Flash Boys: A Wall Street Revolt (2014) - Plot & Excerpts
This is Michael Lewis’s follow-up to “The Big Short,” in which he exposes the latest round of Wall Street’s fleecing of the common investor. Like “The Big Short,” Michael Lewis does an admirable job explaining technical details in layman’s terms, though I found the concepts more complicated even than collateralized debt obligations and credit default swaps. The latest Wall Street sin, high-frequency trading, comes in many varieties, and Michael Lewis describes four of the simpler strategies. All rely on traders being equipped with computer systems capable of monitoring stock prices and executing trades faster than the average broker—typically on microsecond time scales.The most straightforward HFT method is front-running. An investor will attempt to buy stock in a particular company by submitting orders to several stock exchanges. High-frequency traders will sell a small amount of the stock to the investor on one exchange, and in the process will be able to make an educated guess (using complex statistical algorithms) that the investor is also attempting to buy the same stock on other exchanges. Because the high-frequency trader has an incredibly fast system, he is able to very quickly go to the other exchanges and buy the stock before the investor’s order actually arrives at those exchanges, then sell the stock to the investor at a slightly higher price than the investor would have otherwise paid. This whole process often occurs in less than one millisecond (it takes about 100 milliseconds to blink your eyes).Note how this entails very little risk to the high-frequency trader, who is essentially getting money for nothing while forcing the investor to pay an artificially inflated price. As Michael Lewis puts it: “High-frequency traders went home every night with no position in the stock market. They traded in the market the way card counters in a casino played blackjack: They played only when they had an edge.” This book tells the story of a small band of idealistic (for the financial world, at least) Wall Street people who band together to start their own stock exchange, intended to eliminate HFT firms’ ability to rip off millions of investors. Like all other Michael Lewis books, I tremendously enjoyed this one. I will admit, however, that it is the least entertaining of all the others I have read, due to its more viscous technical detail and the fact that I found its characters less interesting than in other books. Still, I would highly recommend “Flash Boys” as an introduction to the mechanics of high-frequency trading and an elucidation of why reform is so desperately needed. It an interesting story and I was totally shocked that this type of front-running by high-frequency traders is actually legal! That being said, Lewis pretty much discredited himself 3/4's of the way through by saying this isn't even how HFT firms make their money. In reality, they're profitable because they provide essential market making services, which has benefited the retail investor by pushing down brokerage fees.So yes, I'm glad Lewis brought this into the foreground and up for public debate. However, I felt he could have provided a better argument against HFT if he focused less on front-running and more on, say, destabilization of the financial system by rogue algorithms - i.e. the Flash Crash or Knight Capital's downfall.
What do You think about Flash Boys: A Wall Street Revolt (2014)?
Fascinating information about High Frequency Equity Traders and how corrupt they are.
—lizzieb
Interesting read about the corruption in Wall Street.
—someone
It was very interesting but I didn't love it.
—Charis
