ROBOTIC TRADING  GONE WILD (ROOMBA’S)

I am a Market Maker. I represent Small Cap issues (.01-3.00) on Junior Canadian Exchanges. In simple terms, my role is to help establish an orderly Market for these Securities. I have great respect for the Corporations that pay me a fee to conduct my services on their behalf, which covers my associated costs and of course, risk. They do so because they respect their existing and potential Shareholders. Our mutual relationship provides a fair and equitable environment within the Exchange. Years ago, I performed these services for larger, Blue Chip style issues. That role no longer exists, mainly due to Bank owned Exchanges and Broker Dealers.

As we all know, Banks and risk mix like oil and water. They are in the business of taking money, and today’s Capital Markets provide them with that perfect environment, without risk. They leave the “crumbs” for the public and the non-banks. outsiders

The growth of automation in the Markets has become an epidemic. Banks, Broker Dealers, and Hedge Funds now rely on computer programmers development of algorithms to conduct their business, rather than human beings. These computers now perform the tasks that Money Managers, Traders, and Market Makers once performed. They lack emotion, common sense, and in many circumstances intelligence. Imagine a Robotic vacuum running wild in your family room. Now add in a few thousand more Robots, battling to suck up every available crumb. The machines run endlessly, having taken all the crumbs and now simply sucking in air. The perceived efficiency of the machine no longer serves a purpose.

The current volatility in the Markets is directly proportionate to the number of computer driven programs operating at different time, price and size components. Each program racing for a faster, better, and bigger piece of the pie. Unfortunately, the pie has become nothing but crumbs, and even those are now almost impossible to consume for anybody looking to capitalize on a trade. Once proud Traders and Investment Executives are now being bullied by quicker, emotionless machines. Every angle to gain an edge has been swallowed up through high frequency trading and sophisticated computer programs to beat them at what was once their game. The game is broken. The Markets are broken and it will prove disastrous for the investing public.

In my opinion, the only way to bring efficiency back to the Markets is to return a human element to help maintain orderly Markets. The inception of the original machines may have been a great move forward, but it has clearly gone too far. The days of 100 point moves on the Dow have now been replaced by 500-1000 point moves. The significance of that is immense. A local TV ad targets young people to invest their money in computer driven funds. Sounds simple, but if your money is held in a fund while the Exchange drops 1000 points, there is considerably less of your money to capture gains on the way back up, if in fact the Exchange rebounds.

It’s a highly inefficient manner to manage your funds, which will be decayed and eventually destroyed. The only ones cleaning up are the Bank owned Roomba’s. But that seems to be the plan as it is quite profitable for the banks and brokerages.

I honestly don’t know how to return to an efficient Market, without banning computer driven programs. The machines know no boundaries and I fear the day they begin to leap-frog ahead of each other to hit whatever bids may still be available. An eventual death-spiral is almost a certainty in the Major Markets. It’s abundantly clear to me the time has come to bring back the humans.

I hold tremendous respect for the Junior issues who engage Market Makers. It is my firm belief that the Junior Canadian Markets provide a much fairer, more transparent forum for Investment than the computer-riddled Major Exchanges. I am very fortunate to have relationships in these Markets and would be pleased to provide information upon request.  Given these circumstances my absolute preference rests in the Junior Gold exploration plays. The potential for share price increases based on risk/reward has, in my opinion reached a stage that should not be overlooked.

 The current Market environment has created the perfect storm to invest in the junior mining sector. Massive appreciation from higher gold prices, mergers, acquisitions and takeovers will benefit Investors in what I see as a shakeup for the ages.  Find your play, plan your trade, and trade your plan.

Thank you, Graham Murray,  

GMURConsultingwww.gmurconsulting.com