Institutional investors

Investment opportunities are varied, and no stock has particularly large market power. If an investor chooses to avoid a stock, it is easy to find any number of close alternatives. Buyers, on the other hand, do not have this characteristic. There is a small set, numbering in the dozens, of extremely powerful large investors. These include mutual funds, pension plans, large brokerage houses, insurance companies, and foundations of extremely wealthy individuals. These institutional investors have the resources to move individual markets by their own actions alone. The risks associated with this power are manifold, and have led to the creation of regulatory agencies like the Securities and Exchange commission to watch carefully over these large investors.

Wealthy individuals can move the entire market. Victor Sperandeo describes the process of unwinding a single investor's one billion dollar position in the stock market. Brokers actually bid for the business and because they can make so much money off of the movements a large program trade like this can create. Sperandeo says the broker then can "sell futures and buy index puts, then sell the stocks down sloppy.... What they're doing is setting up the futures market for their $1 billion sell program. They over-hedge by selling more than the position they're selling so as to reap large rewards as the execution takes place."

In effect, the investor and his brokers make money not just with the investments, but in the manipulation of the market. Like daytraders following the day's hot trend, this type of program trade, highly dependent on the coordination of floor computers, allows large investors to profit without any concern for the underlying companies.