This is the inside story of how the supercomputer-driven buying and selling of shares at stock exchanges is destroying traditional investing in shares through stock exchanges! Supercomputer-driven buying and selling barely existed a few years ago and now accounts for as much as two-thirds of U.S. trading.
In high-frequency trading, investors use computer algorithms to exploit small changes in a stock's price. If a computer can seize on a stock like Bank of America a fraction of a second faster than the rest of the market, it can book a tiny profit.
Those pennies add up over tens of millions of shares a day to produce big gains. And when computers rush to buy or sell a stock like Bank of America, it can result in accelerated moves in the stock price. Buying leads to more buying, selling to more selling.
It has started now in India! The result......unprecedented upward and/or downward movement in share price for NO APPARENT reason.....day after day!
Read the story on Bank of America shares below..... and be wiser, and maybe wealthier !
This article is meant to illustrate the phenomenon of "high-frequency trading". Beware of shares that are low priced but have millions of shares outstanding for trade. They will be targeted by the high-frequency trading by computers...............they will shake your portfolio! Beware! The barbarians have arrived ! They might eat you! Raw !!
Best of luck! Got to run, bye!
sanjeev josh llb, dmb, fca, mtax, irs
" How Supercomputer-driven Share Trading Destroying Your Wealth!"
When the market goes up because of positive news about the economy, Bank of America stock shoots up past the stocks of other big banks. When traders get worried about Greek debt, Bank of America takes the biggest plunge.
The big swings are not driven by a fundamental bet that the bank will be more profitable because the economy is getting better or a real concern that it will lose more money than others if there is a default in Greece.
Instead, Bank of America is the stock of the moment for high-frequency trading, the supercomputer-driven buying and selling that barely existed a few years ago and now accounts for as much as two-thirds of U.S. trading.
The bank's single-digit stock price and flood of shares on the market — three times as many as its nearest big-bank competitor — make it an attractive target for hedge funds and banks that employ high-powered, computerized trading.
In other words, the stock moves because it moves. Bank of America stock has risen or fallen 1 percent or more on 20 days in 2012. The Standard & Poor's 500 index has only done it three times.
For the year, Bank of America is up 46 percent, best of the 30 stocks that make up the Dow Jones industrial average. Big banks collectively are up 15 percent.
Bank of America is part of the Standard & Poor's 500, and therefore held in mutual funds in the retirement accounts of millions of Americans. And mutual fund managers hate high-frequency trading.
Not only does it make the stocks in their portfolios more volatile, but fund managers fume that high-frequency computers can detect their stock orders, step in to change the price of a stock slightly and pocket a small profit.
"It has nothing to do with the fundamentals," says Leon Cooperman, a billionaire investor, chairman of hedge fund Omega Advisors and former CEO of Goldman Sachs Asset Management.
For computers to move in and out quickly, there must be enough shares available to trade. Bank of America has a truckload — 10.5 billion shares outstanding, compared with 3.8 billion for JPMorgan Chase and 2.9 billion for Citigroup.
The stock traded as high as $15.31 last year. Then investors, worried about how deep the bank's mortgage problems might be, drove it below $10 in July. High-frequency traders pounced, and Bank of America's volume exploded. It was 147 million shares last summer. On Thursday, 477 million shares changed hands.
The low price put it in the sweet spot for high-frequency trading. If a high-frequency operation is trading blocks of 100 shares at a time to capitalize on a 1-cent change, there's a lot less risk working with a $5 stock than a $500 one.
It makes Bank of America "a juicy trade at very little risk," says Adam Sussman, director of research at Tabb Group, a markets advisory firm.
In 2009 and 2010, Citigroup, then part-owned by the government, was in the same spot. Its price was in single digits, and it seesawed day to day. It was often the highest-volume stock — as many as 500 million shares changing hands in one day.
Last year, Citi reduced the number of shares by exchanging one share for every 10. That brought its stock price up — $33 on Wednesday — and high-frequency traders stopped flocking to it. Volume on a normal day has dropped to 50 million.
Bank of America went the opposite way in November and December and sold 400 million more shares to the market to raise $3.5 billion and improve its financial stability.
Today, some investors — the human ones — are buying Bank of America because they like CEO Brian Moynihan's efforts to shore up the company's finances. Other investors won't touch it because they are afraid of the billions Bank of America is still spending to fight mortgage lawsuits. Charles Bobrinskoy, director of research at Ariel Investments, even calls the company "unanalyzable."
But none of those groups is driving the stock. Some days, it moves with little or no tangible reason.
On Jan. 10, a Barclays bank analyst lowered his price target on Bank of America stock and Morgan Stanley and Zacks Investment Research downgraded the stock. The stock didn't fall — it popped up 6 percent more.
Analysts say high-frequency trading is partly responsible for the huge daily swings in the market in 2010 and 2011. The technique gained notoriety after May 6, 2010, the day of Wall Street's "flash crash." The Dow fell almost 1,000 points in minutes, bewildering traders and inciting panic. The market recovered to close down 348 points.
High-frequency trading was blamed and attracted scrutiny from regulators. The Securities and Exchange Commission didn't ultimately blame high-frequency trading for the crash, but said it exacerbated the decline. Regulators haven't done anything to curb it.
Sometimes high-frequency traders don't even profit from the trade itself. They buy and sell shares at the same price and make money by sending large orders through the exchanges.
NYSE, Nasdaq and others want to attract the most traders. So they offer rebates of 20 to 32 cents per 100 shares to traders who send in large orders. On the electronic exchange NYSE Arca, traders who can move 35 million shares pocket a quick $112,000.
"Rebates will be the same no matter what the price, so the computers keep trading all day long," says Keith Bliss, senior vice president at brokerage firm Cuttone & Co.
Bank of America says it has no position on high-frequency trading. At some point it could reduce its shares, as Citi did. But, for the present, the bank is focused on strengthening its finances, the reason it sold more shares in November and December.
Read more: http://www.businessinsider.com/10-of-trades-on-the-nyse-involve-a-single-notorious-company-2012-2#ixzz1m9WeRS3C
In high-frequency trading, investors use computer algorithms to exploit small changes in a stock's price. If a computer can seize on a stock like Bank of America a fraction of a second faster than the rest of the market, it can book a tiny profit.
Those pennies add up over tens of millions of shares a day to produce big gains. And when computers rush to buy or sell a stock like Bank of America, it can result in accelerated moves in the stock price. Buying leads to more buying, selling to more selling.
It has started now in India! The result......unprecedented upward and/or downward movement in share price for NO APPARENT reason.....day after day!
Read the story on Bank of America shares below..... and be wiser, and maybe wealthier !
This article is meant to illustrate the phenomenon of "high-frequency trading". Beware of shares that are low priced but have millions of shares outstanding for trade. They will be targeted by the high-frequency trading by computers...............they will shake your portfolio! Beware! The barbarians have arrived ! They might eat you! Raw !!
Best of luck! Got to run, bye!
sanjeev josh llb, dmb, fca, mtax, irs
" How Supercomputer-driven Share Trading Destroying Your Wealth!"
When the market goes up because of positive news about the economy, Bank of America stock shoots up past the stocks of other big banks. When traders get worried about Greek debt, Bank of America takes the biggest plunge.
The big swings are not driven by a fundamental bet that the bank will be more profitable because the economy is getting better or a real concern that it will lose more money than others if there is a default in Greece.
Instead, Bank of America is the stock of the moment for high-frequency trading, the supercomputer-driven buying and selling that barely existed a few years ago and now accounts for as much as two-thirds of U.S. trading.
The bank's single-digit stock price and flood of shares on the market — three times as many as its nearest big-bank competitor — make it an attractive target for hedge funds and banks that employ high-powered, computerized trading.
In other words, the stock moves because it moves. Bank of America stock has risen or fallen 1 percent or more on 20 days in 2012. The Standard & Poor's 500 index has only done it three times.
For the year, Bank of America is up 46 percent, best of the 30 stocks that make up the Dow Jones industrial average. Big banks collectively are up 15 percent.
Bank of America is part of the Standard & Poor's 500, and therefore held in mutual funds in the retirement accounts of millions of Americans. And mutual fund managers hate high-frequency trading.
Not only does it make the stocks in their portfolios more volatile, but fund managers fume that high-frequency computers can detect their stock orders, step in to change the price of a stock slightly and pocket a small profit.
"It has nothing to do with the fundamentals," says Leon Cooperman, a billionaire investor, chairman of hedge fund Omega Advisors and former CEO of Goldman Sachs Asset Management.
For computers to move in and out quickly, there must be enough shares available to trade. Bank of America has a truckload — 10.5 billion shares outstanding, compared with 3.8 billion for JPMorgan Chase and 2.9 billion for Citigroup.
The stock traded as high as $15.31 last year. Then investors, worried about how deep the bank's mortgage problems might be, drove it below $10 in July. High-frequency traders pounced, and Bank of America's volume exploded. It was 147 million shares last summer. On Thursday, 477 million shares changed hands.
The low price put it in the sweet spot for high-frequency trading. If a high-frequency operation is trading blocks of 100 shares at a time to capitalize on a 1-cent change, there's a lot less risk working with a $5 stock than a $500 one.
It makes Bank of America "a juicy trade at very little risk," says Adam Sussman, director of research at Tabb Group, a markets advisory firm.
In 2009 and 2010, Citigroup, then part-owned by the government, was in the same spot. Its price was in single digits, and it seesawed day to day. It was often the highest-volume stock — as many as 500 million shares changing hands in one day.
Last year, Citi reduced the number of shares by exchanging one share for every 10. That brought its stock price up — $33 on Wednesday — and high-frequency traders stopped flocking to it. Volume on a normal day has dropped to 50 million.
Bank of America went the opposite way in November and December and sold 400 million more shares to the market to raise $3.5 billion and improve its financial stability.
Today, some investors — the human ones — are buying Bank of America because they like CEO Brian Moynihan's efforts to shore up the company's finances. Other investors won't touch it because they are afraid of the billions Bank of America is still spending to fight mortgage lawsuits. Charles Bobrinskoy, director of research at Ariel Investments, even calls the company "unanalyzable."
But none of those groups is driving the stock. Some days, it moves with little or no tangible reason.
On Jan. 10, a Barclays bank analyst lowered his price target on Bank of America stock and Morgan Stanley and Zacks Investment Research downgraded the stock. The stock didn't fall — it popped up 6 percent more.
Analysts say high-frequency trading is partly responsible for the huge daily swings in the market in 2010 and 2011. The technique gained notoriety after May 6, 2010, the day of Wall Street's "flash crash." The Dow fell almost 1,000 points in minutes, bewildering traders and inciting panic. The market recovered to close down 348 points.
High-frequency trading was blamed and attracted scrutiny from regulators. The Securities and Exchange Commission didn't ultimately blame high-frequency trading for the crash, but said it exacerbated the decline. Regulators haven't done anything to curb it.
Sometimes high-frequency traders don't even profit from the trade itself. They buy and sell shares at the same price and make money by sending large orders through the exchanges.
NYSE, Nasdaq and others want to attract the most traders. So they offer rebates of 20 to 32 cents per 100 shares to traders who send in large orders. On the electronic exchange NYSE Arca, traders who can move 35 million shares pocket a quick $112,000.
"Rebates will be the same no matter what the price, so the computers keep trading all day long," says Keith Bliss, senior vice president at brokerage firm Cuttone & Co.
Bank of America says it has no position on high-frequency trading. At some point it could reduce its shares, as Citi did. But, for the present, the bank is focused on strengthening its finances, the reason it sold more shares in November and December.
Read more: http://www.businessinsider.com/10-of-trades-on-the-nyse-involve-a-single-notorious-company-2012-2#ixzz1m9WeRS3C
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