I didn’t catch last night’s 60 Minutes program (caught a clip from it this morning) where author Michael Lewis exposed the stock market as a game rigged against the individual investor. Through high frequency trading (HFT), gamers are able to see your trade, get in front of it, make it a little more expensive for you, and make a little, or a lot of, money, for themselves in the process. There’s much not to like about that phenomenon, and I suspect regulators are gearing up to further explore the practice.

Without getting into the debate about whether HFT is, on balance, good or bad for the market, allow me to make a very important distinction by simply re-phrasing the first sentence above:

I didn’t catch last night’s 60 Minutes program (caught a clip from it this morning) where author Michael Lewis exposed the stock market as a game rigged against the individual trader.

So, if you happen to be a short-term trader; if your strategy is to buy the hot stock, hold it for a very brief period, then dump it at, you hope, a higher price, your game is rigged against you. If, however, you’re a long-term investor; if your strategy is to invest in, and hold, good companies—either individually or through a fund—you shouldn’t lose your rhythm over some algorithm that might cost you a few pennies a share…

Here’s a snippet from Kevin Roose’s article Should You Be Worried About High Frequency Trading?:

Another way to frame Lewis’s “stock market’s rigged” thesis is this: High-frequency traders have conspired to impose a speed tax on investors. This tax is taken from the pockets of people who buy and sell stocks and put them into the pockets of the HFT firms, and it’s volume-based. Trade only a few stocks a year, and your tax is small – fractions of pennies, perhaps. Trade millions of shares every day, and you’ll end up paying much more.

How small is the speed tax? A 2013 study examined blocks of trades coming through HFT firms and estimated that “HFTs’ have revenues of approximately $0.43 per $10,000 traded.” In other words, the net loss to the average, small-time investor from HFT is probably very minimal. (In fact, given what preceded HFT – a set of firms known as “NYSE Specialists” who were given preferential access to stock trades in exchange for providing liquidity – the HFT speed tax may be a lot lower than what most normal investors used to pay.)