This past week there was a huge amount of volatility in the markets, and computerized trading represented a huge part of that volume. There are literally computers that buy and sell the same stock several hundred times per day, thousands of shared at a time. What they are doing is taking advantage of very small differences in the bid and ask prices, often trading at speeds that are faster than the time a trader submits a request to the time the actual trade is completed. In just a few tenths of a second they can trade 100,000 shares, and make a couple of cents per share. Repeating this hundreds of times per day.
SF Gate had an article this week getting responses to individual investors. Many either stay out of the market in times of volatility, or choose to do nothing, often feeling they are no match for these super computers. But with so little return on interest in bank accounts, individual investors are caiught between a rock and a hard place.
As one person put it, the markets are no longer a place where investors find value in promising companies that have potential for growth. Instead there are computers grabbing small gains every second, and very little thought for the actual companies involved in the exchange. So then we call into question the very nature of the stock exchanges. Do they even reflect the actual financial stability of the companies being traded?