From an ultra conservative...
Can't get shot for having an opinion, so here's my thinking on the stock market today. Sometimes it's a good thing to see what the minority is thinking.
So: HFT, ETFs, Algorithms... and the Black Box
A Millisecond = One one thousandth of a second.
As well as being the cause of market instability, possibly the single most efficient tool for changing the balance of wealth in the US.
We are led to expect that the stock market is a type of auction, where individuals bid for shares of stock.
Imagine an auction, where the auctioneer controls the sale... the "going, going, gone!" that happens when his head is turned and doesn't see your hand raised to place a higher bid. Then imagine that this "sold" takes place in a millisecond.
Now imagine that instead of people... the transaction is made with competing computers... programmed to buy/sell at a rate of one thousand transactions in a single second.
Now, imagine what can happen in that single second, when bids (trades) are made by computers, designed to work in concert... buying and selling... taking profits in the matter of seconds... and the money leaving the market... not to the person waiting patiently at the computer to see if his bid is confirmed, but to the people who are manipulating the values.
Not readily apparent in the news, but trillions of dollars disappear from the markets, in the matter of hours or days.
"Ah, yes, but the market recovers!"
Well, yes... but where did the money go in the first place? And, more importantly... Where did the money come from to replace the money that disappeared?
So, the next question is... "How do you get in on the first part?"...
Hmm... maybe you're a trader. Maybe you get lucky. Maybe you can beat the "black box".
Or maybe you wait it out. The "market" always comes back. The next question is, "How long does it take for it to come back?"
In 1929, it took until 1936. (some say until 1945)
In 1974, it took 8 yeas to recover.
The average is 2 years.
Buy low, sell high... of course. But who really does that? The greatest profits come from the "buy low" risk takers... What usually happens, though, is that the "sell" come somewhere nearer the bottom, and the "buy" somewhere nearer the top.
Stay the course? Wait? Play the 2 year odds? In a stable world, okay... but where will the price of oil be in two years? When will the "Tech" bubble level off? And if you hang in there for two years, you'll be back where you started.
Where is the SEC and the CFTC in all of this? Historically, when regulation has taken place... how long did it take, and who represented the investing public during the decision making process? After the "Flash Crashes" what changes were made to safeguard future problems?
This may be worth a read:
Black Box Trading: Computers Taking Over Wall Street? - Business Insider