A significant portion of Americans have investments in the stock market, via their IRA account, or through their 401K account, or through their own brokerage account. The current market capitalization of the S&P 500, as of June, 2023, is $36.609 trillion, of which those 500 leading companies, represent approximately 80% of the entire market capitalization of the United States stock market. So then, as it has been said, the best place to make money at or to take money from, is where the money actually is, and that amount of money as so represented by the S&P 500, is absolutely staggering.
High Frequency Trading (HFT) is something that is of very recent vintage, in which, the buying and selling of stock equities are conducted utilizing sophisticated algorithmic trading, so done at speeds that are measured in the milliseconds, in which these HFT companies, execute trades of buying and then selling the same equities so bought, in a matter of those milliseconds, in which their profit, is extremely small, but the volume of what they are so trading is quite large. The way then that HFT makes their money, without risk, is basically HFT firms getting out in front, by milliseconds, of legitimate stock orders so being made by institutional or retail traders, and then they make their profit, by getting that equity at a slightly cheaper price, whereupon they then sell such to that institutional or retail trader. This then, done often enough, can make for those HFT firms, profits in the millions upon millions of dollars, for basically “front running” stock after stock after stock.
We read at businessinsider.com, that “In its IPO prospectus, High Frequency Trading firm Virtu reveals it had one losing trading day in 1,238 days of trading.” That, in and of itself, is proof positive, that HFT is clearly an unfair advantage so executed by HFT firms at the expense of institutional and retail investors. Further to the point, those profits so going to HFT firms, essentially represent monies being extracted from institutional and retail investors, that provides no appreciable benefit, to society, at large, but rather an exclusive and unfair benefit to these HFT firms.
While HFT firms should be properly banned from trading, the best way to deal with such, is probably the simplest, which is to impose an extremely small financial transaction fee tax on each and every trade of stock so made on the stock exchange. This tax, would be tiny enough, that to the institutional and retail sellers, it would not make much of a difference, and such a tax as that, could also be rebated to institutional and retail buyers, if they held onto a given security for at least a period of six months. On the other hand, a financial transaction fee attached to every share so sold and bought, would severely damage the HFT trading model. Additionally, if this wasn’t enough to put HFT firms out of business, a new tax bracket should be created, in which equities held for a period of less than one week, would be taxed at a rate of at least 50%, and preferably more.
The thing about HFT trading is that it produces absolutely no benefit to society, but rather serves essentially as a trading model which imposes upon institutions and regular investors, an unfair disadvantage that they cannot overcome because of HFT front running, which thus serves to beat them to the punch, by milliseconds, ad nauseum.