Man Vs. Machine: Editor's Introduction
Welcome to the brave new world of stock trading.
On the surface, trading stocks has never been simpler: put in your order, press a button, and voila! Seconds later, you get an order acknowledgement back.
But beneath the surface, the world has changed—dramatically. There's a whole universe of new places to trade and new players doing the trading.
How has it changed, and why? What does it mean for you? Are you getting better pricing today, or worse? And are high-frequency traders taking advantage of your orders?
And though this system may not have caused the Flash Crash of May 2010, it certainly helps explain how such an earthquake could shake the system.
The Securities and Exchange Commission will release its final report this month. Safeguards may already be in place to prevent another meltdown, but some still worry it is on the horizon and blame a fragmented marketplace run by machines.
Our special report, "Man Vs. Machine", will answer these questions and address these issues. On the Web and on TV this week, we'll will look at how trading has changed, debate the pros and cons of the new system and take a behind-the-scenes look at trading at the various new venues.
Here's what you'll find in our need-to-know guide:
1. An overview of what is right and wrong about the trading system.
2. A rundown of the players and platforms, such as ECNs, dark pools and market makers.
3. A profile of three traders using the system—an active retail trader, the Chief Investment Officer at mutual fund giant Vanguard, and a high-frequency trader—and how their trades interact with people and platforms along the way.
4. A brief history of how trading has changed over the past 40 years.
5. The evolution of high-frequency trading, the latest market bogeyman.
6. The rise of the machines in the marketplace.
7. Reforms and restructuring to improve the trading system.
8. The players behind the algorithms and the high-frequency trades. We call them the New Kings of Wall Street—in name, if not address, as some are located hundreds of miles from Wall Street. Among them: Seven names you may never have heard of.
9. The old guard, such as exchanges like the NYSE, which are enabling the new players but may also have the most to lose.
10. The explosion of exchange traded funds, or ETFs, one of the fastest growing parts of the investment world and their role in the Flash Crash.
11. What it means for the retail investor, traditional stock picking and the buy-and-hold school of investing.