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‘Flash Boys: A Wall Street Revolt,’ by Michael Lewis

Posted on April 6th, 2014 at 15:42 by Sueyourdeveloper in category: News -- Write a comment

Quote

If that was the case, he asked them, why did the market in any given stock dry up only when he was trying to trade in it? To make his point, he asked the developers to stand behind him and watch while he traded. “I’d say: ‘Watch closely. I am about to buy 100,000 shares of AMD. I am willing to pay $15 a share. There are currently 100,000 shares of AMD being offered at $15 a share — 10,000 on BATS, 35,000 on the New York Stock Exchange, 30,000 on Nasdaq and 25,000 on Direct Edge.’ You could see it all on the screens. We’d all sit there and stare at the screen, and I’d have my finger over the Enter button. I’d count out loud to five. . . .

“ ‘One. . . .

“ ‘Two. . . . See, nothing’s happened.

“ ‘Three. . . . Offers are still there at 15. . . .

“ ‘Four. . . . Still no movement. . . .

“ ‘Five.’ Then I’d hit the Enter button, and — boom! — all hell would break loose. The offerings would all disappear, and the stock would pop higher.”

At which point he turned to the developers behind him and said: “You see, I’m the event. I am the news.”

Solutions?

  1. The excerpt is super interesting and worth reading, if nothing else because it’s basically a blind debugging scenario.

    For some balancing views, I recommend this and this from which:

    The high-frequency traders make money more consistently than the old-school traders, but they also make less of it.

    Point being, that HFT affects people doing big stock transactions. It doesn’t really affect you and me when we buy or sell stocks. That’s because most of the time when we trade using Schwab or E-Trade, as I understand it, the order is filled either within the brokerage entirely (i.e. matched with another customer without ever going to the market) or if it does make it to a real exchange, the order will be small enough to be filled on a single exchange.

    It looks to me like HFT is a problem affecting big investors, hedge funds, and other people who have the money to make noise about this, sue each other, lobby Congress, etc.

  2. I also see it as some evidence that a financial transaction tax wouldn’t really cause the market any hardship.

  3. A 5% tax would probably stop the herd mentality on Wall Street.

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