Comments

2
Like peeling back the skin of a cyborg, like understanding that private-equity firms and megabanks now control large percentages of the nation's housing, this book is a glimpse of the whirring machinery behind the massive UPWARD redistribution of wealth that has been going on for decades.
3
Much of this was covered in another book, The Quants, from 2011.

http://www.amazon.com/The-Quants-Whizzes…

My question is why can't we all take advantage of instant trading.

That is, if someone were to set up a Fund that specialized in using technology to beat market trades, we could all buy shares (and take the required risks). Put it on ShareBuilder, etc.
4
I'm an average investor. I've been investing since the "old days," when you had to pay unconscionable commissions to a broker, who then called a "wire room," where a clerk wrote orders on tear slips which some time later went to an operator on a terminal to the market. The minimum "spreads" were typically an eighth, i.e. $0.125, the difference between where you would be allowed to buy versus where you could sell, a difference that chances are, the broker's company was mostly pocketing itself. If you bid between the buy and sell, the market would never see your order. The firm would just hold it until the market moved in its direction, and you'd still get screwed out of the spread.

I know the whole millisecond-pirate thing sounds bad, but the net result is so much fairer to the small, infrequent trader than the old system. Spreads are so much smaller, and with electronic trading, the commissions are tiny today.

Yeah, the millisecond boys are raking it in, exploiting tiny differences in price. But the people they're skimming money from are mostly other high-frequency traders. On a whole-second by whole-second basis, the rest of us are mostly getting pretty fair pricing. AND, if you enter a price between the bid and ask these days, the public market sees it right away. Someone might front-run your order to their advantage, but that doesn't affect you. You'll still get the limit price you set on your order, or possibly even better, but maybe just a millisecond later.

Would I like to have that extra tenth of a penny, sure! But considering all the ways we've always been robbed in the markets, it's never been fairer than today.

There's plenty of more important shit to worry about. While interesting, this is nothing to get excited about. Left alone, high frequency traders will invest more and more in their technology, and those spreads will get smaller and smaller. The only thing the SEC should be worrying about is shedding more light on "dark markets."
5
At the level of day trading the market is a zero sum game. When somebody holds stock for a short period and then sells it at a high profit that represents a loss experienced by someone else. Some of the loss is borne by other fast traders, but most of it is extracted in a small profit loss among all the other traders in the market.

Nobody should be allowed to trade in the commodities market without demonstrating the ability to actually deal with the commodities being traded. If you can't take delivery of 30,000 barrels of oil you have no business "owning" it for even a millisecond.
6
...and the guillotines get a little closer.
7
@1, I like this version. (From an ad for the German newsmagazine Der Spiegel. The tagline basically means "The sharper the quill, the better you see.")
8
It seems like a micro-tax on every stock transaction would take care of the problem.
9
First heard of it on radioLab:

http://www.radiolab.org/story/267195-mil…
10
@3 "why can't everyone on earth win a race only 1 person can win?"

God you're dumb. Read the article or book.
11
@4 - I started in the mid-80s and yes, in many respects, it's gotten much better, because technology has replaced human beings; back in that simpler system though, it wasn't rigged so badly. True enough, the worst victims for HFT are the big institutional purchasers, not small investors, but rather than getting all of the transparency and productivity gains delivered by technology, why should any of the institutional players get to rig and skim?

As Lewis says: it's a tax on the economy, and likely your retirement. It's a tax they wouldn't get if they were transparent about it.

Also: Lewis has said, after he came back to publish The Big Short, that he couldn't believe, after he'd written Liar's Poker that the whole thing hadn't collapsed already under it's own weight (corruption) but then he came back twenty years later and it was worse and going full steam. I suspect this time he figures he might not have much impact.

I haven't read the book yet (finishing Tropic of Cancer right now - jeez does Miller suck), but in the interview I heard Lewis suggested that IEX had been picked up by GS and that would likely lead to the demise of the HFT gaming.
12
Every trade should have a random mandatory delay of 1 to 5 seconds built in.
13
@11 Yep, the mid-80s! Those are the bad old days I was talking about. That's when I started, too.

To a large extent, the rigging and skimming is taking place no so much because of the millisecond trading, but because of these "dark markets," which allow the players to hide big orders. Requiring all orders to be first transmitted to a public exchange, intact, would fix that.

The other thing that can get fixed is putting a stop to order "spoofing," where players place and cancel orders a couple of milliseconds later, with no intention of ever executing them, to confuse the market. Requiring them to leave the order up for 30 seconds would put a stop to that, or limiting the number of orders that could be cancelled by one player in one day, so they can cancel honest errors. Like 10 or 20. Make them eat the rest.

It's not the high speed, per se, it's the enabling shenanigans and tactics that are the problem.

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