This is my 3rd book from Michael Lewis. Michel has an ability to talk about finances, economics and investments in a language that is easily understandable including its finer nuances.
Michael Lewis is back with its dark stories within the financial & investment community, this time focusing on the "high-frequency" trading firm. The first thing that hits you is "speed". The power of milli, micro, nano seconds. Well, how much can happen in a second... you may ask? But then you realize entire busines models (and of course "billions") are being built around these. High Frequency Trading firms or simply put HFTs survive on sophisticated (read complex) algorithms that play on arbitrage of speed. It is estimated that as of 2009, HFT accounted for 60-73% of all US equity trading volume, with that number falling to approximately 50% in 2012. The ability to race first to the stock exchange and read the data better than others thus playing to your advantage. You might think what's wrong with that. It's not wrong as long as you play speed to your advantage only. Once you start using it to hurt others, you are on a borderline of unethical & immoral practices.
One of the most brilliant example often used in the book is that even if you trade with yourself, a HFT will come in between, buy from you and sell you back at a higher price simply because the speed with which your trade should have happened is biased towards HFTs.
Michael first establishes the basics, then the wrongs and then start building up the chracaters who are trying to clean the system. It is also interesting that Michael & the "good" characters clearly indicate that they are not in this only for "high moral grounds". They are in here still to make money but on good & fair principles. So you are not reading about some saints but investors who should do their jobns properly in the interest of the people whose money they represent. Flash Boys is about the founders of 'Investors Exchange' or IEX. They deviated from the normal practice and instead of being pushing towards "speed" intentionally introducesda "lead time" to deter the high frequency trading algorithms. They additionally decided not to give anyone unfair advantage for instance Refusing to pay for order flow or no colocation to any specific broker etc.
It covers the founders Brad Katsuyama, Ronan, Schwall, etc and their search for more people who believes in the same philosphy. It traces their journey to the breakeven point of 50 mn trades (which they achieved in 6 months of opening).
As per wiki, they now trade around 200mn daily accounting for just over 1.4% market share.
The novel is an excellent read. Well, we always know that the investment world is not a fair world and a bit of gambling is involved. What this novel further highlights is the extent of gambling and corrupt practices involved. HFTs without taking any position in any stock have been making billions. The high-frequency trader Virtu Financial disclosed in March 2014 that during five years it made profit 1277 out of 1278 days, losing money just one day. No wonder, because you are never trading fairly but exploiting the weaknesses of others. Kudos to Michael for also naming the people involved. I am a bit surprised that no one filed any lawsuit considering so many big wall street firms have been named & shamed. At least, the day after the book's release FBI announced an investigation into high frequency trading, in particular about possible front running, market manipulation, and insider trading. On May 1, the SEC announced a $4.5 million fine for the New York Stock Exchange and two affiliated exchanges, on charges related to Lewis's book. The exchanges neither admitted, nor denied the charges.
So at least some good came out of it. By the way, the book boosted the trade over IEX by as much as 40% (quoting an article from barrons.com)
What remained unclear to me is the sudden motivation change of Golman Sachs. Till the last chapter, they are shown as the bad boys and then suddenly they have a change in heart... difficult to believe.
Michael Lewis is back with its dark stories within the financial & investment community, this time focusing on the "high-frequency" trading firm. The first thing that hits you is "speed". The power of milli, micro, nano seconds. Well, how much can happen in a second... you may ask? But then you realize entire busines models (and of course "billions") are being built around these. High Frequency Trading firms or simply put HFTs survive on sophisticated (read complex) algorithms that play on arbitrage of speed. It is estimated that as of 2009, HFT accounted for 60-73% of all US equity trading volume, with that number falling to approximately 50% in 2012. The ability to race first to the stock exchange and read the data better than others thus playing to your advantage. You might think what's wrong with that. It's not wrong as long as you play speed to your advantage only. Once you start using it to hurt others, you are on a borderline of unethical & immoral practices.
One of the most brilliant example often used in the book is that even if you trade with yourself, a HFT will come in between, buy from you and sell you back at a higher price simply because the speed with which your trade should have happened is biased towards HFTs.
Michael first establishes the basics, then the wrongs and then start building up the chracaters who are trying to clean the system. It is also interesting that Michael & the "good" characters clearly indicate that they are not in this only for "high moral grounds". They are in here still to make money but on good & fair principles. So you are not reading about some saints but investors who should do their jobns properly in the interest of the people whose money they represent. Flash Boys is about the founders of 'Investors Exchange' or IEX. They deviated from the normal practice and instead of being pushing towards "speed" intentionally introducesda "lead time" to deter the high frequency trading algorithms. They additionally decided not to give anyone unfair advantage for instance Refusing to pay for order flow or no colocation to any specific broker etc.
It covers the founders Brad Katsuyama, Ronan, Schwall, etc and their search for more people who believes in the same philosphy. It traces their journey to the breakeven point of 50 mn trades (which they achieved in 6 months of opening).
As per wiki, they now trade around 200mn daily accounting for just over 1.4% market share.
The novel is an excellent read. Well, we always know that the investment world is not a fair world and a bit of gambling is involved. What this novel further highlights is the extent of gambling and corrupt practices involved. HFTs without taking any position in any stock have been making billions. The high-frequency trader Virtu Financial disclosed in March 2014 that during five years it made profit 1277 out of 1278 days, losing money just one day. No wonder, because you are never trading fairly but exploiting the weaknesses of others. Kudos to Michael for also naming the people involved. I am a bit surprised that no one filed any lawsuit considering so many big wall street firms have been named & shamed. At least, the day after the book's release FBI announced an investigation into high frequency trading, in particular about possible front running, market manipulation, and insider trading. On May 1, the SEC announced a $4.5 million fine for the New York Stock Exchange and two affiliated exchanges, on charges related to Lewis's book. The exchanges neither admitted, nor denied the charges.
So at least some good came out of it. By the way, the book boosted the trade over IEX by as much as 40% (quoting an article from barrons.com)
What remained unclear to me is the sudden motivation change of Golman Sachs. Till the last chapter, they are shown as the bad boys and then suddenly they have a change in heart... difficult to believe.
