High Speed Traders - Are They Damaging Your Investments?

Jan. 26, 2013 - PRLog -- A top economist at Edmund Rome has concluded that the high-speed traders that have come to dominate the Worlds' financial markets are taking significant profits from traditional investors.

The chief economist at Edmund Rome, Thomas Werner, reports after an in depth study that high-frequency traders make an average profit of as much as $5.05 each time they go up against small traders buying and selling in any of the most widely used financial contracts.

Werner said on Wednesday, "These studies show that high frequency traders are really the new middleman in exchange trading, and they're taking some of the cream off the top. This further demonstrates why individuals who are wanting to be successful in the financial markets really need to be involved in trading with a firm like Edmund Rome where they can benefit from our resources and electronic trading systems, as well as the combined benefits from being able to follow our large institutional clients through trades"

Government officials have expressed uncertainty about whether high-speed traders are earning profits at the expense of ordinary investors.
There is a valid concern that the accelerating automation and speed of the financial markets may represent a threat both to other investors and to the stability of the financial system. Recent technological advances could lead to unintended errors cascading through the global financial system.
The issue of high-frequency trading has generated anxiety among investors in the stock market, where computerized trading first took hold. Indications show that top regulators are viewing the automation of trading as a broader concern as high-speed traders move into an array of financial markets, including bond and foreign currency trading.

It is important to note that there are different types of high-frequency traders, some of which are more aggressive in initiating trades and some of which are passive, simply taking the other side of existing offers in the market.
Large investors can trade thousands of contracts at once to bet on future shifts in something like the S&P 500 index. As a smaller retail investor the only way to capitalize on these trading techniques is to invest in the latest trading technologies, and this is not always financially viable.  

Industry profits have been falling as overall stock trading volume has dropped and the race for the latest technological advances has increased costs.
Mr. Werner warned that the smaller retail investors might leave the markets altogether, if their profits were drained away, opting instead to operate in investment markets, such as gemstones and antiquities, where high-speed traders would not get in the way of their profits.

"We have found that the competition between high-speed traders has helped lower the cost of trading for ordinary investors. But the limited data available to researchers has made it hard to determine whether the benefits [brought by high frequency traders] outweighs the costs" said Werner. "We're not estimating," he added, "Our data is excellent.