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Cuban takes another jab at high-frequency trading

Mark Cuban
David Paul Morris | Bloomberg | Getty Images
Mark Cuban

Celebrity investor Mark Cuban reiterated advice to wait and watch in the stock market Tuesday, writing, "We have no idea what direction the market is headed," in images that surfaced online.

Cuban, renowned for his success founding and funding start-ups, told his followers that high-frequency traders (HFT) are dominating the stock market this week. In particular, he warns the computer-based rapid trading poses risks for investors, who can't act as fast as a machine.

"They [high-frequency traders] see what's happening and make bets on it before you do," Cuban wrote on Cyber Dust, an ephemeral messaging app. "So be careful in this market."

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The "Shark Tank" star's remarks come after several days of historic stock market routs, with about 200 companies in the S&P 500 hitting 52-week lows Monday. In his latest note to his "dusters"— a term for users of the Cyber Dust app that he advises and funds—he said that high-frequency trading firms are "benefiting immensely" from the market, and perhaps even controlling it.

"This week is unique in stock market history because algorithms are dominating the market," Cuban wrote. "It's truly a 'Terminator' market."

Cuban's remarks Tuesday echoed his Monday sentiments that the current market moves are not caused by "normal trading."

"No one else that trades can move the market [by] hundreds of points in hundreds of seconds in either way," Cuban said on CNBC's "Fast Money" Monday. "What we saw today was like a three stooges market… that doesn't happen from normal traders, that doesn't happen from large funds taking positions or selling positions, that happens because algorithms watch everything that's happening."

Cuban explained how he thinks HFT, an increasingly popular method of trading securities quickly and often, could short-change "normal" retail investors.

"To understand HFT, think of it this way," Cuban wrote Tuesday. "Have you ever been in a situation where there are two TVs in two different rooms, watching the same game, and one TV is a couple of seconds behind the other? Imagine if you could be watching the faster TV and make bets with a person watching the slower TV. You could bet last second what happens in the next play, knowing you see the outcome before the other person."

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While Cuban said he sees HFT traders as the "winners" of the recent market rout in a separate note, he said he sees highly-valued "unicorn" start-ups and their investors as the losers.

"If the markets stay down here for an extended period of time, they are cooked," he said of the $1 billion-dollar Silicon Valley companies.

Cuban has been actively commenting on the week's market volatility via Cyber Dust. The self-made billionaire first debuted his "do nothing" mantra Monday morning, writing that the "biggest mistake" investors could make is thinking they are smarter than the market as a whole.

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He himself has not refrained from taking advantage of low stock prices. In addition to an order for HFT firm Virtu, Cuban said Monday on "Fast Money" he bought shares of social media giant Facebook for $87, and sold put options.

Cuban called Facebook, which rallied about 20 percent from its intraday low of $74.72 on Monday, along with Google, a dominant force in the new media landscapes.

"It's driving the ad economy, it's driving content consumption in so many different ways, they're doing a lot of things right. "

—CNBC's Kristin Cwalinski, Karma Allen, and Evelyn Cheng contributed reporting.