Traders Pay For Information

The stock market playing field is not equal. As I mention in my book, INVESTING FOR THE REST OF US, there are traders who have access to financial information before “the rest of us” do. They are willing to pay large sums of money to be able to get information before most people do. Given the advanced information, these traders can act more quickly than we can. It’s just a fact that you need to accept.


But this perceived advantage that those traders have should not matter to us. That is not how most people should be investing their money. Most people are much better off being passive investors and letting time and compounding work for them.

Some traders will make lots of money due to this advanced knowledge. But for most need not fret about this. There’s comfort in the fact that we can outperform a great many traders just by being passive.

Here’s an article from MarketWatch summarizing the advantage that traders might have:

High-frequency traders have been paying to get direct access to market-moving news releases, a practice that can give firms the ability to trade fractions of a second ahead of less fleet-footed investors.

The traders are getting news releases from Business Wire, which distributes corporate-earnings releases and economic reports such as the Philadelphia Federal Reserve’s monthly manufacturing survey, and from Marketwired, a Toronto company that distributes earnings releases and the ADP monthly employment report.

Investors typically receive earnings reports and other news releases from media companies such as Bloomberg, The Wall Street Journal, or websites such as Yahoo Finance. Those financial-news outlets get most of these releases from distributors such as Business Wire and Marketwired.

Business Wire says it doesn’t discriminate between clients in the interest of fair access. “Anyone can get a direct data feed if they want,” including high-speed trading firms, said Tom Becktold, a spokesman for Business Wire, which also distributes releases to financial companies such as fund-management firms, Wall Street banks and retail brokers, according to its website. Company spokesman Neil Hershberg said what happens after Business Wire hands off releases is “beyond our control.”

Some high-speed firms have had direct access to news releases for at least the past few years, according to people familiar with the situation. These firms typically are paying thousands of dollars a month to get the news releases.

The trend, previously unreported, could help explain what happened on the afternoon of Dec. 5, when Ulta Salon Cosmetics & Fragrance Inc., a cosmetics retailer based in Bolingbrook, Ill., released its earnings.

Source: MarketWatch

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