Flash Boys
Monday, May 19th, 2014 | Books
When someone says the phrase “high frequency trading” (HFT), most of us have no idea what it means. Even those of us with some idea, probably think it is trading by computers, but essentially doing what traders do – wheeling and dealing in an attempt to make some money.
Michael Lewis’s book “Flash Boys” tells a different story. High frequency trading is all about front-running. You want to buy 10,000 shares in Apple? Great, I’m going to buy them before you can and then sell them to you at a higher price. It’s illegal, or it was, but with the deregulation of central stock markets in favour of competition between markets, you can now exploit milliseconds it takes for them to talk to each other.
This caused huge investment into the history with HTF firms making enormous profits. The banks didn’t say anything because they were making money from selling the HFT companies the data they needed. The stock markets didn’t say anything because they were making money from the huge increase in trading activity. Everyone was getting rich from scalping the ordinary investor.
I say was, but the problem has not gone away. However, the book also discusses how former trader Brad Katsuyama has gone on to set up IEX, a private stock exchange that tries to eliminate all the unfairness in the market.
It is a fascinating by scary read. To see how totally wrong the entire banking industry is. We all kind of know it, but it really brings it home.
When someone says the phrase “high frequency trading” (HFT), most of us have no idea what it means. Even those of us with some idea, probably think it is trading by computers, but essentially doing what traders do – wheeling and dealing in an attempt to make some money.
Michael Lewis’s book “Flash Boys” tells a different story. High frequency trading is all about front-running. You want to buy 10,000 shares in Apple? Great, I’m going to buy them before you can and then sell them to you at a higher price. It’s illegal, or it was, but with the deregulation of central stock markets in favour of competition between markets, you can now exploit milliseconds it takes for them to talk to each other.
This caused huge investment into the history with HTF firms making enormous profits. The banks didn’t say anything because they were making money from selling the HFT companies the data they needed. The stock markets didn’t say anything because they were making money from the huge increase in trading activity. Everyone was getting rich from scalping the ordinary investor.
I say was, but the problem has not gone away. However, the book also discusses how former trader Brad Katsuyama has gone on to set up IEX, a private stock exchange that tries to eliminate all the unfairness in the market.
It is a fascinating by scary read. To see how totally wrong the entire banking industry is. We all kind of know it, but it really brings it home.