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Benefit Wall Street € ™ s least understood traps

There € ™ s investment in the underworld is hidden in the bowels Wall Street € ™ s largest companies. Itâ € ™ World SA that the vast majority of investors have never heard of – and participants could be looting their investment earnings on a daily basis.

However, there € ™ departure to smart investors € | IA € ™ ll tell you what is in a minute.

High Frequency Trade (HFT) is a not-so-new trend Thata € ™ s have caused a frenzy among the minority of investors who have heard. With HFT, companies use sophisticated software to analyze the market and execute operations in ultra-high speed – sometimes within a few nanoseconds.

These systems make money for their companies to get a very low populations in high volume. This adds up to much money € | Some believe that firms like Goldman Sachs, one of the leading companies in HFT, are a quarter of its profits from trading a high frequency.

And all this activity has a significant effect on individual investors.

Itâ € ™ s estimated that in 2009 represents approximately 50% HFT transactions on stock exchanges like the NYSE and NASDAQ. The whole volume has increased immensely the volatility of the shares according to a recent White Paper on the flow of toxic for equity trading at Themis Trading. Â € œVolatility has soared. Markets Swing ™ € The average daily price of the year to date is approximately 4% compared to 1% last year. Spreads on the recent S & P 500 stock has doubled since the start of the year â € says the newspaper.

Thata € ™ SA impressive figure considering the fact that much of the 4% decline in the price swing is absorbed by investors who are not necessarily ™ € t sophisticated enough to deal with large companies. Thata ™ € But not all storia € |

Although most investors are familiar with the major stock exchanges like the NYSE or Nasdaq, Did you know that there are a series of commercials out there, as the Stock Market Boston, International Securities Exchange, Exchange or bat? Thata € ™ s not to mention electronic communications networks (ECN) and dark pools operating as under-the-radar clearing of large companies that want to keep their jobs hidden.

There € ™ has no negative effects on these exchanges or replacement firms € ™ desire to keep their businesses out of business predators â € "but when one considers the fact that these options do not have currency of nearly 75% of the volume of NYSE stocks, CA € ™ is disconcerting to think of how much impact at all these metro route options have on stock prices that the vast majority of ordinary people to invest in.

The unfair advantage in HFT

Access to underground spaces nâ € ™ t the only unfair advantage that the high frequency traders have. I also thank speeds Rapid implementation of a tendency to be known as co-location.

With the co-location, business travel to rent space on a server server side processing operations of the exchanges. And itâ € ™ s become a big market for swaps, which are hungry for more revenue this era of increasing competition. The NYSE is currently building two facilities that preliminary negotiations â € "a suburb of New Jersey and another on the outskirts of London â € "at a price of $ 500 million.

This proximity to Exchange € ™ s servers only HFTS gives an advantage to a few nanoseconds â € "but for companies to be measured in microseconds or less, Thata € ™ SA inestimable advantage. So far, the SEC Hasna € ™ t stepped in to regulate the practice co-location.

Another unfair advantage of high frequency operators is how to make a profit. Although there are a number of different types HFTS (including cash rebates traders, market makers automated program operators and traders predators algorithm) each with its own strategy of using the method of choice and often involves making it marginally profitable operations to collect more œrebateâ â € € or legally change by encouraging other major players in the newly acquired stock to a higher price.

While many supporters of HFT argue that companies trading in these volumes that add liquidity to markets, the fact that liquidity is to add sound nâ ™ € t â € "Itâ € ™ s often misunderstood due to information asymmetries in the market that big companies (and smaller companies and more aggressive) can enjoy.

The secret to avoid the pitfalls HFTS

If youâ € ™ re nervous about the impact of the frequency of transaction is in your wallet, nâ € ™ t to be. There are some things you can do to avoid being bitten by large program traders.

First, do your homework. Using fundamental analysis of solids gives you the advantage of quality, not only quantitative research. And we know that at the individual level, the effects of HFTS their operations are very small. As long as your stock price is justified by a strong investment case, you have nothing to fear.

Another way to avoid manipulation HFT is a look at small caps. High frequency traders depend largely blue chip stocks traded marginal profit. By investing in stocks that are smaller in the radar operators of the program, you can rule the impact on their investments.

While high frequency trading continues for the financial support Mediaa € ™ s attention, Itâ € ™ € ™ ll probably see a great need Wea in the regulation field. Until then, following these tips will keep you ahead of the best players in the € OETH Street. €

Even with the concerns of the HFT care support, execution is another pitfall for many investors € |

You could lose a lot of money every time you buy or sell a stock. Over time, could amount to thousands and thousands of dollars in losses and lost profits. Youâ € ™ re not alone â € "millions of investors fall into the trap of the same investment each year. But, armed with these three secrets for profitable performance for the small of the CAP can be sure that youâ ™ € Re faced the rise of all trades Penny Stock.

You see, as an investor in small cap, youâ € ™ ve got very different concerns from those who buy and sell only the blue chips. One concern is execution. And most likely, Itâ € ™ t something you havenâ ™ € t hear anywhere Elsea € |

Thata € ™ s, because for the most part, the execution is a term Thata € ™ s major players relegated to â € "the firms like Goldman Sachs and T. Rowe Price, as the teams devoted exclusively to the execution order. Penny Stock investors but many problems of implementation Similarly in small thinly traded stocks of large companies on Wall Street as companies like General Electric and Microsoft.

But before starting to work, Leta € ™ s take a look at what performance means € |

Order of execution is the process which takes action to try to buy or sell a stock. When most investors placing orders with your broker, the execution is almost instantaneous. But if it relates to small caps, the volume low of operations may interfere with the stock price and profits or losses.

Itâ € ™ s important to remember that, as its name suggests, the stock market is a market. What that stocks move based on supply and demand, not necessarily its intrinsic value. Despite that works well for highly traded stocks such as Exxon Mobil or Wal-Mart, where thousands of investors to hold their units around their fair value, buying and selling millions daily stock values of some small bag only a few hundred on any given day trade negotiations â € "some even less.

Therefore, stock prices sometimes petty, can deviate very far from where they belong. And though it may offer investors a lot prophetic profit opportunities can also be a big problem for those who nâ € ™ t protect themselves.

Understanding supply and demand

As mentioned earlier, trade in shares in a market. In markets, prices are set by the participants â € "in this particular case, and institutional investors who buy and sell shares. There are two pieces of information about each share prices: supply, which is how the investors are willing to pay for an action and demand, which is how many current shareholders are willing to sell at a price. When these two numbers are a trade happens.

Contributions sand € ™ t the hypothetical number pending orders â € "that are real.

For every action, there € ™ SA separation between supply and demand, known as the spread. If someones € ™ s willing to sell shares of Bank of America (NYSE: BAC) for $ 16.84 and another € ™ s state loans to buy shares at $ 16.83, Buyer-seller is a penny. The spread is maintained low the large number of traders in the idea, over and discharge while maintaining a narrow range of € BACA ™ s share price.

However, for a population Thata € ™ s lowest price, the differences can be huge. Thata € ™ SA big problem for small investors of the CAP, due to a differential SPANA € ™ s 2% to 3% of a population € ™ s price action may be essentially that kind of cutting performance of its position from the beginning.

And 3% in the red of the second purchase of shares of a stock nâ € ™ ta Good Deal € |

When youâ € ™ re about 3% of all trades, this problem is beginning to add up big. But follow these three secrets, and you can be sure that youâ € ™ re going to his small cap trades:

1. The love of liquidity

The best way to avoid being burned by the lack of liquidity is the only trade stocks that are trading activity sufficient to maintain the stock price in a reasonable range. And while this may sound limiting to some investors, the truth is that there are ample opportunities to invest in small-caps still decent volume of transactions in the market.

As a general rule, if an action doesn € ™ t thousands trading stocks in a day negotiation, CA € ™ is better keep his distance.

2. Use a limit order

Market controls are a bad idea for small cap investors. Thata € ™ s, and that run automatically when prices need to trade, which means that every time you start a market order to buy shares, youâ ™ € Re increase to meet the price the seller wants. With the common huge differential in small caps, market caps are a sure way to lose money up front. Instead, use a limit order.

Limit orders are mostly market orders are executed only below a certain price when youâ € ™ re buying stocks at or above a certain price when youâ € ™ re selling. Thei € ™ ll help ensure their input and output take place at prices you set, not the other party.

3. Beware of promotions

The promotion of stock is a popular way for companies small cap to increase the volume of daily transactions. This practice, which often uses questionable ethics, provides businesses with procurement who spread news or feeling good about a small town. But being on the wrong After this strong sense can be a very bad thing. Since the volume of securities small caps is often so thin, the sheer volume of waves caused by stock promoters can sometimes move a stock € ™ s stock price over 20%.

To avoid getting into stocks that are handling, see favorite places promoters € ™ € to "invest the boards News and Internet news sites â € "on the exaggerated language that goes beyond what one € ™ s Company shareholders off-peak. If you see the same language in different places, it is likely that a promotion is underway.

The grant is a rather unwieldy. After all, € ™ s no way to ensure that the people of his next selection will be 100% of profits. And there € ™ not to say if the company just add to your portfolio is a sure thing. But even with all this uncertainty, nâ € ™ t have to give its earnings before placing an order. Now youâ € ™ ve had three ways of ensuring that execution errors nâ € ™ t compression of profits.

Cheers,

Jonas Elmerraji

About the Author

Jonas Elmerraji is the editor of the Rhino Stock Report and a contributor to The Penny Sleuth, which offers unbiased commentary from expert analysts and authors about hot penny stocks.

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