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Scott Patterson of the Wall Street Journal reported last night that long term investors are having trouble buying and selling some of the most highly traded and popular stocks in the world.Stocks such as Bank of America Corp., MicrosoftCorp., Cisco Systems Inc., and Ford Motor Co. are so popular with high-frequency trading firms that long-term investors often have trouble quickly buying and selling the stocks, according to a report by Pragma Securities LLC.
These investors find themselves behind the high-speed traders and often wind up with less profits due to their place in line.
Rapid-fire firms gravitate to heavily traded stocks because they give them more opportunities to turn a profit. Since many high-frequency firms make money by scraping fractions of a cent per share traded, the more shares they trade, the more money they can earn.
This creates issues for long term investors, as they are essentially “crowded out” due to the competition between high-frequency firms trading at rapid rates.
Patterson’s article does note that the report by Pragma Securities does include some positives for high-frequency trading, such as a better ability for firms to trade highly traded stocks during volatile markets due to a flood of quotes.