WLD, I hope that your program trading works out well for you. I understand that there some offerings in program trading software that claim good returns. If you get a chance it would be nice if you could share your your experience with whatever strategy you are using.
That said, I am talking about a different level of program trading that I feel needs to be regulated. I am not talking about arbitrage programs or even the programs that HL Camp promotes. Program Trading on the NYSE is defined as any trade with 15 or more stocks , with a value over $1 million dollars. My issue is with largest of the large NYSE member banks and their trading units. These guys represent trading of over one billion shares a day.
Alan Newman has written a few comments about program trading. He wrote this in regards to last may when program trading had slipped over 50%, two weeks in a row, for the first time.
"Something to be proud of? Hardly. The impact of the individual investor÷other than on the Bulletin Board÷is now minimal, if not zero. The trend is frightful. A substantial fraction of all shares are now held by indexed entities and a substantial fraction of fresh money that enters the market is from those very entities - buying shares of the constituents without regard to any fundamentals or corporate prospects, buying shares solely because they are listed as constituents of the index.{b] Prices no longer function as they used to and do not represent the combined opinions of investors about individual corporate prospects. Prices are driven primarily by the index entities. Since active managers are forced to compete by buying the very same issues, the index effect is multiplied." He then concluded, "We have reached a singularly unique point in time, where investments in individual companies per se are quite meaningless. Only the indexes count. If this what the future look like, tomorrow will arrive way too soon."
I think program trading is leading us to a point where stocks can not be efficiently priced by the underlying fundamentals. Program trading is to a point that it overwhelms free market dynamics. I think it is dangerous to have our equity markets trade more on trying to be on the right side of the program traders than trying to invest or trade on fundamental or technical analysis.
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