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Lejun James Shao is the founder of www.myIRAs.net (http://www.myIRAs.net/), WhitePine Investment Inc of USA, and CEO of WhitePine Software Inc, Beijing, China. He was the top finisher in MSN's 1st US One Million Dollar Investment Contest, "Strategy Open Tournament," with a +45.88% return in 4... More
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  • Is High Frequency Trading Fair to Small Investors? 0 comments
    Sep 16, 2010 5:19 PM

    High Frequency Trading (HFT) becomes one of the most talked-about topics in investment world recently. CNBC took a survey last few days and 80% said that HFT is not fair to small investors and said that HFT should be regulated.

    HFT plays a more and more important rules in the market place. Right now, HFT takes about 60% of all the daily trading volumes.

    In HFT, computers are so powerful and so fast that they can send millions of orders in millisecond using the most advanced algorithms.

    Big brokerage houses such as Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), JP Morgan (NYSE:JPM), etc and many hedge funds use it to make billions of dollars every day at the expenses of small investors.

    I don't think that HFT should be banned. But I strongly believe that it should be regulated and should be fair to small investors.

    The following are some of my suggestions:

    1. Fair playing ground should be provided for both big house and small investors. Right now IRA account can only buy long and cannot short stocks. IRA account cannot do day trading in general. I suggest that IRA account should allow to short stocks, should allow day trading.

    2. Regulators should allow the creation of IRA fund. That is, small investors can pool their IRA or 401k money into IRA fund. Allow this type of fund to do all the trading HFT is allowed to do. Regulators should also allow mutual fund to do HFT.

    3. Regulators should place strict rules for the HFT to do naked short.

    4. Regulators should allow everyone to access the same information big HFT house is allowed to access.

    HFT in general is not investing. It is another type of gambling but in stock market not in casino.

    If regulators allow HFT to be played in stock market, it should allow all types of accounts to do the same thing not only give this privilege to big houses.

    Otherwise, HFT should be banned.

    Disclosure: bac

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