Don’t trust the financial robots: How high-frequency trading has killed the stock market

The people who celebrate the stock market as a place where fortunes can be made are quickly disappearing and, typically, these naive individuals do not fully understand the nature of today's market. In the old days, before the advent of lightning-fast technology, it was possible to have a fair shot at accruing enough profits to build wealth. While this is technically true today, a big hurdle exists that is nearly impossible to overcome.

The problem in question is high-frequency trading (HFT), which is conducted by computer algorithms capable of computing hundreds of thousands of trades per second. Think you can compete with one or two of these "companies" on a day-to-day basis? It gets worse.

According to various media outlets like The New York Times, HFT activities account for between 50 percent and 75 percent of daily volume. Some outlier estimates by independent bloggers put this figure at around 85 percent, accounting for roughly $30 trillion of actions a year. Wall Street institutions that utilize these systems state that HFT provides liquidity to the system, meaning that fast-flowing cash creates opportunities for smart money-makers. The reality, however, is that most of the trades happen so quickly that retail investors physically cannot react fast enough. Meanwhile, HFT-using hedge funds and trading desks reap in billions of dollars per year in profits.

Compounding this issue is the propensity for "flash crashes" to occur. Unlike a typical market crash led by human investors, flash crashes are instantaneous and can wipe out a company's value before anyone can react. The watershed moment for this phenomenon was on May 6, 2010, when the Dow Jones Industrial Average shed 1,000 points in a fraction of a second. While most of this money was immediately restored, hundreds of millions of dollars were instantly lost and that exchange's credibility was significantly tarnished.

Investors shouldn't trust a stock exchange that is run by robo-investors that operate by examining headlines or skimming profits off hard-working people. They may want to consider cash flow real estate as a means of asset protection. Great Wealth Strategies, an experienced consultancy that helps clients find productive rental properties, can assist investors who want out of an unfair market.