1) Selling 1,000 shares at say $6.50, then because of lack of liquidity, selling say 5 at $6.45, then 5 at $6.40. All of a sudden, last trade is 10 cents lower on negligible volume.
2) Wide bid offer spread, then 100 shares trade in the spread. I never see the 100 shares bid for or offered. Looks like same buyer and seller. Creates trade, but no real change of ownership and no ability for others to trade at that price.
Today's effort has both these aspects in spades. Speaking of which, this from SMH. Familiar?
High-speed whizzes distort sharemarket trading Charles Duhigg July 25, 2009 IT IS the hot new thing on Wall Street, a way for a handful of traders to master the sharemarket, peek at investors' orders and, critics say, even subtly manipulate share prices.
High-frequency trading is suddenly one of the most talked about forces in the markets. Powerful computers enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at others' expense.
These systems are so fast they can outsmart or outrun other investors, humans and computers. And after growing in the shadows for years, they are generating lots of talk.
Nearly everyone on Wall Street is wondering how hedge funds and big banks are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.
And when a former Goldman Sachs programmer was accused recently of stealing computer codes - software that a federal prosecutor said could "manipulate markets in unfair ways" - it added to the mystery. Goldman acknowledges it profits from high-frequency trading but disputes it has an unfair advantage.
Yet high-frequency specialists clearly have an edge over typical traders and ordinary investors. The US Securities and Exchange Commission is examining aspects of the strategy. "This is where all the money is getting made," said William Donaldson, former chairman and chief executive of the New York Stock Exchange and now an adviser to a big hedge fund. "If an individual investor doesn't have the means to keep up, they're at a huge disadvantage."
For most of Wall Street's history, stock trading was fairly straightforward - buyers and sellers gathered on exchange floors and dickered until they struck a deal. Then in 1998 the SEC authorised electronic exchanges to compete with marketplaces such as the New York Stock Exchange. The intent was to open markets to anyone with a desktop computer and a fresh idea.
But as new marketplaces have emerged, PCs have been unable to compete with Wall Street's computers. Powerful algorithms - algos in industry parlance - execute millions of orders a second and scan dozens of public and private marketplaces simultaneously. They can spot trends before other investors, changing orders and strategies in milliseconds.
High-frequency traders often confound other investors by issuing then cancelling orders almost simultaneously. Loopholes give high-speed investors an early glance at how others are trading. And their computers can essentially "cyber-bully" slower investors into giving up profits.
High-frequency traders also benefit from competition among exchanges, which pay small fees that are often collected by the biggest traders to whoever arrives first. Those payments, spread over millions of shares, help high-speed investors profit by trading enormous numbers of shares, even if they buy or sell at a modest loss.
"It's become a technological arms race and what separates winners and losers is how fast they can move," said Joseph Mecane, of NYSE Euronext, which operates the New York Stock Exchange.
The rise of high-frequency trading helps explain the increased activity on exchanges. Average daily volume has soared 164 per cent since 2005, according to the New York Stock Exchange. Precise figures are elusive but exchanges say a handful of high-frequency traders now account for more than half of all trades.
"You want to encourage innovation and you want to reward companies that have invested in technology and ideas that make the markets more efficient," said Andrew Brooks, head of US equity trading at T. Rowe Price, a mutual fund and investment company.
"But we're moving towards a two-tiered marketplace - of the high-frequency arbitrage guys and everyone else. People want to know they have a legitimate shot at getting a fair deal. Otherwise, the markets lose their integrity."
SLX Price at posting:
$6.24 Sentiment: Buy Disclosure: Held
(20min delay)