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Recently there are more and more robots that follow the short-term trends in stock markets and use it to bring immediate rewards to their owners. Since rewards don't come from thin air, this necessarily causes loses to others. Who exactly is the loser?

Possibly, some of the robots are not as good as others in predicting the trends, so they make some of the loses. But eventually those inefficient robots will be abandoned. Who will be the loser then - are these the long-term investors?

Specifically: suppose I am a long-term investor - I buy an ETN for 20 years, which, according to historical data, will probably bring me nice profits.

However, now there are also short-term robots, who make a lot of money from day trading. For the sake of discussion, let's assume that these robots are perfect - they always buy at the minimum daily price, and sell at the maximum daily price.

Does it mean that my long-term profits will be lower? Maybe I'll even have no long-term profits?

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Consider the price history to be the sum of short term movements and long term movements. If you hold a stock for a long time you will benefit (or lose) from its long term movement.

If a sufficiently large and very good short term trader existed he would tend to reduce short term volatility, eventually to nearly zero. At that point, the price would rise gently over the course of the day in line with the long term variation in price.

Presumably robot traders will increase the time horizon of their trades when they have exhausted the gains they can make from short term trades.

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  • This makes sense, although I am not experienced enough to know for sure.
    – Erel Segal Halevi
    Apr 19, 2012 at 13:35
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"....causes loses [sic] to others."

Someone sells you a stock. The seller receives cash. You receive a stock certificate. This doesn't imply a loss by either party especially if the seller sold the stock for more than his purchase price.

A day trading robot can make money off of the price changes of a stock only if there are buyers and sellers of the stock at certain prices. There are always two parties in any stock transaction: a buyer and a seller. The day trading robot can make money off of an investment for 20 years and you could still make money if the investment goes up over the 20 years. The day trading robot doesn't "rob" you of any profit.

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  • Let's look at two cases. CASE A: no robots. I buy a stock at 1000, and sell it 20 years later for 10000. I earned 9000. CASE B: with robots. A day-trading robot buys the stock at 1000, then sells it to me at 1050. The robot earned 50, and I earned only 8950. Doesn't this mean that the robot took some of my profits?
    – Erel Segal Halevi
    Apr 12, 2012 at 13:35
  • Although computer algorithms execute the trades ultimately it is still humans buying and selling. In your example you assume the computer will be able to buy at 1000 and find a seller at 1050. This is not always the case. There is a price at which you will no longer buy the stock. Each increase in price causes additional buyers to not consider the stock. The short term speculator takes on risk whenever he purchases a stock. Same as a long term speculator.
    – Muro
    Apr 14, 2012 at 21:05

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