This book has a very good explanation of high frequency trading. Lewis explains what it is, why the banks do it, and the sort of assets they must invest in to be able to do it. He explains why it could only have happened with recent technology and goes some way to explaining why its day will soon be over. This is not likely to be because of new regulations, but because of new technologies that are coming along that will allow new ways to make money in the markets.
Lewis tells the story of a handful of exceptional individuals. One is a trading floor manager from a Canadian bank who had very little to do with high frequency trading (HFT) until he decided to become an expert on it. Then he started his own exchange to gather data on how trades happen and to better understand HFT. The exchange had built-in delays which may make it the only fair exchange in the US.
The book explains the way banks and HFT firms were investing in high quality bespoke computer programs and their own communication lines to be able to send message to exchange servers in super-quick time. They created “dark pools,” which are exchanges that do not publish their data. They use these tools, some more ethical than others, in my opinion, to arbitrage the stock markets. Lewis paints all this in a much darker light than I see it. He uses the word arbitrage less than ten times in the book (I think, I did not count), this is not a new phenomena, and it is done in lots of ways in lots of markets by lots of organisations. And has been done since markets were invented. Some players have better information or better assets than others. They exploit this to make more money. That is the world we live in.
I have a small stock portfolio of my own and am in no way as angry as he promised I would be on finishing this book. If any small investor was under the impression that the markets were fair then they are in for a big shock.
This was an interesting book about how technology has greatly changed the world of trading. I especially enjoyed the chapters on the programmers and how they add value through good code. I would say around 70% of the book is relevant information.
The style is too sensationalist for my liking. Now I read that Aaron Sorkin will make it in to a film. This is perfect for that, there is lots of backstory about the characters that feels like a screenplay, and Sorkin will write the fast-paced dialogue that will suit a movie about Wall Street traders.