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No doubt you've heard about Michael Lewis' new book, "Flash Boys."
And, no doubt you've been hearing more than ever before about the subject of Lewis' book, high-frequency trading (HFT).
I ran to Barnes & Noble to buy the book the second I heard about it last week. They didn't have any copies. So, I ordered it online, which was cheaper anyway.
It was waiting for me when I got home Saturday night. I finished it by Sunday morning. Although it's only 271 pages, it took me 12 hours to read it because I wanted to savor every word and let it soak in.
Well, let me say this about high-frequency trading and Michael Lewis' book:
HFT is a bad juju, and Lewis' book is absolutely, positively, indisputably sheer genius.
Michael Lewis' books are amazing because they are so human, they reach into places it's hard to get to, and we journey with all his characters down their paths, remarkably coming to exactly where Lewis takes us: to enlightenment.
Read the book. It will stagger you. The truth about how the markets have been "rigged" could not have been better laid bare. You won't be able to put it down. You will have multiple – and I mean multiple – "aha" moments. It's a fantastic voyage into the market.
I've been writing about HFT for many years now. And you can read my brief history of how the markets came to the point where HFT took root and the short version of how HFT works.
I wrote that last Friday. Lewis' book confirms everything I've ever written about HFT.
I'll admit, I wanted to set up an HFT desk myself back in 1999. The handwriting was on the wall and I could already see how traders could make a lot of money on it. I could see where everything was going.
My only problem was that I couldn't convince my hedge fund partner at the time that we needed to go in that direction.
We were running huge amounts of algorithmic trades that required precise execution at very tightly defined (if not exact) prices, and that was hard to do because markets were already fragmented.
We had to go to several ECNs (electronic communications networks) and exchanges to get our fills, and in the process of trying to get our sizable orders filled, we moved markets. That's not what you want to do.
The simple answer was to create an engine that was fed with all quotes (bids and offers and size of shares being bid for and being offered for sale) from every ECN and exchange and trading venue, in order to "see" where the stock was that you wanted, and to be able to go to all the venues and transact on them simultaneously to get an average price as close to our required target price as possible.
And as we were discussing what we needed to get started – the T1 lines for all the data feeds, the amalgamation engine, the speed in and out, and whatever regulatory clearance we might need – something occurred to me in a flash.
Here's what it all really meant, in all of its (scary) genius:
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About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.