A trader works on the floor of the New York Stock Exchange on November 28, 2012 in New York City.
A trader works on the floor of the New York Stock Exchange on November 28, 2012 in New York City. - 
Listen To The Story

A new study concludes that high-speed computer trading is hurting average investors.

Ever since the stock market's so-called Flash Crash back in 2010, critics have accused high-frequency traders of harming the markets. One concern has been that the sophisticated computer algorithms were picking off vulnerable little-guy investors -- and the new study seems to back that up.

The report finds that even big institutional traders, from brokerages to pension funds, are taking a hit, but retail investors are losing the most. In one popular trading arena, contracts based on the future value of the S&P 500, small traders are losing an average of $5.05 per trade -- which then gets multiplied over millions of transactions.

The paper, written by Andrei Kirilenko, chief economist of the Commodity Futures Trading Commission, University of Washington finance professor Jonathan Brogaard and Matthew Baron, an economics graduate student at Princeton University, isn't the last word on the subject.

Other experts say the cost needs to be weigh against the benefit of competition between high-frequency traders, which has actually helped lower trading costs for smaller investors.
Still, the conclusions are sure to fuel concerns over blink-of-an-eye stock trading, which has come under intense scrutiny from the likes of Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke. After a closed-door meeting this summer, the regulators voiced worries about the risk of "unintended errors cascading through the financial system."

High-frequency trading from Marketplace on Vimeo.

“I think the best compliment I can give is not to say how much your programs have taught me (a ton), but how much Marketplace has motivated me to go out and teach myself.” – Michael in Arlington, VA

As a nonprofit news organization, what matters to us is the same thing that matters to you: being a source for trustworthy, independent news that makes people smarter about business and the economy. So if Marketplace has helped you understand the economy better, make more informed financial decisions or just encouraged you to think differently, we’re asking you to give a little something back.

Become a Marketplace Investor today – in whatever amount is right for you – and keep public service journalism strong. We’re grateful for your support.