How to Stop Wall Street's Flash Boys: Just Back Away

Wednesday, 09 Apr 2014 07:50 AM

By Patrick Watson

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink
Michael Lewis has two valuable attributes. He knows Wall Street's soft spots, and he has excellent publicists. Last week he used both to unveil his new book on automated high-frequency trading, Flash Boys. The media coverage sent certain human traders into convulsions.

Lewis is right to say Wall Street is "rigged" against small investors. He is wrong to suggest the rigging is anything new. Big brokerages have always regarded individual investors as cattle ready for milking. The only thing that has changed is the method by which they milk people.


The high-frequency trading shops are nothing but a technological evolution of "backing away" from a quote, which has been illegal for decades. Today's traders can back away faster and more efficiently. Nothing Lewis writes is surprising in that regard.

I was a little surprised at the high-frequency trading industry's painful squeals. BATS Global Exchange President William O'Brien had a near-meltdown in a CNBC appearance. O'Brien's "misstatements" about his exchange forced BATS to embarrass itself further by publicly correcting its own boss.

There is little doubt that high-frequency trading harms small investors, but what can you do about it?

When the deck is stacked against you, the best strategy is not to play the game. This is what Wall Street really fears. They need small investors in the game; we provide "liquidity."

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

The brokerage world would be in real trouble if we stop playing . . . and they will not change until enough of us quit. If you dislike being the grease on Wall Street's wheel, the answer is to take your capital elsewhere.

You do have choices. If you own a business, use the cash to expand it. If you need new skills to enhance your career, spend some time and money learning them. If you have more money than you can possibly spend, give some of it away to a worthy charity.

More choices are coming. I explained last week how Facebook's Oculus VR acquisition could mark a new era in capital markets. By matching qualified borrowers with willing lenders, crowdfunding platforms are already taking banks out of the loan equation. The same will happen for small business equity soon. Some states already allow it, and the feds already allow interstate equity crowdfunding for accredited investors.

Brokerages are intermediaries, not magicians. Their job is very simple: match buyers with sellers. We won't need them anymore when someone else figures out how to do it better. The New York Stock Exchange's first members knew this when they established their cartel. It's why they locked out competitors and fixed commission rates.

Much has changed since 1792. The NYSE and other exchanges provide a valuable service, but they are still anticompetitive, government-protected cartels. They don't have a constitutional right to our money. We have other choices. Now is a good time to start looking at them.

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

© 2014 Moneynews. All rights reserved.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web

Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Retype Email:
Country
Zip Code:
Privacy: We never share your email.
 

You May Also Like
Around the Web

Most Commented

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved