I'm doing a little research into the stock market and came across a statistic that over 70% of the daily trades are from high frequency trading programs (HFTP's). Most of these HFTP's are from the big institutional banks representing less than 2% of total investors involved with the market.
This means that on a daily basis, a large majority of the movement in the stock market is a result on what the large institutional investment firms are doing. The high frequency trading programs are high tech computer programs that make trades based on split second news and market movements. Some traders think they know what will happen in the market based on global or national news, but HFTP's might be reacting to some other factors that human traders can't even comprehend.
Also, what if the large institutional investment firms are not reacitng to anything in particular, but simply have their self interest at play as they dominate the market. This seems evident, but I wonder how they approach their own self interest. With a 70% influence on the stock market, it seems like the big banks and investment firms could influence the market in ways that weren't related to individual stock purchases.
Google uses a computer generated algo to determine their search rankings. They say that they don't mess with the rankings to favor one site over another. However it would be in their interest to rank sites using Google products higher in the search results. I can't see financial institutions making a similar pledge to not mess with their computer programs. If a country is about to inflict massive regulatory reform on the financial markets, wouldn't it be in the interest of the big banks to over-ride the algo to punish the country by plunging the stock market lower? Since they have over 70% influence on the markets, it wouldn't be hard to do. Plus, they are gaming the market in a way they understand so they can watch the "normal" traders be confused as they will know the exact moment when they will use their influence to raise the market once again.
I'm going to do some more research into these high frequency trading programs. If you have any information you could share, I would appreciate hearing it.