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Silly Question Posed By Forbes Magazine: 'Is The Stock Market Really Rigged?' — Is Snow White?

Fu%k the stock market - buy art
Illustration by Daniela Whaley
"As far as the question whether the stock market is really rigged, the answer is absolutely YES!"

By Robert Laura
In case you missed it, CNBC aired an interview between Brian Katsuyama and William O’Brien about High Frequency Trading. The conversation started as a result of Michael Lewis’s new book, Flash Boys, in conjunction with a 60 Minutes story that aired this previous Sunday. The big hubbub is all about Katsuyama’s quote, “The market is rigged.”

As an advisor, I received a few calls from clients after the 60 Minutes story aired and now, as the story catches fire, I anticipate even more questions. A comment such as, “The stock market is rigged” is no joking matter. It can potentially shake the very foundations of investor/client trust … and in my opinion is exactly what we need more of. Investing, after all, isn’t a free, zero sum game. But HFT (High Frequency Trading) is a problem that affects more than just wealthy Wall Street hedge fund players.

In a nutshell, the evidence offered in the book and the 60 Minutes story suggests some financial firms are investing billions of dollars in computerized systems and fiber optic cables in order to trade faster than everyone else. The sixty minutes piece does an excellent job of explaining the details and technology used to profit from this approach. For a more simplified perspective, investors can think of it like purchasing golf clubs through an online auction. Let’s say you find the perfect set and send in a bid of $1,000 for both the woods and irons. However, just as your order for the woods is confirmed, an HFT sees it and sends its own faster bid to buy the irons ahead of you. Then, before the online auction company even knows it, the HFT turns around and resells it to you at a higher price, which you inevitably pay because you don’t want a mismatched set of clubs.

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