Courtesy of Pam Martens.
The way the 200-year old publishing house, John Wiley & Sons, is pumping out books enticing average folks to trade the markets, one might be inclined to forget that 2014 will go down in history as the year when there were more charges of rigged markets on television, in courtrooms, at Senate hearings, and in prosecutors’ offices than at any time in the history of markets. If ever there was a time less conducive to trying your hand at trading, I can’t think of it, although October 29, 1929 might be a contender.
Wiley says it “provides everything the trader needs to survive and succeed in every kind of market.” But if every market is rigged against even highly sophisticated traders, how could a rookie with a little book learning succeed?
Let’s review what we’ve learned so far this year. On March 30, author Michael Lewis, who previously worked on the iconic trading floor of Salomon Brothers, went on 60 Minutes with professional trader Brad Katsuyama to explain to the world that “The United States stock market, the most iconic market in global capitalism is rigged.”
When asked by interviewer Steve Kroft who it is that’s rigging the market, Lewis replied: “By a combination of these stock exchanges, the big Wall Street banks and high-frequency traders…” Lewis goes on to explain that “High-frequency traders, big Wall Street firms and stock exchanges have spent billions to gain an advantage of a millisecond for themselves and their customers, just to get a peek at stock market prices and orders a flash before everyone else, along with the opportunity to act on it.”
With that knowledge, according to Lewis, these traders are able to front run your order. Katsuyama, a professional trader at the Royal Bank of Canada who later started his own firm, said the market would seem willing to sell him a stock but when he went to buy it, the price went up. It felt like someone knew what he was going to do – because they did. High frequency traders who could afford to spend millions to gain a millisecond advantage at seeing market prices faster could front run the slower trader’s order.
If the stock market is rigged, maybe you could use some of those Wiley books on trading the futures’ markets instead. According to three veteran traders who have filed a lawsuit in Chicago, the futures market is rigged also. Their court filing explains how the rigging works:
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