Stock Exchange

You want to know the truth? The truth is that Wall Street has stacked the deck against you.

That's why you need to understand how the game is played. Otherwise you'll end up a Wall Street patsy.

So, here's the truth along with some lessons that will help you play the game like a pro.

First, though, we'll need to debunk a few myths...

Let's start with the myth that the Street lowered brokerage charges for the benefit of retail investors. At one time, these fees used to be obscenely high and fixed.

But, on May 1, 1975, fixed commissions were abolished after brash upstarts like Charles Schwab and disgruntled investors decided to attack The Street's price-fixing schemes.

The negotiated commissions regime that followed lowered the cost of access to the stock market, essentially ushering in the era of the "individual investor."

The influx of these individual investors, many of whom didn't have enough money to create diversified portfolios, soon became a boon for mutual funds - which have since grown like weeds in an untended sod farm.

Wall Street Changed the Game

Since the commission business was no longer profitable, Wall Street moved its retail business to an "assets under management" model.

So instead of making money on commissions the game changed to gathering as many assets as you could into a retail investor's account and charging a fee to "manage" them; in other words, just watch them.

That's one of the reasons why Wall Street advocates a "buy and hold" strategy for retail investors. They don't want you to take those assets away from them.

It's the same thing with mutual funds.

And conveniently, if your broker puts you into mutual funds that are losers, it's not your broker's fault.

Now, it's the mutual fund manager's fault. That way the broker can't be blamed if your account loses money.

Instead, your broker can tell you, "Don't fire me, let's fire the mutual fund manager and let's find you a better fund to invest in. But, no matter what happens, we need to buy and hold and not try and time the market."

That's what retail investors are told to do over and over and over again.

But guess what? That's definitely not what Wall Street firms do.

In fact, while you're being told to buy and hold, exchange specialists, market-makers, hedge funds and every trading desk at every Wall Street bank and firm are busy trading.

Some individual investors began to see how Wall Street was really making its money and started trading themselves.

Of course, that only increased the competition for easy trades as more retail investors traded in and out of stocks.

To continue their advantage over the public, Wall Street fought to do away with the uptick rule. The rule was wiped out so traders could short sell any stock at any time.

But it's the big Wall Street players who benefit from the rule change because they can use their huge capital positions and work with each other to drive down stocks they have shorted.

Who gets hurt? The buy-and-hold retail investors who are told to buy more at lower prices are the ones who get fleeced.

And, who is selling to them?...