Do you believe stock markets offer "Honest Price Discovery"?

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Do you believe stock markets offer "Honest Price Discovery"?

PostBy: lsayre On: Tue Aug 14, 2012 9:35 am

The US stock markets, that is.

Or through the magic of high speed trading could the brokerages be occasionally to routinely doing this, its called "front running":

I order 100 shares of a stock at a limit price of $20 per share.
My brokerage assures me they will actually buy on my behalf at the lowest possible price they can find, not to exceed my limit of $20 per share.
My broker then buys the stock at $19.50 per share and immediately sells it to me for $20 per share, pocketing the $0.50 per share difference.
I get my stock for the price I was willing to accept, never knowing that a third party purchase was made by my brokerage.

Who would ever open the books to each and every one of the millions of daily trades and review them in fine detail to see if this is never happening?

I'm only asking because I have never actually gotten a stock at even a penny less than my limit price.
lsayre
 
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Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: samhill On: Tue Aug 14, 2012 10:07 am

Wouldn't surprise me a bit, I only bought one time for less than my highest offer & that was shortly after I had a go round with her & said I was going to go with someone else. I got out of that sort of thing after retirement but I would highly suspect it.
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Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: franco b On: Fri Aug 17, 2012 12:23 pm

What I like is that there is more paper gold and silver than exists in the world, probably oil too. Derivatives, probably the next time bomb to explode.
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Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: Dann757 On: Fri Aug 17, 2012 12:44 pm

I wish I had the business acumen to prosper from the stock market. If I had have put a risk and a big chunk into Citigroup four years ago when I had the instinct to do so, I could have retired and bought a house with all that worthless paper cash! You can still make money if you want to look for pennystocks. There's "pump and dump" schemes going on all the time. They tell you when to buy, and a lot of these stocks shoot up hundreds of percent; but usually from morning to afternoon. Then they crash so you better have sold before they won't let you sell.
I told my accountant I made $6000 in one day on one of these, but I didn't sell in time. He said no you didn't make jack, that's only if you take the profits in time. :D

It's more dangerous to be naive than to have no knowledge at all.
Dann757
 

Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: rberq On: Fri Aug 17, 2012 8:33 pm

lsayre wrote:Or through the magic of high speed trading could the brokerages be occasionally to routinely doing this, its called "front running" ...

I'd vote for "routinely" rather than "occasionally".
My office mate and I have been arguing exactly this question in lieu of doing productive work. :)
My take is that high-speed computerized trading is now doing, in microseconds, the same dishonest job that floor traders traditionally did in minutes. So in my mind the little guys, i.e. you and I, are no better and no worse off than we used to be. And we're definitely not as well off as the brokers and traders who have been screwing us all along.

To make it work honestly, I think you would need direct access to the trading computers, or the computer of an honest broker. Then, instead of offering to buy at $20, you might offer $19, and in a fraction of a second you would know whether anyone was selling at $19. Then you (or really, the computer program acting on your behalf) would wait a few seconds and offer $19.01 -- then $19.02 -- and so on. At the same time, someone owning the stock would be offering to sell at $20, then at $19.99, then $19.98 -- and so on. When your two computers reach agreement, somewhere between $19 and $20, the sale is consummated and neither one of you got screwed.
Last edited by rberq on Fri Aug 17, 2012 8:49 pm, edited 1 time in total.
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Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: Cap On: Fri Aug 17, 2012 8:46 pm

Not sounding right here Larry. Anyone can see the price of any stock throughout the trading day on the intra-day graphs. You will know if it was at $19.50. If your broker isn't buying at $19.50, why not? Can him.
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Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: lsayre On: Fri Aug 17, 2012 9:30 pm

I believe my example of $0.50 was extreme, and intended only to emphasize the point. The actual front running is probably only a penny to perhaps a few pennies on most transactions. Front running is against the law. But who would know when millions of trades are made daily.

I've heard that 80% or more of trades these days are done by high speed computers, and stocks these computers are buying and selling are held only for mere seconds to at most a few minutes. Tradebot Systems is the largest of the high speed companies that trades zillions of times daily and ends the day owning no stock positions. They only hold shares for mere seconds at most. I believe they have never lost money in any up or down market. They are however an example of a company that does not buy and sell shares for customers. They buy and sell for themselves (by the fraction of a second) only to make a profit for themselves. Buy at $19.01, and sell perhaps not even a full second later at $19.02, then do this over and over again all day long using high speed super computers. If they can do this and be successful at it, I just figured that the brokerages could do the same while facilitating trades for their customers. This latter exercise is what is illegal. What Tradebot Systems does is not (yet at least) illegal.

Tradebot used to be located in Kansas City, but they recently moved to Wall Street. They calculated that the time required for electrical signals (traveling at near the speed of light) to go back and forth from Wall Street to Kansas City was losing them opportunities to make more money and trade even faster. Tradebot Systems alone often accounts for 10% or more of the total number of trades made on the big exchanges daily. And they are not alone.
Last edited by lsayre on Fri Aug 17, 2012 9:36 pm, edited 4 times in total.
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Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: Dann757 On: Fri Aug 17, 2012 9:31 pm

rberq wrote:So in my mind the little guys, i.e. you and I, are no better and no worse off than we used to be. And we're definitely not as well off as the brokers and traders who have been screwing us all along.


Bob, whattya gotta demonize traders for? Just sayin, they're the ones that want success bad enough to persue it. Some are crooked, some are fair, just like all men of any income level. If you buy a stock at $20, and it goes up to $30, why bellyache about somebody that wanted to wet their beak a little?
Dann757
 

Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: Yanche On: Fri Aug 17, 2012 10:49 pm

The computer trading uses some of the highest technology computer networking systems available. The idea is to get the current price of a stock before anyone else does, then make a buy or sell decision on that info. The computer systems for the NY stock exchange is actually in Mahwah, N.J. You can rent space in this data center and locate your trading computer there. That's what the high frequency traders do.

The link below is to a electrical engineering professional society magazine article on the topic:

http://spectrum.ieee.org/computing/it/f ... d-of-light

It's the free market system at it's best. Pay the most and get the best talent.

The financial industry hires the brightest computer science graduates in an attempt to get an advantage. It's a shameless use of human intellectual talent. Those young bright engineers and scientists should be putting their talents to better use, there's an endless list of technical challenges. Long term energy resources, cancer, global warming, etc. If you were on of the bright ones, what choice would you make? Wall Street and the big bucks, or some FDA funded government research lab paid a pittance GS schedule salary. There is something seriously wrong with where we as a nation are directing our best future talent.
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Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: Dann757 On: Fri Aug 17, 2012 11:25 pm

Yanche wrote:It's a shameless use of human intellectual talent.


Take it easy there Yanche. What are you, the director of technical morality? I must be the only guy that doesn't have a need to demonize Wall Street.

While you're here, can you tell me how to convert my arc welder into a focused surveillance drone jammer? :D
Last edited by Dann757 on Sat Aug 18, 2012 9:13 am, edited 1 time in total.
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Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: lsayre On: Sat Aug 18, 2012 6:47 am

Yanche's article link confirms that in 2009 78% of the Dollars moving within the stock markets for the entire year were from high speed super-computerized "vulture" corporations (all functioning similarly to Tradebot Systems) that are merely in it to legally scam the system. This adds yet more fuel to my original question regarding honest price discovery. With close to 80% of all trades being executed by super computers that are merely trying to out guess each other by the millisecond, with no intention to ever actually own and hold any corporate stocks, where is the honest price discovery with respect to a corporate stocks value coming from, and to what degree is this game playing to skim your money out of the stock markets distorting honest price discovery? As I see it these companies add no value to humanity at all.

Between this and front running, I guess I just joined the "demonizing Wall Street" crowd,
lsayre
 
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Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: lsayre On: Sat Aug 18, 2012 7:05 am

Through 2008 Tradebot Systems had yet to have a single money losing trading day, and they have been in business since 1999. I wonder if this amazing track record is still intact? Bernie Madoff was in the wrong business. We stood in awe of Hillary Clinton when she turned $1000 into over $100,000 in the futures market, by making 19 straight correct calls. Everyone should be in awe of Tradebot Systems and its ilk. They are amazing!!!!

http://georgewashington2.blogspot.com/2010/10/70-of-all-stock-market-trades-are-held.html
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Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: samhill On: Sat Aug 18, 2012 7:30 am

Dann, are you saying then that basically it's OK for any employee to "wet their beak a little" or just the ones in certain occupations? I was always under the belief that you know what you are going to get paid when you take a job so you do the best you can & hope to move up or look for something more lucrative.
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Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: lsayre On: Sat Aug 18, 2012 7:43 am

samhill wrote:Dann, are you saying then that basically it's OK for any employee to "wet their beak a little" or just the ones in certain occupations? I was always under the belief that you know what you are going to get paid when you take a job so you do the best you can & hope to move up or look for something more lucrative.


Excellent point samhill! You have nailed it! A scam in one endeavor should be (and is) as bad (and as illegal) as a scam perpetrated in any other.
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Re: Do you believe stock markets offer "Honest Price Discovery"?

PostBy: Dann757 On: Sat Aug 18, 2012 9:26 am

lsayre wrote:As I see it these companies add no value to humanity at all.


So a lot of people get rich from this, buy land (seller makes profit), build mansions on it, ( dozens of contractor's support their businesses and families), decorate them, ( more employment for people like HANDYMEN), furnish them, ( more employment), go out to eat at restaurants every day, ( support local businesses), buy fancy cars, ( local dealer survives), pay property taxes, ( infrastructure is funded), ETC. No value, huh?


samhill wrote:I was always under the belief that you know what you are going to get paid when you take a job so you do the best you can & hope to move up or look for something more lucrative.


We all assume stuff here, it's part of the virtual nature of the forum. You are mistaken again. I work for people who pay me time and materials. My reputation, integrity, honesty, and talent are intact and that's how I get work. I never "know" what I'm going to get paid, I take a risk every time, I believe in equality of opportunity, not outcome; you know, what the country was founded on.

Not defending this portrait of unimaginable evil; just sayin the whole world is filled with corruption and all I can do is go about my business with honesty.

Larry, you seem to know so much, I bet you're a millionaire yourself. It's none of my business.

Contact the SEC if you think it'll do any good.
Dann757