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Stock Trading Strategies

New Schemes Aided by Technology


Securities regulators, most notably the SEC, are especially concerned about identifying abusive practices employed by professional securities traders that seek to game the system to the detriment of retail investors. With the rapid advance in information technology, a variety of highly sophisticated stock trading strategies and schemes have arisen in recent years, provoking concern and even alarm among market watchdogs.

1. Dark Pool

The recent proliferation of so-called dark pools elicit concern from regulators and market commentators alike. Are they really reducing the transparency and liquidity of the public securities markets, or is that over-hyped alarmism? Are average retail investors really being unduly disadvantaged by their existence?

2. Flash Order

Critics condemn the flash order as a misuse of technology, a way to game the markets, to probe for arbitrage opportunities, all at the expense of longer term investors, especially retail clients among the general public.

3. High Frequency Trading

Another application of cutting edge computer hardware and software is to find and take advantage of fleeting arbitrage opportunities that may be present for only fractions of a second. Which market participants are hurt? Which are helped? Views vary on these subjects.

4. Layering

Layering is one of several strategies used by active high volume traders to manipulate prices in their favor. Regulators have been keeping a sharp eye on the practice, with hopes of limiting or eliminating it.

5. Spoofing

Spoofing is a scheme to manipulate securities prices through the entry of trades that are never meant to be executed. Accordingly, it has drawn the scrutiny of regulators and other market watchdogs.

6. Exchange Traded Fund

Not a strategy per se, but a tool used in many trading and investing strategies these days, the Exchange Traded Fund, or ETF, is one of the latest hot products in the equities markets, another variant on the theme of the index fund. A large part of their attraction is as a cost effective means of achieving diversification, either on a broad market or a sector basis.

7. Free Credits

In a securities brokerage firm, free credits are a corporate treasurer's best friend, a source of free funding to the company. The key is the type of account that the client has with the firm.

8. FTSE Indexes

The Financial Times Stock Exchange, or FTSE, Indexes are the most quoted indicators of market price moves on the London Stock Exchange, or LSE.

9. Proprietary Trading

Proprietary trading is both potentially risky and potentially profitable for the firms that practice it. In the wake of the 2008 financial crisis, various market commentators and regulators have taken aim at it, claiming that it has a destabilizing effect on the financial system. The much discussed Volcker Rule, named after former U.S. Secretary of the Treasury Paul Volcker, is primarily designed to ban proprietary trading within a wide swath of the banking and broader financial services sectors. But, can truly proprietary trades be neatly distinguished from trades that serve merely to anticipate and accommodate client order flow? A great debate rages on. Will banning supposedly proprietary trading produce unintended negative consequences?

10. Quant

Quant is a widely used nickname for someone with high mathematical or quantitative skills, often employed in the setting of complex securities valuation, trading and/or arbitrage strategies, which at one time were popularity called program trading.
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