Stock market question?

[Peacetrain]

Many of us are all in the stock markets whether we realize it or not.. From defined pension plans to 401-K's and IRA's.. to saving for our kids to go to college in college plans.. its all in the markets.

Now I will be the first to admit.. I have some knowledge, and that in an of itself can be a dangerous thing.

So let me set this up.. Yesterday, I was listening to some economic talking heads rattle on about last weeks 1,000 point drop.

One thing I did not realize, is that over 60 to 70 percent of all trades are now automated.. that is huge.
I put this in general discussion, but I do not think I will get any responses on it, because it is kind of a dry question.. but does anyone in here have some insights to this.. I was really intrigued with the proposition.



So the stock market really is a gamblers paradise with a few throwing the dice and using our money to make the throw.

One of the commentators brought up something that is being tossed about that I had never heard before, and my first inclination was HECK YES.. lets do that.. but it may not be feasible.. so here it is
..

Could we have a 2 tiered stock market.. one for long term investors in companies (where most of us think we are, but aren't)

And a mirror market for those who want to use high automated trades to jump in and out of companies as many times as they want in a day?

Would it even be a feasible thing?

It sounds good on one level, but totally inoperable on another..

Does anyone have any insight into something like this?
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[quiet.american]

1. Well, if I understand you correctly, Peacetrain - that exists now - it's called "daytrading." :)

Not trying to yank your chain! -- :)

The exchanges have been automated for some time - NASDAQ is a purely automated exchange, and the NYSE and AMEX are hybrids of automated and floor trading.

There are "investors" (buy and hold), and there are "traders" who jump in and out of companies as many times as they want in a day (although, for those who do it seriously/for a living, that's mostly known as "overtrading" -- not something you really want to do, because you want to preserve your trading capital and minimize your losses -- "risk management").

However, what the talking heads were really referring to is the highly sophisticated (supposedly) high-frequency trading models set up by multi-billion-dollar companies (Goldman Sachs - surprise- is a prime example) to scope out billions of trading scenarios and then jump in and out of both sides of trades in milliseconds over and over and over - something it's impossible for an individual trading at their computer to do. And this process often wipes out unsophisticated traders (us regular folk), because it may seem that a stock you'd like to buy is taking off, so you get in, and then -- boom, it plunges, because the high-frequency programs are buying and selling the same trade almost instantaneously. (In any case, that's my layman's explanation of it, Google "high-frequency trading" for more technical and accurate details.)

But look, it's not impossible to trade profitably on your own. There's A LOT to learn, but there's also some good information available online and at the bookstore that can get you started. But CAUTION: the price of admission is usually first losing your entire trading stake as you rack up trading mistake after trading mistake.

But ultimately, I think it makes sense to understand and learn about how this gameboard called "capitalism" that we're on works, and to understand how to play the game, rather than just being at the mercy of it.

[Peacetrain]

3. Thank you for giving me a more detailed view of it!

I have my retirement in the stock market thru TIAA-CREF and keep it in the Social Choice.. balanced accts., and leave it be. because there is no way I can keep up with it..

[grantcart]

2. No you cannot have a two tiered stock exchange selling the same stock

you could theoretically have preferred stock that could only be traded in small trades without automation but I don't think the market is interested in it.

For example in Thailand foreigners are limited in purchasing Thai stocks. So there are regular stocks that the Thais trade in and a seperate stock that only foriegners can buy. Something like that is theoretically possible but unlikely to attrack much interest.

One of the problems is that it will reduce the liquidity of your stock. For example if you own a stock and it is tanking you will not be able to sell it to an automated buyer but would have to wait for a small investor to buy it, making it a less attractive asset to buy in the first place.

[Peacetrain]

4. It did not make sense to me either.. I was not sure of what they were talking about