The surge of trading in offbeat stocks is duping inexperienced investors into high costs and a battle with Wall Street that they cannot win, according to the founder of one of the largest trading firms in the world.
Zero-commission trading helps to build an illusion that amateur investors have never had it better, Alex Gerko, co-chief executive of London-based XTX Markets, told the Financial Times in an interview.
But the way retail brokerages sell on their customers’ orders and a “very poor benchmark” mean that the smallest investors together shell out billions of dollars in hidden costs every year when buying or selling US equities, he explained.
“The GameStop episode made it obvious that the retail part of the market is particularly broken,” Gerko said, referring to the huge spike in the console store chain’s shares in January. “The incentives are there to create a lot of churn in very illiquid stocks, which is exactly what we are seeing this year.”
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