“It’s like playing cards and seeing the cards first. If it was blind and it was at the same rates, that’s fine. But they get to see them first,” he says, adding that these players are even able to cancel trades, if they don’t get their desired price, without incurring any costs – a practice brokers would never let traders, like Salzer, get away with.
“If we were playing bids like that, and breaking them, our brokers would kill us.”
According to Salzer, the incentive to stop high-frequency trading (HFT) practice just isn’t there because bottom line – it generates activity and profit in the marketplace.
“The regulators may frown upon it … but the markets are a capitalistic, for-profit business,” he says. “The more trading activity they get, the more fees they get from participants, the better off they are, so they want volume, even if it doesn’t help support the markets in the long-term.”
Though HFT may not be ‘new’ news
in the industry, concern is certainly spreading to investors, their advisors and the regulators. Measuring the actual impact on individual investments is another challenge altogether.
So, how do you get ahead of the speed trader?
“You have to use limit orders to eliminate it (the threat),” Salzer says. “If you are using open orders, your price is going to move hard because these guys know that you are there … and they will keep bidding the price either up or down until you come into it.”
The deep end of 'dark pool' trading?