I'm a full time trader in the market. All of my life I've heard that you can't beat the big guys, the powers-that-be are manipulating the market, and the little guy always takes it in the shorts. Now I'm being told that the market is rigged because of high-frequency trading, and that again I'm being taken to the cleaners.

Meanwhile I continue to make money through investing over the long term, although, I freely admit that from time to time I get hit by forces outside my control such as flash crashes, massive short squeezes, and bad fills where the market falls to my exact sales price, stops me out, then takes off like a bat out of hell!

I consider such events, costs of doing business. Through all of these extraordinary events, I've made money over the long term. And even though my style is aggressive, risk-taking trading, all losses were controlled and substantially smaller than my gains per year. So, as a small investor I don't feel taken advantage of. As a matter of fact I feel I have a certain edge since I can make decisions faster than a board, or a needed consensus of large investment funds. I’m more nimble, and I can think.  So I might be right where a computer is only interested in momentum and might be wrong. I can take advantage of that.

But as to the firestorm around this new book “Flash Boys” whose Author Micheal Lewis was interviewed on 60 minutes with great fanfare alleging the market is rigged, I gave it about 2 seconds thought, and moved on. The reason is that it is absurd when anyone who’s been in the market over the last 5 years has made a great deal of money whether a small or large investor. We are in the third greatest bull market of all time. And yet this debate goes on day after day after day in the face of huge profits to most American investors.

The only reason I'm taking the time to write about this subject is the calls for new regulations and taxes that some politicians want to impose on markets. Is it any surprise that anytime there's a conflict, the government answer is to impose new controls, regulations, and taxes?

The fact is that the exchanges have done an excellent job at regulating themselves by establishing reasonable rules of the road. We haven’t had a flash crash in four years due to such privately imposed regulation. And transaction commissions have dropped like a rock due to competition and technology over the last decade or so.

The allegation being made is one of unfair advantage by a few at the expense of the many. If this is true, it should be fought out in a court of law, not in the political arena. If the rule of law is that individuals may not use force, fraud, or coercion as a means of attaining goals, then anyone harmed should bring a suit against those they can prove harmed them. But remember, first you must have a victim before you can have a criminal. But no such suit has been brought. The reason no one has brought such a suit is the so-called victims are not the victims of force, but of competition.

It must be demonstrable that force or fraud, and not intelligence and innovation, was used to gain an advantage. In an attempt to give everyone an equal chance at profiting, the government could end up outlawing competition and therefore innovation, and that would be a mistake.

For example, the earliest and most notorious case of so-called "theft" due to insider trading, which is kind of what is being alleged today, was the case of the Rothschilds.

The family had established an information system by placing reporters at the scene of every important event. They communicated by pigeon. In this way they stayed ahead of everyone else in their investments. In their world this was considered innovation. But their competitors hated them for it. In today's world they could very well risk prison, as is being suggested by some today of those that employ new technologies to gain a speed edge. 

Back then, the government stayed out of the economy to a large extent, and allowed the Rothschilds to operate freely.  It's a good thing they did. Because not too much later, Reuters News and the Bank of Rothschild came to the aid of the Bank of England. The bank was being "run" because of reports that the war was going badly between England and France.  Rueters and Rothschild recieved news reports by pigeon of a victory over Napoleon at Waterloo, and the bank was saved from failing, due entirely to a loan by the Bank of Rothschild. Speed of communication saved England.

Imagine Citibank today making a loan to the US Treasury that would prevent it from going broke and causing total collapse of the economy and our monetary system. Yet, that was the state of affairs back then and is now history. It was due to insider information.

Until and unless there are actual charges of abuse through the use of force or its derivatives, I see no reason to end high-frequency trading, any more than the government should have ended the use of pigeons back in the days of Reuters and the Rothschilds.

If there has in fact been an actual crime committed, the courts will take care of it. And if there hasn't been, government intervention will only end up stifling technology, innovation, and ingenuity. The politicians calling for control, regulation and taxation of the markets need to butt out and keep their power grabbing hands to themselves and let competition and the courts of law resolve this problem. And that's all I have to say about that!

Paul Nathan
Paulnathan.biz