By Jeff Clark: Years ago, computerized trading helped eliminate inefficiencies in the market. For example, when the S&P futures contract would trade at too large a premium to the cash index, computers were programmed to buy S&P 500 stocks and sell futures contracts. These buy programs brought the premium back into line.
Likewise, when stock futures traded at too large a discount, computers would buy the futures contracts and sell S&P 500 stocks. The excessive discount would disappear, efficiency returned to the market, and Wall Street firms utilizing the strategy earned a nice profit.
It was a win-win situation.
Today, however, computers are being used to manipulate stock prices. And they're stealing your money in the process. The strategy is called high-frequency trading (HFT), and here's how it works....read on
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