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Benefit to avoid pitfalls and understood in Wall Street

There is a world of investment is underground in the bowels of the big Wall Street firms. It is a world that most investors have never heard of – and the participants could plunder their investment returns on a daily basis.

That said, there is a way for savvy investors … I tell you what is in a minute.

High frequency of operations (HFT) is a trend that is not so new that has been causing a frenzy among the minority of investors have heard. With HFT, companies use sophisticated computer systems to analyze markets and operations in ultra-high speeds – sometimes in a matter of nanoseconds.

These systems make money for their companies for very little gain in a volume too high actions. This adds a lot of money … an estimate that firms like Goldman Sachs, one of the leading companies in the HFT, constitute one quarter of their earnings trade at high frequency.

And all this activity has a great effect on individual investors.

It is estimated that in 2009, accounts for about 50% HFT transactions on stock exchanges like NYSE and NASDAQ. While this monumental volume increased volatility stocks according to a recent White Paper on capital flows toxic by Themis Trading. "Volatility has soared. The average daily market years from the date of the price swing is about 4% versus 1% last year. Extends Recent S & P 500 has doubled compared to over earlier this year, "the newspaper said.

It is a chilling statistic taking into account the fact that a large decrease of 4% of the price movement is absorbed by investors who are not sophisticated enough to cope with large companies. But this is not the whole story …

Although most investors are familiar with the major stock exchanges like the NYSE or the NASDAQ, did you know there are a number of exchanges out there, like the Boston Stock Exchange, International Securities Exchange or TSX bats? Not to mention communications networks Electronic (ECN) and dark pools that act as information centers, low-profile for large companies that want to keep their jobs hidden.

There is nothing wrong about these alternative exchanges or companies want to keep their jobs to predators traders – but when you consider the fact that the put options free trade are almost 75% of the volume of NYSE stocks, it is worrying to think how much impact of these options are traded on the subway stock prices that the vast majority of ordinary people invest in it

HFT Perks

Trade access meters is not the only unfair advantage that traders have high frequency. Also execution speeds thanks to a growing trend known as co-location.

With co-location business travel to rent space on a server only server side of the business processes of their own pockets. And it is becoming big business for trade who hunger for more revenue this era of increasing competition. New York Stock Exchange is currently in the process of building two sophisticated trading platforms – One in suburban New Jersey and another on the outskirts of London – at a price of $ 500 million.

This proximity to the Exchange server has an edge HFTS a few nanoseconds – but for companies that measure their trades in microseconds or less is a huge benefit value. Until now, the SEC has not taken steps to regulate the practice of co-location.

Another high-frequency unfair advantage is the way in profit. Although there are a number of different types of HFTS (including payment of liquidity traders, market levels in the program automatic operators, traders and predators algorithm), each with its strategy, the method of choice is often unprofitable offices to collect more "cut" of the exchange or legally encouraging other key players in the population has recently acquired a high price.

Although many supporters of HFT says companies doing business in these volumes much more liquidity to the markets, the truth is that liquidity is not healthy – is often undervalued by the market with asymmetric information than large firms (and smaller, more aggressive companies) can enjoy.

The secret to avoiding the pitfalls HFTS

If you are nervous about the effects high-frequency trading in your portfolio will, which may not. There are some things you can do to avoid getting bitten by the merchants great program.

First, do your homework. Using fundamental analysis sound gives you the advantage of quality, not only quantitative, the research. And we know that at the individual level, the effects of its operations are incredibly HFTS small. As long as your stock price is justified by a strong investment case, you have nothing to fear.

Another way to avoid manipulation HFT system is a look at small caps. effect of high frequency traders in many blue chips sold for profit margin. When you invests in small stocks that remain under the radar operators program, you can reduce the impact they have on their investments.

Although the type of change continues to attract the attention of large financial resources, are likely to see a greater need for regulation in the field. Until then, these tips will keep you informed ahead of the fastest players in "street."

Despite the concerns of HFT support, implementation is another stumbling block for many investors …

You could lose money every serious Once you buy or sell a stock. Over time, which could amount to thousands and thousands of dollars in losses and lost profits. You not only – to millions of investors fall into the trap of investing even every year. But armed with these three secrets implementing profitable small-cap program, you can ensure you are on the rise of all trades "penny stock."

You see, as a small-cap investor, you have very different concerns of those who buy and sell chips. One concern is execution. And Most likely you have not heard anything anywhere else …

Because most of the time, the execution is a term relegated to the big players – companies as Goldman Sachs and T. Rowe Price, which have teams dedicated to the execution of the order. But investors have a lot of penny stocks "of these same concerns enforcement orders in the small, barely shares traded than large firms on Wall Street does with companies like GE and Microsoft.

Prior to take seriously, let's take a look at what it means to the implementation …

Order of execution is the process that varies in action when it comes to buying or sell a stock. When most investors an order with your broker, the execution is almost instantaneous. But when small caps are concerned, the thin trading volume may interfere with the action and profit or loss.

It is important to remember that as the name suggests, the stock market is a market. This means that stocks will move according to supply and demand, and not necessarily its intrinsic value. This works well for many stocks traded as Exxon Mobil or Wal-Mart where thousands of investors to maintain their units around their fair value, buying and selling millions of shares every day, some small-caps only trade a few hundred shares during any given trading session – a trade, even less than that.

Accordingly, the purchase price of shares may Penny sometimes stray far from where they belong. And while it may provide investors with any vision of the future a lot of profit opportunities, also can be a big problem for those who are not protected.

Understanding the differences between buyer and seller

As mentioned above, trade stocks in a market. In markets, prices are set by the participants – in this case the individual and institutional investors who buy and sell actions. There are two pieces of information about the prices of any action: the offer that represents how much investors are willing to pay by an action, and demand, which represents how many shareholders are now willing to sell. When these two numbers meet, trade happens.

Buyers and sellers are not hypothetical numbers – which represent a real policy.

For every action, there is a separation between supply and demand, known as the spread. If someone willing to sell shares in Bank of America (NYSE: BAC) for $ 16.84 and over person wiling to buy shares of $ 16.83, its deficit Buyer-seller is a penny. The difference is small for the large number of traders in action, that saves back and forth to maintain a narrow range of stock prices of BAC.

But for a population that is smaller, the differences can be enormous. It is a great problem for small cap investors, by a gap SPAN 2% to 3% of the price action of a court action may be essentially that kind of performance position from the beginning.

And from 3% in the red the second to buy shares of a stock is not a good business …

When you're losing 3% of each transaction, this issue is beginning to add significant time. However, follow these three secrets, and you can be sure to make in its trade small caps:

1. Love liquidity

The best way to avoid being burned by the lack of liquidity only trade shares is to be enough business to keep the stock price in a reasonable range. And all this may seem limiting to some investors, the truth is that there are sufficient investment opportunities in small caps, which still sees a decent volume of transactions in the market.

In general, if a population no not trade thousands of shares during a trading day, it is better keep your distance.

2. Use a limit

Market orders are a bad idea for investors of small cap stocks. This is due to run automatically when necessary price to make an exchange, which means that each time you start a market order to buy shares, is trying to price the seller wants. With huge gaps in the small municipalities, the market caps is a sure way to lose money from the start. Instead, use a limit order.

Limit orders are essentially market orders and then only to perform a certain price to buy shares, or over a certain price to sell. They ensure that their inputs and outputs there are no set prices, the other party.

3. Beware of promotions

promotion actions is a popular way for small companies to increase the volume of daily transactions. The practice, which often uses questionable ethics, it provides recruitment companies that deliver news or feeling good about a small town. But being on the wrong side of the fortress can be a very bad thing. Since tiny volume is often so thin, the huge volume surge caused by the promoters sometimes actions can move the stock price of a stock over 20%.

To avoid getting into stocks that are managed, advocates see favorite places – Investing in forums and news sites – for more hype language goes beyond what a shareholder in the company which spout off. If you see the same language in several places, it is likely that a promotion is underway.

The scholarship is a very awkward place. After all, there is no way to ensure that the population of the next selection will generate revenues of 100%. And know whether the company has just added to its portfolio is a sure thing. But even with all these uncertainties, not giving their profits before placing an order. Now you have three ways to ensure that execution errors are not tense benefits.

Cheers

Jonas Elmerraji

About the Author

Jonas Elmerraji is the editor of the Rhino Stock Report and a contributor to The Penny Sleuth, which offers unbiased commentary from expert analysts and authors about hot penny stocks.

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