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‘Wash’ Trades Hurting Small Investors?

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    CFTC Commissioner Bart Chilton on the investigation into 'wash trades.'

  • Duration 4:13
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-- -- -- -- -- We'll have some bad news -- -- small investors high frequency trading firms could be putting you and your trades at a big disadvantage.

It's called a -- trade when traders -- illegally is both a buyer and seller for the same transaction driving up volumes and distorting prices.

And CFTC is on the case commissioner Bart Chilton joins me now with.

-- always great to have you on the show thanks so much for coming on.

Explain these wash trades what -- -- why are they illegal.

-- -- what that you explained it very well actually Gerri it's when you actually.

Offer to buy and you sell -- the same time and you just cancel each other out so.

You're not taking any risk in the market.

And it creates a false volume.

And there's all sorts of fancy term for what this could do but ignition momentum ignition momentum is one.

That it can -- it can sort of trigger a feeding frenzy.

And so it's something that we're reviewing.

And -- looking at and it could be hurting small traders what we have found -- there were a study that we did and talked about a little bit.

In December is it every time a retail customer a smaller guy -- with one of these high frequency.

Cheated traders is -- I called every time that happens the high frequency treated cheated trader makes three dollars and fifty cents on the little guy hot so that's.

That's he's got -- high frequency traders make money on this why does this give -- such an advantage.

What what they what they try to do -- a general practice is they try to skim a little bit out of the -- Out of middle they're -- a little out of the top -- there's sort of the new middle man if you will have.

And so they're providing liquidity when -- in the market unless they're washing their sales that when they are doing that they are trying to just take a little bit they're operating so fast Gerry you've been talking about.

A technology earlier they operate in the milliseconds which is one of one thousandths.

Of a second.

Super super fast.

And it just trying to get under the little micro dollar in a -- set.

Well -- micro dollar adds that police showed up folks this full screen on.

High frequency trading profits on a 50000 dollar trade fundamental traders make a dollar 92 opportunistic traders make 249 small traders make three dollars point nine cents.

So -- -- the day the folks -- get hurt are the small guys.

Well why people let this go on I just don't understand why we -- put small investors at risk the very people the very people the reason the stock market to retire to put together savings fit for their kids to go to college on it just seems unfair.

Well -- these these guys are in the market may have a right to be in the market.

They're very sophisticated programs there there the developing Alvarez -- -- -- programs on everything from Twitter to Fox Business news feeds and how many times is Gerri Willis mentions.

A product or something.

And that that they really will do algorithms like that Jerry.

So they're very -- Kennametal but we're not talking about trading on the basis of whether company is improving its earnings -- has a new CEO -- -- new product that's gonna help but.

Move forward and that's what's so bothersome about this it's people with fancy pants computers.

Individual investors can't do this themselves they're not in this game has nothing to do with the basics.

The stock exchanges which is to put money together for companies helped them raise capital.

Move that capital around this it could not be further from that.

Yeah you're that's a question I keep better raising a -- the other other day and a and a speech.

The purpose of the fundamental purpose of these markets.

May have some problems because these are new type a cat there -- there these markets are -- And we just have to ensure that we have the right side boards I don't -- -- kick him out of the market they're very sophisticated.

We want the liquidity when they're not watching the trades.

But I want to make sure that the average folks are protected like you say.

Part.

More power to Syria.

We'll check back in with -- -- that's when you can't actually talk about -- -- may be companies' names what's actually going time.

We'll be tracking the story thanks so much for coming on tonight always good to see you.

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