691 of 766 people found the following review helpful
A true snapshot in a still evolving financial world,
Verified Purchase(What's this?)
This review is from: Flash Boys (Hardcover)
I retired from the hedge fund world and I can tell you that this book is mostly on target. For those who deny that HFT (high-frequency trading) is a rigged game, either they are un-informed or disingenuous.
It wasn't always like this. There was a time, when a bid was a bid, and an ask was an ask. If you liked the ask, you could hit the buy button and have a buy order confirmed instantly. Likewise, if you liked the bid, you could hit it and have a sale order confirmed instantly. That instant used to be measured in seconds or less. Then came along the HFT algo. All of a sudden, a bid is no longer a firm bid, and an ask is no longer a firm ask. You can hit the bid, but instead of selling instantly, you now become the ask price, and the bid just got lowered by a penny or more, and the market is moving away from you. Most of the time, the price move is a head fake - an illusion, trying to get you to trade at a price with "scalping" built-in against you. If you are willing to stick around, the precise price you want will return and you can have your trade. But other times when execution really matters, it was all real, the price you were willing to trade at just got shifted permanently right before your eyes and somebody "front-run" you.
I decided to retire, partly out of disgust, partly out of my lack of financial ambition. I learned a while ago, if the first million can't make you happy, that you have to accumulate more, you will never be content. If you have to play the rigged game to add more riches to your money pile that most human beings will never see in their lifetime, I feel sorry for you. Life is too short for me to play that game.
Addendum: This book was written for the lay person, so was my review. Sorry for not bandying about the jargons as some would expect, my bad. As much as I tried, I seem to have failed to write in plain English and draw the analogy to a functioning market. That's where Michael Lewis' book excelled, hence my recommendation. Granted, true free market doesn't exist in the financial world (no matter where you look, New York/London/Chicago/Tokyo). Only the naive will expect any market to give all participants the same level of positioning to engage in any transaction. My favorite analogy is my local farmers' market. When I show up to buy strawberries, some farmers/dealers have way more information on the supply and demand, and have inventory to reflect their view. They will rightfully make a profit when I buy the basket of strawberries from any of them. What I don't want to see is some jerk get in the way and buy up all the strawberries just before I hand my money to the seller, then turn around and sell the strawberries to me as if he had been the seller all along. The price quoted at my farmer's stand should be the price I can buy strawberries at, not a new price some jerk just jacked up to after seeing my intention to transact. I hope the description above clears any doubt about what this book is really about. It's not about someone having some legitimate edge after doing extensive research, or illegitimate edge resulting from inside information. It is about the financial market must be well functioning and free of unnecessary intermediation. That said, still two thumbs up on the book! For those who deny the unfairness of HFT front-running, either you haven't seen it (which should disqualify you from commenting on this topic) or you are so jaded that you can't see its harm (which begs questions about your integrity). As for myself, still happily retired after a short stint in the world of finance, thank you very much! I never learned much and never enjoyed rattling off the jargons.
Tracked by 4 customers
Sort: Oldest first | Newest first
Showing 1-10 of 23 posts in this discussion
Initial post: Apr 2, 2014 12:30:20 PM PDT
Last edited by the author on Apr 2, 2014 12:31:12 PM PDT
Book Pits says:
you don't hit an ask. you take it. you hit a bid.
In reply to an earlier post on Apr 2, 2014 1:24:07 PM PDT
Last edited by the author on Apr 2, 2014 1:26:33 PM PDT
S. Yang says:
now we are getting somewhere, semantics, figuratively speaking, thanks for the contribution, big boy. my fat fingers didn't hit proverbial buy or sell buttons, i just pounded my fists on the bloomberg keyboard
Posted on Apr 2, 2014 7:38:22 PM PDT
Douglas Tengdin says:
The fact that you don't use the language of trading leads me to question whether you were really part of that world. I've been trading financial instruments since 1986. The game has always been rigged. There never was a simpler time. Players have always sought an edge. Welcome to New York / Chicago / London.
In reply to an earlier post on Apr 2, 2014 8:24:59 PM PDT
N. Katti says:
He did not say hit the ask. He said hit the buy button. He also said if you liked the bid you can hit it. Do you always read that carefully?
In reply to an earlier post on Apr 9, 2014 8:12:06 PM PDT
julia g. says:
Wow! This really is a distinction without a difference.
In reply to an earlier post on Apr 10, 2014 6:13:03 AM PDT
While I like nitpicking much more than the next guy, you actually "lift" an offer, you dont take it. Separately, if you're manually lifting offers and hitting bids, then you were antiquated a long time ago, regardless of whether or not you are being scalped by hft.
Posted on Apr 21, 2014 12:29:23 PM PDT
Thanks for the addendum. It really does help to have it in simpler terms.
Posted on Apr 26, 2014 9:49:47 PM PDT
BLS Carmel says:
Thanks for a great review. Used to be in the business and the farmer's market analogy is terrific.
Posted on Apr 28, 2014 9:24:31 PM PDT
Posted on May 13, 2014 2:06:42 PM PDT
Ian Kaplan says:
Unless you're trading big blocks of stock, I don't see the issue of being front run. Brokers like Interactive Brokers use smart routing which will break your order up to get the best price. The order does not trade on a single market but multiple markets. When you submit your limit order you will see, on the fill, that the order has fractured and been filled in multiple places to get the best price. This makes anything but huge orders really difficult to front run since the smart routing will find the best price. To front run the algorithms would have to front run in all of the markets and could lose money since their arbitrage opportunity tends to disappear.
Those who do need to trade large blocks of stock should be using market impact minimization algorithms which will break the large order up into smaller blocks. None of this was discussed in the book.
Features like smart routing may be a reason that the profits of HFT funds have been greatly reduced in recent years.