The new Flash Boys book has captured the imagination of everyone who invests or trades in the stock market. The fear that the market is “rigged” is everywhere. The CEO of IEX is of course hoping his new exchange will benefit from all the news media hype and panic.
However, most investors and retail traders do not need to worry. If your investments for your long term portfolio are with a large to giant mutual fund or pension fund, then these funds are using Dark Pools which are off the exchange transaction the HFTs can’t see and front run.
If you are a retail trader, remember that most of the orders placed with online brokers for retail traders are filled from that online broker inventory. So your orders never make it to the exchanges. If you are using an Electronic Communication Network ECN, most of those orders are not sent to the exchanges either.
Here are 5 Tips to Avoid Front Running by HFTs:
Huge HFT activity is usually a one day event in a stock based on news, arbitrage from another market or instrument, hedging, retail cluster orders caused by retail traders all using the same trading systems, strategies, MACD or Stochastic indicators, and some technical set ups. One of the huge advantages you as a retail trader using technical analysis and stock charts is that you can see the activity of the HFT, Dark Pool, Smaller Fund, Corporate Buybacks, and many more patterns that tell you who is controlling price and thus how price will behave thereafter.
One final tip is that HFTs rarely shift the trend, so do not start selling short right after a huge HFT down day.
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