“Flash Boys” by Michael Lewis

flash_boys

An interesting account of the development of high frequency trading over the last few years (starting ~2010-ish) and an attempt to counter its “predation.”  The book begins with a story of Spread Networks building a fiber optic line a straight as possible between Chicago and New York, so that information about market arbitrage between the futures market in Chicago and the stock market in New York could be sent and acted on as quickly as possible.  Then there was/is the push by high frequency trading firms to expand the number of exchanges (so as to maximize arbitrage opportunities) and also attempts to co-locate their machines as near as possible to the exchanges’ “matching engines” which actually make trades.  Per the book, this allows the HFT firms to front-run everyone else’s orders (eg. they can see someone is trying to buy a certain stock, so they buy up everything within a certain price on all the other exchanges, and then jack up the price before the other party’s orders arrive at those exchanges to buy) and preform other nefarious and predatory schemes.

There’s been lots of discussion about this book.  Here’s an article that claims HFT doesn’t really concern little investors like you an me, but mainly “institutional investors.”

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