Re:U.S. stock markets are rigged, says author Michael Lewis
by lee on Monday March 31, 2014 @01:05PM
(#7502703)
I don't think the cost is necessarily negligible.
If the system is setup in such a way that there are those who benefit from every trade, skimming fractions of a percent per trade, those add up. They are effectively shrinking the market capitalization of that stock... and over a long period of time that could be significant.
If a stock's losses to this are in the range of 3% per year, over a 25 year period the stock will lose 50% of it's market cap from this activity.
That's fairly significant.
I'm guessing the net effect of this is that you get trades for a few cents more than they would cost you otherwise. I guess "otherwise" means a perfect world where Goldman Sachs is a charitable organization run by Mother Teresa directing a band of angels.
This might be an issue for day-traders but if you're a buy and hold investor aiming for doubling or tripling of your holdings over years-decades, this small fractional cost at inception is likely negligible. (Which is not to say that the stock market is a safe place to be - there are many other cons to be aware of if you're a buy and hold person - insider trading, bad quality earnings, etc.).
It was not that long ago that investors were stuck with paying high commissions equivalent to several percentage points to acquire a stock. Now you can get 1000 shares of anything for $5. And maybe a few dollars more to line the pockets of HFT firms. Things seem better to me now on the whole.