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Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street Are Destroying Investor Confidence and Your Portfolio Hardcover – June 3, 2012

3.9 out of 5 stars 56 customer reviews

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Editorial Reviews

From the Back Cover

“Read this book before you invest a penny in the stock market.”
—Mark Cuban, Owner, Dallas Mavericks

“In one of the most memorable scenes in motion picture history, before giving him the  red pill, Morpheus says to Neo, ‘You’re here because you know something. What you know, you can’t explain, but you feel it. You’ve felt it your entire life—that there’s something wrong with the world. You don’t know what it is, but it’s there, like a splinter in your mind, driving you mad.’ Although Arnuk and Saluzzi will not expose every dark corner of the ‘matrix’ that our capital markets have become, they will provide the clues to aid you in your quest to understanding  just why more people withdraw from trading fully aware that ‘there’s something wrong.’  Morpheus also asks, ‘Do you want to know what it is?’ To all who answer yes  and take the red pill, read this book.”
—Tyler Durden, Zero Hedge

“Markets now trade at the speed of light, apparently benefiting Wall Street ultra-short-term traders over long-term investors and causing more than a few ‘flash crashes’ along the way. Arnuk and Saluzzi intuitively piece together how High Frequency Trading, for-profit exchanges, fragmentation, regulatory changes, and a ‘need for speed’ over the past 20 years have  dramatically shifted benefits from investors to short-term traders in our increasingly fragile  markets. A must read for anyone concerned about investors, trading, and  the long-term health of U.S. stock markets.”
—Professor Michael Goldstein, Professor, Finance, Babson College

“Arnuk and Saluzzi are the Woodward and Bernstein of the securities markets.  Their gutsy, dogged sleuthing exposed the perverse market effects of robotic trading  and predicted an event like the Flash Crash 2010, long before blinkered market regulators had a clue. The two crusaders deserve a medal for looking out for investors.”
—Jim McTague, Washington Editor, Barron’s

“Who broke the stock market? The NYSE and NASDAQ, that’s who. They sold the investing public down the river so colocated algo driven servers of  high frequency traders could steal billions by front running grandma’s mutual fund.  The horrific truth about this legalized theft is all here in black and white.  Read it, and you will never so much as invest one thin dime in U.S. equities again.”
—Barry Ritholtz, CEO, FusionIQ; Author, Bailout Nation and  The Big Picture website; Bloomberg personality

“The authors explain in wonderfully clear language how, instead of banning card counters as they do in Vegas, Wall Street has remade itself to not only stack the deck in the card counters’ favor, but to enable them to do so via ever-faster computer networks and algorithms, that leave not only ordinary investors but many sizable institutions, like pension funds, with worse odds than on a lottery ticket. There’s more, much more, in Arnuk and Saluzzi’s book; it’s quite simply a must read, if you care about your capital—or the future of our capitalist economy.”
—Kate Welling, Former Founder, Editor, and Publisher, Weeden & Co. LP, Welling@Weeden; Former Managing Editor, Barron’s

An eye-opening view on the way stocks are really traded today—and why the stock markets are  broken and desperately need to be fixed. Written in an easily understandable style, the authors explain:
• The strategies and tactics high frequency  traders use to scalp pennies off of nearly every retail and institutional share traded
• How the stock exchanges provides high frequency traders with powerful tools that give them an advantage over retail and institutional investors
• Why the stock markets no longer accurately price the values of the securities in your portfolio
• What you can do to prevent these and other problems from getting any worse
Authored by the Wall Street traders who figured out how high frequency traders were harming retail and institutional investors and explained how it all works on 60 Minutes, Bloomberg TV, CNBC, and  Fox Business News

• Why retail investors are pulling their money  out of stocks in unprecedented amounts
• How decades of regulation created the  broken markets we have today
• Why there are more than 40 exchanges,  sub-exchanges, and dark pools rife with  conflicts of interest where stocks  are traded today
• How the stock exchanges became for-profit companies and fundamentally changed market structure
• Why the Flash Crash happened—and why  it will happen again
• How there are two markets—the fast,  accurate one that high frequency traders  see and the slower one that retail and  institutional investors see

About the Author

Sal Arnuk is partner,  cofounder, and co-head of equity trading of Themis Trading, LLC, a leading independent agency brokerage firm that trades equities for institutional money managers and hedge funds. Arnuk has extensive experience in equities trading and is an expert in electronic trading and market structure.  Prior to founding Themis in 2002, he was with Instinet Corporation, where he headed the team responsible for equity sales and trading for institutional money managers, for more than 10 years.
His opinions are sought by leaders, regulators, market partici-pants, and the media and are presented  via white papers and Themis’ widely read blog. He is a frequent  speaker at industry conferences, such as Trader Forum, Waters, National Organization of Investment Professionals (NOIP), and Fusion IQ’s Big Picture, on issues involving market access, algorithmic trading, and other sell- and buy-side concerns.
He  also provides expert commentary  for media outlets such as the Associated Press, BBC Radio, Bloomberg TV and Radio, BNN, CNBC, Fox Business, NPR, Barron s, The New York Times, The Wall Street Journal, USA Today, Time, Los Angeles Times, Bloomberg News, Pensions & Investments, and Advanced Trading.
Arnuk earned  an MBA in finance from New York University’s Stern  School of Business and a Bachelor’s degree  in finance from SUNY Binghamton University.
Joseph  Saluzzi  is partner,  cofounder,  and  co-head  of equity trading of Themis Trading, LLC.  Saluzzi has extensive experience in equities trading and is an expert in electronic trading and market structure. Prior to Themis, he headed the team responsible for equity sales and trading for hedge fund accounts at Instinet Corporation for more than 9 years.
Saluzzi has provided analysis to regulators, including the Securities and Exchange Commission and as a member of the Commodity Futures Trading  Commission’s new Subcommittee  on Automated and High Frequency Trading.
He has appeared  or been quoted  on market structure  issues by media outlets such as CBS’s 60 Minutes, BBC Radio, Bloomberg Television and Radio, CNBC, Fox Business, BNN, The New York Times, The Wall Street Journal, USA Today, Reuters, Associated Press, Los Angeles Times, and Bloomberg News. Saluzzi also has authored  articles for Traders Magazine, Dow Jones, Journal of Investment Compliance, and Journal of Indexes.
He earned an MBA in finance from the University of North Caro- lina at Chapel Hill and a Bachelor’s degree in finance from New York University.




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Product Details

  • Hardcover: 336 pages
  • Publisher: FT Press; 1 edition (June 3, 2012)
  • Language: English
  • ISBN-10: 0132875241
  • ISBN-13: 978-0132875240
  • Product Dimensions: 6.4 x 1.1 x 9.3 inches
  • Shipping Weight: 1.2 pounds
  • Average Customer Review: 3.9 out of 5 stars  See all reviews (56 customer reviews)
  • Amazon Best Sellers Rank: #341,352 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

By Greg Nyquist VINE VOICE on November 8, 2012
Format: Hardcover Vine Customer Review of Free Product ( What's this? )
This is a very important book dealing with a subject that many people find baffling. Nowadays financial markets have become so complex that it is nearly impossible for an outsider to grasp how they work. Sal Arnuk and Joseph Saluzzi try their best to reduce this complexity to terms comprehensible to the layman; but in the end it's almost a quixotic venture. If you know little of financial markets you might find "Broken Markets" difficult to follow. But the Arnuk's and Saluzzi's thesis is not all that complex. The authors argue that our financial markets are thoroughly broken. They explain how stock exchanges have been taken over by high frequency traders who use sophisticated computer algorithms to scalp pennies off nearly every share traded. This has essentially transformed stock exchanges from facilitators of capital formation to arbitrage driven casinos that are rigged in favor of a class of speculators, the high frequency traders, who account for 50 to 70 percent of the volume traded on stock exchanges and, still more ominously, 80% of the profits.

It's hard to see why anyone, after going through this book, would want to have anything to do with stock market investing. To be sure, the intention of the authors is not to scare investors away, but to motivate investors to demand reform. I'm not sure whether the specific reforms advanced in the book are either politically feasible or will actually cure the ills of hyper frequency trading. There are a number of other problems afflicting asset markets other than those limned by Arnuk and Saluzzi in "Broken Markets"; and their doesn't seem to be much interest in even comprehending, let alone tackling, these issues. Curiously, the authors of Broken Markets trace the rise of high frequency trading, not to deregulation, but to misregulation.
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Format: Hardcover
I have been following the (meandering at times) thoughts and opinions of Sal Arnuk and Joe Saluzzi for a number of years. The guys at Themis have become thought leaders on market structure, and while for some it may be easy to disagree with their opinions, it is very hard to ignore them. I will be quite frank and say that there are quite a few issues that I differ with them on, but that's no reason for me or anyone else to have a negative opinion of this book. The book itself is not meant to be read at one sitting, it is a much easier read taken in small doses. The authors are outspoken, passionate, and right or wrong willing to take a stand on issues that too many in our industry either ignore, or afraid to speak about. Market volume is down nearly 50%, something is wrong and the authors are giving their POV. They made me question some of my own opinions, and for that alone it is worth the four star review.

One of the reasons to read this book, especially if you have witnessed the events and turmoil of the last few years, is to understand just how we have gotten to this point. Yes it focuses on HFT, but HFT is now probably more than 90% of the volume on any given day in the Equities markets. While not perfectly organized, since it covers quite a bit of ground, it still gives a good accounting of the history of the Equities Industry in the last 10-15 years. Yes it is an "insider's view" but that exactly what this subject needs. While not written as a narrative like Scott Patterson's "Dark Pools", it still manages to tell an interesting and compelling story with enough facts for the reader to understand what the flaws are and what can be done. Of all the numerous topics it tries to cover it is especially detailed when discussing the rise of HFT and Dark Pools.
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Format: Hardcover Vine Customer Review of Free Product ( What's this? )
Have you ever done something like the following: you place an order to buy a stock at $15.00, and your order is filled at $14.99999? The answer, which I learned from this book, is that you have just unknowingly traded with a high frequency trading (HFT) algorithm. My understanding (although the book doesn't explain this so clearly) is that something like the following happens: a (human) seller offers to sell the stock at $15.00. The computer, which is located in the same building as the computers that run the stock exchange and so has access to huge amounts of information that you don't at enormous speed, decides based on order flow that the stock is headed downward in the next few seconds and that you were an idiot to buy it (in the very short term). So the computer jumps in front of the seller, winning the auction by .001 cent per share. The human seller hasn't yet sold the stock and so may need to lower their price. This can then help the stock's price decline (in the very short-term), and the computer can then buy shares to cover the ones that it sold to you and make a profit of a couple of pennies per share. HFT algorithms do this kind of thing hundreds of millions of times a day and make billions of dollars a year. They also rapidly enter and cancel huge numbers of orders in an attempt to manipulate prices in their favor, making short term prices impenetrable and good order execution difficult for human investors.

This book passionately argues that our markets are broken as a result of HFT algorithms and the unfair conditions in which they operate. My summary of the argument as I understood it is as follows: In the "old days", the stock market was kept going by (human) market makers and specialists, who provided liquidity (i.e.
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