NANO-SECOND HUSTLERS…GAMING THE MARKET
(…by weaving Charlotte Webs of Deceit and Skim)
The current uproar about high-frequency trading, besides producing books about it, is also sparking both legislative and law enforcement interest, and launching a number of investigations into the practice.
To paraphrase an old car commercial…today’s stock market is not your grandad’s stock market. It seems to be filled instead with Wall Street nano-second hustlers gaming the market…by weaving Charlotte Webs of deceit and skim. More than ever anyone trying to increase their income or wealth through the stock market has to warily think in terms of that other old story about…step into my parlor…said the spider to the fly…because that’s what Wall Street’s market is today for average ordinary investors just trying to gain an extra buck or two to add to their net worth.
In some respects it’s nothing new. There have always been fast-buck artists wandering around on Wall Street, ready to skate the thinnest ice between being slicker than everyone else…and illegality…just to gain that “edge”. As for those watchdog agencies, being the bureaucracies that they are, these have always been less than effective at keeping them in check. No matter how many –thou shall not – rules they produce…those hustlers always seem to come up with ways and means to get around them.
Technology, of course, has alwsys been a contributing factor for aiding and abetting such denizens of Wall Street in their quest for being better able to “game” the market than anyone else. The key for doing that successfully has thus been how quickly one could react with information available to narrow the “spread” between sellers’ asking price…and buyers’ offering price. The shorter the time lapse needed…the better the result…and technology advances in communications helped to shorten that time gap, such as the ticker tape machine, wire services, etc.. Some, in those way-back times, ignored technology altogether, depending instead on developing a better insights into the mechanisms involved with stock trading, and from that, gamed the system quite profitably…and legally..
One such individual was a Hungarian immigrant named Nicholas Darvas who, back in the 1960’s managed to accrue some two million dollars in eighteen months doing just that. He was not a hustler, however, but just an honest engineer by training who had the insight to apply that training to the market. He had visualized it as a mechanism, and once he had figured out how its components operated…he was able to work that machine to his advantage. It was simply a different application of engineering knowledge.
Today’s technology, however, has a darker side.
Because of the speed with which data can now be sent from point to point, those aiming to game the system have figured out how to get in front of any buy order, get theirs in first, then turn around, and sell to that order…at a higher price…back to the original buying source, at a higher price than it had gone for…all in nano-seconds…and doing it in such a way that the buying source is mostly unaware it’s been had.
Such is the stock market world of today, where predators can now camouflage themselves with near impunity…and thanks to technology…no longer need complicated maneuverings to reach their prey. With today’s high-frequency trading technology they can just quietly siphon off huge gains while hardly making a noticeable ripple…anywhere.
Fortunately, some folks have noticed the patterns such trading methods create, and have come up with a method to counter these. Of course, no sooner than such counter-measures are applied, the gamers involved are likely to come up with new ways to dodge around them.
It’s ever been thus.
The moral of the story here is: when you enter the stock market jungle today, more than ever it’s…caveat emptor.
CENTURION
