There is a new book about to be published about how the markets are rigged. Of course, this was an exaggeration–they are not rigged, although they do behave in recognizable patterns. The moral of this particular story, though, was that Wall Street is taking advantage of you because they are familiar with they way that you trade, and if you refuse to trade in that manner, the high profile trading organizations can no longer make money off of you. High frequency traders, as they are called, are purported to be buying and selling the same shares that you are, but because they have better technology and better resources, they can do so more effectively than you, and thus make a better profit. They are also allegedly able to make movements before you do, thus positioning themselves to profit because of your trade.
The response to the book was that you need to always be using limit orders when buying and selling stocks. This works to an extent, but the fact is that you need to pay extra for these and they are not going to stop the fact that institutional investors have better technology than we do.
The problem with this statement is that institutional investors–the ones described as taking advantage of the common folk–are not really able to take advantage of us. For one, brokers are designed to make money off of regular traders. That’s the purpose of a commission. This has been happening since the stock market began. Better technology enables stock brokers to do this even more effectively. They are effectively middlemen and this is their created purpose. They need to have a license to operate in order to do so for the benefit of their clientele, but this doesn’t mean that they shouldn’t make money off of it, too.
However, the main argument against the, “Wall Street is taking advantage of us!” theory is that they can’t. Wall Street would get pennies out of us because of their size in comparison to everyone else’s. But now look at the converse of this. Wall Street’s size can be taken advantage of by us! Because they are so big and we are so small, we can grow our wealth by watching them and shadowing them. Maybe stocks are not the right way to do this, though. Stock brokers charge commissions and fees and all that. If we are creative with our trading, we can bypass this. Enter binary options. These are a pretty new type of trade, and there are no commissions or the like. Binary brokers make money off of you still, this is why they exist. But they are independent of Wall Street and the assets themselves and thus not subject to the same snares. Binaries allow you to trade just the movement of the asset–and you can trade major stocks with these if you’d like.
Now combine the two concepts. Jump in and follow the movement of the major high frequency traders. They trade in large volume, and thus have an immediate impact upon supply and demand, and this inevitably affects short term prices in a noticeable way. Short term binary options that follow these major trades, such as 60 second or two minute options, can take advantage of Wall Street’s actions, and create a profit for us. We need to know two things for this to work: what the major traders are doing, and a little bit of market psychology. Day traders have been doing this for years through sentimental trading techniques, but with binaries, we are no longer eeking out a few bucks here and there. Instead of a 1 percent change or so, we can routinely crank out 70-80 percent profits on every successful trade.