly software on you.

Our trading system automatically picks the best stocks for you and provides the most recent and valuable stock information because every trade is tracked by our trading computers and automatically posted on our Web site in real-time — allowing you to observe trades instantly.

Through the use of our site you'll instantly be ahead of the game, as our system is the only one of its kind with the ability to post trades in real-time.

Our trading team works hard to provide our clients with this invaluable information through extensive research using fundamental analysis. Through this method we choose stocks with high liquidity and potential price fluctuations to use in our system. After selecting the best stocks for our clients, our system uses technical analysis to make the most profitable trades available at any given time.

Emotions

Not only does our system take out the expense and research factors associated with day trading, but it helps tame emotions that can detrimentally influence your trading decisions, by making these antagonizing decisions for you.

As any day trader knows, some of the most destructive emotions you're faced with are greed and fear and your ability to control them is essential.

• Greed and Fear

  Feelings of greed can inadvertently affect day traders' profits by stroking their egos to the point where they make trades independent of their original plans. Fear also influences trading decisions, as the biggest fear day traders face is whether they're going to make loosing trades.

  For example, after a loosing trade, fear can deter traders from taking profitable ones that could have covered their losses.

• Decisiveness

  One of the most basic and essential functions of a day trader is deciding when to enter and exit trades. In order to become a successful trader, day traders need to know when to exit a trade and must be prepared to take small losses in order to avoid large ones down the road.

• Patience and Calmness

  Remaining patient and calm are essential in securing profitable trades. Day traders often wait several hours for the next trade to come along and if they can't remain calm, their ability to make rational decisions can be altered — adversely affecting their trading decisions.

For example, after a losing trade feelings of panic can occur, which can consequently coerce you into nabbing an unprofitable trade in attempts of winning back your money.

Our system

Fortunately, the psychological and emotional weaknesses described above are taken out of the mix — resulting in a clean slate to make trades on — with our algorithmic trading system.

Through our system, you don't need to be an expert at day trading, as you simply follow our structured system and reap the potential rewards. We don't have to promise enormous returns in a short period, nor do we need to market our system as a get-rich-quick scheme because the results are enough proof that our system works. We merely wish to educate day traders of this new system that has consistently returned substantial profits and we are confident that it can do so for you too.

Our system further makes it easier to keep tabs on trades by posting a portion of our previous week's trades on our Web site each week. Best of all, you aren't required to handover any personal account information, nor do you need a minimum amount of money in order to reap the benefits our system provides.

With more than 10 years of extensive experience in trading stocks and a winning track record reflecting our proven success in program trading, we can help you as a day trader or as a swing trader in ensuring your maturation into a successful trader.

The only cost you face through subscribing to our site is the subscription charge, which you can make back in as little as one day.

To gain a better understanding of our system and experience the potential profits it provides, we're offering a free 2 week trial of our Premium Membership Service. If you decide our site is not for you, then simply cancel your membership before the end of the trial and you won't be charged, as we want you to find the best resources to fit your trading goals.

Note: Because of my lack of experience in financial writing, Phillip Pham, the CEO of TradeDecider, Inc., did not credit my name for these writings. Should anyone have questions regarding the authorship of these writings, please contact Phillip Pham at (408) 693-9358 or through e-mail at dtprophet@yahoo.com and philip4av@gmail.com