Quote:yeah...well I didn't see it, but I've heard of the supercomputers...Generally prior to the opening of the stock market and after closing there is still trading going on...Pre-trading and after hours trading are all done by supercomputer...I'm really not sure how it works, but I've read quite a bit about the supercomputer

 

It's called front-running.   Say you enter an order for 100,000 shares of Apple.   The order is big enough that it has to go to more than one exchange. 

 

 A high speed trader in another location, sometimes right next door to the exchange, has a high speed fiber-optic line which allows him to see the order get partially filled on one exchange.   He knows the rest of the order has to go to the next exchange to be completed.   His fiber-optic line and supercomputer allow him to get to the next exchange first, buy up the Apple stock that has been offered for sale, and then re-sell it to the guy who needs to buy it to fulfill his order for 100,000 shares.   Some of these people even build their facilities right next to the exchanges in an effort to gain a tiny fraction of time.  The high speed trader makes a tiny amount of money on this trade, but he does this so many times it all adds up the millions of dollars. 

 

If you are a long term buy and hold investor, this hardly affects you at all.  But if you are a high-frequency trader, it becomes an arms race of supercomputers, and high speed fiber-optic lines. 

 

The real victims in this are the mutual funds which have to trade in and out of stocks a lot as people buy or redeem shares. 

 

It was exposed when people who had the job of trading large blocks of stock noticed that when they saw a large block of stock for sale, and made their offer to buy it, the price they actually paid for it was always slightly higher than the price posted on the exchange.  They would say, "I see the offer of 100,000 shares of ABC company, at 37-1/2, but when I buy it, I wind up paying 37-5/8.  It happens every time.  What is going on here?" 

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