Protect Yourself Against Institutional Traders


By Regina Guinn


Unbeknownst to most individual investors (you and I), there are institutional traders with powers and capabilities far beyond ours.  Institutional traders are those who trade on behalf of others and include hedge funds, investment banks, brokerage firms, commercial banks, mutual funds, pension funds, insurance companies and large investment advisory firms.  They trade large blocks of shares and therefore, command a better price and literally move the market.  An individual investor selling 100 shares has no influence on the market compared to institutional investors looking to move hundreds of thousands or millions of shares through high frequency trading, algorithms, flash orders, dark pools, and insider trading.


CoolTrade is your protection against institutional traders.  This robotic trading mechanism is your protection against institutional trading.  Read more about the stock trading secrets they use to take an advantage in this constant game of cat and mouse.


High Frequency Trading

Many institutional traders now use very high speed computers to out-trade other institutional and individual investors.  They have the ability to buy and sell millions of shares in a millisecond, check several market makers for the best prices, and cancel orders before other traders even see them. Although they are technically legal, the SEC is investigating them, as those without this capability say that they constitute an unfair advantage.  According to The New York Times and other sources, Goldman Sachs delayed reporting the theft of such a program by a former employee, due to its sensitive nature.  This practice is wide-spread.  High frequency trading now makes up 73% of the US equity trading volume and algo trading, 25% of all the buy side shares trades, as reported in Advanced Trading


Liquidity Rebate Orders

Some of these same “algo” (short for algorithm) institutional traders also receive payment for posting orders, further encouraging huge trading volumes and market volatility.  The broker dealer doesn’t even have to make money on the trade itself, and if the order is filled, the broker dealer receives a rebate.  These rebates are driving up the price that other institutional investors pay.   Many other predatory practices are described in more detail in this Themis Trading White Paper.  Bank of America/Merrill Lynch needs to recoup its losses so they just rolled out new options order algorithms as mentioned in Wall Street and Technology


Flash Orders

Flash orders are orders that are sent briefly to a limited group of traders prior to displaying them to the public. The high speed computers described above take advantage of this millisecond period and allow their members to trade ahead of those orders and at better prices.  NASDAQ and BATS (another equity market in addition to the NYSE and NASDAQ) argue that they’re trying to improve the orders.  Even if the orders aren’t improved, they claim that they’re already reviewed by so many dark pools that there really isn’t an advantage to sending flash orders.  So, if there isn’t an advantage, then why are they sending them?  Flash orders aren’t regulated by the Securities and Exchange Commission (SEC), but according to The Washington Post, New York Senator Chuck Schumer wants to introduce legislation to prohibit their use if the SEC doesn’t take action soon.  Some flash orders are sent to Dark Pools, another threat against individual investors.


Dark Pools

The name says it all.  Dark pools are networks where institutional traders trade large orders without displaying the orders on the order books or revealing their identity.  Once again, there is a lack of transparency, which heavily favors institutions at the expense of individual investors.  If institutional traders have dark pools why would you, as an individual investor, ever want to place anything other than a market order? 


Insider Trading

A former Bear Stearns hedge fund manager was charged with insider trading after the 2007 collapse of two funds before Bear Stearns was sold to JP Morgan Chase.  And Wall Street wants to keep executive pay high to “retain talent.”


Goldman Sachs 

If all the techniques above weren’t enough to convince you of the market manipulations, read this scathing report on Goldman Sachs in Rolling Stone magazine.  Why did certain firms received bailouts and others didn’t?  Goldman Sachs yields incredible power.  When Goldman and others upgrade a rating on a stock, watch the sale of institutional shares after that.  When they downgrade a stock, watch who buys.  The large brokerage firms do not and never have had your best interests in heart.

Many individual investors have had enough and are leaving their brokers and advisors and opting for day trading, where they control their destiny.  This story in Wall Street and Technology illustrates one investor’s story.  You need investing software and stock trading tools that protect you against institutional trading practices.  CoolTrade, through its robotic, rule based trading platform, is your defense against these tactics.


Make your next trade a CoolTrade.


Regina Guinn CoolTrade Article

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