Brokerages Use Your “Free” Trades Against You – Here’s How We Turn The Tables

We’re heading toward the July Fourth holiday, and more Wall Street traders are on vacation with each passing week.

As a result, trading volume drops, just like it does every summer.

You might think that low volume means quiet and sleepy trading. In fact, the opposite is often the case. Low volume paves the way for volatility.

I had a front-row seat for this in my time on Wall Street. In low-volume markets, the spread between the “bid” price (what a buyer is offering) and the “ask” price (what the seller would like to receive) gets bigger.

It’s like placing an ad to sell your car. If you get one response, the potential buyer might offer you a lot less than what you’re asking. But if five people respond, you can play them off one another and perhaps get your asking price.

The same is true for stocks. When there is less competition for shares with fewer buyers and sellers, the difference between the bid and ask widens.

It can be a difficult environment in which to make money.

Except for those big Wall Street firms that use supercomputer firepower – and information gleaned from trades made by investors like you – to make money even when volume is low.

Here’s how it works… and how to at least meet Wall Street where it is if not beat it at its own game.

Jumping In Front of Your Order

The first trading week of 2023 was an anomaly. Volume is usually high in early January as fund managers return from the holidays and reposition their portfolios for the coming year.

But to start 2023, volume was downright anemic.

It was ironic, then, that I came across this headline…

Citadel is a massive hedge fund with nearly $60 billion in investment capital. There are hundreds of funds just like Citadel collectively managing hundreds of billions of dollars.

The fund’s record year in 2022 perfectly illustrates the successes we’re seeing from investors capitalizing on algorithmic trading. These “algos” – as they’re known on Wall Street – trade like crazy when volumes are thin because they specifically profit off that spread between the bid and the ask.

And they do this by knowing what you are going to do before you do it.

And you thought “no commissions” meant free trading.

There’s always a price to be paid.

In the case of commission-free trading, you pay with the information in your order to buy or sell a stock.

Operators like Citadel and its Wall Street brethren buy that info. They can see your order to buy or sell a stock, and within nanoseconds they rush in front of your order, buy the stock, and sell it back to you slightly higher.

They do this all day long, with no human interaction.

The profit on each trade might be miniscule – as in less than a penny – but when it’s done over and over and over, it adds up to real money. These algorithms are so fast that one second is like a full trading day.

It’s all legal. And there’s nothing investors can do about it.

But, we can exact our own measure of revenge.

The Power of Big Money

We can’t see the orders, but we can see which stocks Big Money is buying, thanks to our Quantum Edge system.

And we can’t rush in front and buy before somebody else. But we can get in early enough to ride the buying pressure higher.

This is a huge advantage that most investors don’t have access to because institutions do all they can to keep their actions quiet. But on any given day, institutions and hedge funds – which manage trillions of dollars – account for between 70% and 90% percent of all trading volume in stocks.

It would be downright crazy to ignore that information… or fight it. Better to hitch a ride on that big-dollar tailwind, which could boost both the size of your profits and your overall win rate. (Our Quantum Edge win rate runs at about 70%.)

I saw the power of Big Money inflows firsthand when I headed a trading desk at Cantor Fitzgerald, one of Wall Street’s blue chip investment banks. My entire job was running a desk of traders and salespeople to match institutional buyers and sellers.

I discovered pretty quickly that I was getting a big advantage over most other investors. I even remember the specific trade that lit the light bulb in my head.

It was actually a slew of trades that played out over a month. In the first trade alone, I found 20 million shares of one stock that I matched up with a buyer that I found out later was a hedge fund manager. In that month, as this hedge fund was grabbing all available shares of this stock, the buying pressure raised the bid and ask prices. Shares skyrocketed 70% in that single month.

The stock’s movement even made the headlines on CNBC. It’s kind of surreal to know that you are part of what’s going on behind the scenes of a stock being talked about on television.

You can see why Big Money flows are so important. What’s more, I only notice this massive buying and selling in about 1% of stocks each day. 

I call these Big Money buy signals, and those green bars below are what they look like in my system. This chart is one of the stocks in my Quantum Edge Trader service that money was pouring into in May… to the tune of eight buy signals. (Not surprisingly, it’s also our biggest gainer.)

Big Money investors may buy less during the summer, but they still buy.

And we are tracking their activity, using our own data and algorithms to sniff out their moves.

You can call it revenge. Or you can call it playing along with the Big Money.

Either way, Big Money flows are one of the most important factors in accurately predicting a stock’s future price movement.

And they didn’t think anybody was watching.

Talk soon,

Editor, Jason Bodner’s Power Trends

P.S. My latest recommended stock in Quantum Edge Trader is a Big Money favorite with 90% of shares owned by institutions.

My Quantum Edge system has picked up a couple of Big Money buy signals since the company’s last earnings report, and it is also highly rated on both its fundamentals and technicals.

Big Money can keep accumulating stocks for months, driving the price higher along the way. That’s why I designed our Quantum Edge system to detect those signals.

Click here if you’d like to learn more about our system and how to receive instant access to this newest stock.