Book of the Week: Flash Boys

20 Jun 2014

This week I read Flash Boys by Michael Lewis to find out that I’ve been getting screwed in the stock market this entire time. The book seems like an advertisement of IEX, whose value proposition is that they don’t screw you like everyone else. Milliseconds Thousandth’s of a second matter in the high frequency trading world. If you put it a buy order, it gets routed to several exchanges. Someone who gets information and conducts trades faster than you will buy the shares at a lower price and sell it back to you at a higher price since your order will hit one exchange before it hits the other exchanges. One way to prevent this is to add delays such that your orders hit all exchanges simultaneously or trade on exchange only. Due to some laws and the size of the order, you will probably have to hit multiple exchanges to fulfill your order. High frequency traders will do anything to get an edge like physically putting their computers closer to the exchanges. Small Shops vs Big Banks Big banks suck at high frequency trading, which is dominated by companies most people haven’t heard of. Wall street people are bullshit their way to the top. The problem is that they start believing themselves. Part of bullshitting is to bluff to keep people in the dark about their own value and your own weakness. Everyone is out to screw each other so they can make a buck at your expense. Money can only buy so much. If you want to get good people, you need to appeal with them with something other than money. The people who can do that are leaders. They can convince people to give up stability and comfort to join them in the trenches. Russian Mafia Turns out many high frequency coders are Russians who can code well and know how to work the system. Wall Street is all about working the system to your advantage. A lot of the things that banks and exchanges do are to give high frequency traders more of an advantage. High frequency trading converts information to money without taking any risk. They only have to worry about other high frequency trading companies beating them to the punch. IEX The characters in the story form IEX, an exchange designed not to screw the investor. You follow them on their journey of putting the pieces together to find out how investors are getting screwed to getting IEX to be successful. I wonder if I should ask my broker to route all my trades through IEX now.