SEC developing new rules to control High Speed Trading Accounts

There are many brokerage firms like Light Speed and Cobra Trading that are known for their lightning fast speeds. These brokerage firms allow you to take profits from market balances which usually last not more than milliseconds. For example the gold value has gone down but it takes few minutes for the GLD (an ETF which tracks gold prices) to go down. These are ultra low risk trades and are highly profitable.

Why is SEC suddenly interested in the change?

About 70% of the total trading volume is accounted through such high speed transactions according New York- based financial services consultant Tabb Group LLC.  In recent months a lot of senators have spoken against such high speed stock and option trading practices. Therefore SEC has stepped to review all these practices. They would be doing a 6 month review of the entire process and come back with recommendation for new regulations.

Impacts on brokerage firms and customers

The new regulations might mean a significant dip in the profit margins of these brokerage firms as huge percentage of their revenues come through these trading activities. It also means the market as whole would reset to regulations of the new era. There would be lower trading volume. Specialized high speed trading accounts might have to change the way they do business. Also it means a significant increase in brokerage fees for common consumer. The worst impact which might be secondary impact is that, it might the market more unstable. Currently, due to such practices markets come into equilibrium in seconds. This would no longer exist and markets might remain unstable for long duration

Recommendation on how to choose your broker

As always, we, at CompareBroker are keeping a close watch at the developments. We believe till new regulations come these practices are still very profitable and one should open an account with Light Speed to enter such things. If you are not confident of performing such trades a TradeKing account is perfect for you with its low commissions.

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