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on March 26, 2015
Although I am no expert in the stock market and the Wall Street environment, I have read quite a bit, and appreciate clear and fair assessments of what has happened and is happening. Scott Patterson seems to have provided an excellent, detailed description of how high frequency trading has developed. He mentions its positive aspects, and how it has also morphed into directions that hurt everyone except the narrow group of people who rig the system. Though there are some aspects that are difficult for the layman to follow, he has mapped out the major players and developments in a way for most everyone to understand. In particular, he describes:
- how some HFTs rig systems to get to the front of the line ahead of other traders,
- how prices get systematically manipulated, often crossing over boundaries of legality,
- how this system has produced a very risky situation for the entire securities and financial markets.

His descriptions of the mathematical and software mechanisms of HFT and adjacent transactions are not very sophisticated, but that does not take much away from a fascinating and powerful portrayal of the downward ethical spiral on Wall Street. We need to wake up as a nation (and world, as much of this is mimicked in countries other than the U.S.A.), and change the system towards a fairer and more stable structure.
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VINE VOICEon June 28, 2013
High frequency trading has been in the financial press a fair amount in the last few years. There was the May 6, 2010 "flash crash" and the demise of Knight Capital as a result of a software error (were Knight lost $440 million in 40 minutes). Scott Patterson's excellent book Dark Pools provides a very engaging background on the evolution of the computer trading networks and the risk of HFT.

Even for someone with a background in finance, Dark Pools is a fascinating account. Scott Patterson manages to paint interesting portraits of the early pioneers of computer network trading (the so called SOES bandits) and the evolution of the trading networks. There's a very interesting portrait of Josh Levine, who wrote the software for the Island trading network. I have a book of essays by Haim Bodek on HFT. However, I didn't know his history in HFT until I read about it in Dark Pools.

I was also impressed that Patterson got people at Renaissance Technology to talk to him at all, although he doesn't have a much better picture of how Renaissance trades than anyone else.

The only fault that I can find with Dark Pools is that Scott Patterson does not understand software. He has an annoying habit of referring to any complex trading software as Artificial Intelligence (AI) software. Back in the 1960s AI got a bad reputation so very few people refer to complex decision making algorithms as AI. And in many cases the software that Patterson refers to would not be classified as under the old definition AI (although some of the learning algorithms might be).

But software is not the strong point of this book: computer trading networks are and Patterson does a good job describing these and how HFT evolved.
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on January 13, 2017
This is really a series of stories of several of the key players in the development of high frequency trading. It all started innocently enough trying to reduce the time and amount of paperwork it took to make a trade. In addition, it also attacked the arbitrary gaps in pricing that increased the margins of the old line Wall Street firms.
Greed took over as a way to make money through high frequency trading. Ironically, there was a race to the bottom with faster and faster trades that rely on smaller and smaller margins. The real losers are the millions of people that relied on investing for their retirements. With more than 50% of the trades being executed by the HFT, what would have been compounded growth to build a retirement nest egg is going into the fastest traders with the best game plans.
If you read Flash Boys, this is a great book to augment the picture of HST.
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on June 29, 2014
By the end of the twentieth century corruption was widespread among the ranks of Wall Street stock brokers, but there was a powerful force of change on the horizon: technology. In Dark Pools, author Scott Patterson shares the story of how computers would come to upend the old guard of the stock exchanges and transform the markets in fantastic, and often unpredictable, ways.

Wall Street: The place where our 401ks and pension funds go, which we should all probably understand better than we actually do. Despite what could be called, at best, amateur interests in the world of trading, I couldn't put this book down. While by no means a deep technical work, Dark Pools still proved highly educational, offering a lot of insight into the inner workings of today's stock market. Fortunately, Patterson presents the material in a way that's eminently accessible, even for those without a Wall Street Journal subscription. Discovering not just how the market is, but how it came into its current form, was eye opening.

Dark Pools isn't just about the markets, however. It's also a testament to the raw power of computing and its ability to change the way we work in just a few years time. I expected the book to cover some hyper-modern trends like high frequency trading. What I didn't anticipate was a beautiful and inspirational story about a few gifted individuals employing computers to revolutionize the world of finance. As it turns out, one 20-something young man working out of a tiny office near Wall Street actually built large portions of the high tech stock market we see around us today. Ever the idealist, he sought to beat the hordes of greedy and self-serving market makers at their own game, using little more than a closet full of computers and his brain. And in many ways, he succeeded. But the story doesn't end there; this new technology would eventually take on a life of its own, growing and evolving at fantastic pace. Millions and billions would be made and lost in seconds. And it's still going on, all around us. Some say it's out of control.

I thoroughly recommend Dark Pools to anyone with even a passing interest in the stock market or the development of technology. It's an eye-opener on the state of our national finances on one hand, and a testament to the power of man and machine on the other.
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on May 12, 2014
I recently read, and thoroughly enjoyed, Scott Patterson's "The Quants". He picks up the same trends and storyline in "Dark Pools" with a well written, easily comprehended walk through the birth of electronic trading and to it's eventual evolution into the Wall Street villain du jour: the HFT outfits now so eviscerated in Michael Lewis' "Flash Boys". Patterson expertly weaves the narrative of david (the early electronic trading outfits) taking on golliath (the exchanges and the entrenched "market maker" hierarchy) and winning. There was corruption for sure, but the main architects of this revolution we're really heroic, or at least altruistic in their motivation. Patterson then takes us past a tipping point where the revolution is hijacked, the original pioneers becoming disillusioned, and the current HFT villains emerge (firmly, deeply in bed with the exchanges - a fact that needs to be understood by anyone looking for reform).

I have not yet read "Flash Boys" but I'm not certain why Patterson's excellent "Dark Pools" is not featured more prominently in the discussion. Perhaps the more nuanced story Patterson presents does not make for the easy headline?

I would strongly recommend this for anyone interested in the personalities and and inner workings of the "plumbing" of the Financial Markets. This should be a must-read preamble to anyone jumping on the "Flash Boys" bandwagon.
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on July 7, 2013
This book is an excellent history of electronic trading. It covers the early days and how innovation came from outside the exchanges and were actively fought by the clubby traders. In particular it focuses on NASDAQ and NYSE.

Some may find fault in that there aren't solutions posted but that is actually wise because this is a super-complicated set of inter-twined issues (before you even get to the issue of dark pools, below) and it is excellent to just have someone attempt to summarize the situation to date.

One minor nit is that the title is slightly misleading because it really isn't about "dark pools" at all - those are off-exchange pools of liquidity with selected firms only. The author obviously knows this since he is an expert on the overall market structure.
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on August 14, 2014
Outstanding book, which provides some recent history of the evolution of the stock markets, now at a global level. What has happened is disgusting, in my view, but things were even worse before computer trading took off, with human traders on the inside making off like bandits by their trading schemes.

This book is a real eye opener, even more so than Flash Boys. I read it twice in a few days. It's all about traders making money off our money--including our retirement funds and other investments. The possibility of another flash crash of the markets at the global level is clearly a real systemic vulnerability. This kind of trading is ultimately driven by greed, by creating clever ways of gaming the market via computerized trading to make money off the rest of us.

As Josh Levine, the original creator of a fair electronic trading system that he hoped would improve the rigged system with human traders, was quoted as saying: If all this time, money, brilliant minds, and energy devoted to gaming the markets were put towards a good cause, such as finding a cure for cancer, we'd be a lot better off. What a waste of talent. Sad.
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on April 14, 2014
You should read this book prior to reading Michael Lewis's Flash Boys if you are not a financial insider. Especially helpful in understanding what is going on in today's stock market.
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on January 13, 2016
I can't believe how just plain ignorant I was about the scope and speed of dangerous developments in the securities trading world! Dark Pools has enlightened me and frightened me as it should any investor, regulator, or banker. It reads like a gripping novel you just can't put down. The suspense was killing me as I neared the end. As naive as I was at the beginning, it became apparent that there probably would be no ending (at least one that any of us will be happy with).
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on April 28, 2017
Very informative about how computerized trading started and how it has expanded worldwide so that we have fiber optic cable overcoming mountains and oceans to allow traders to trade 24 hours a day and start trends that affect currencies.
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