>> “What is true,” says Lewis, “is that the sums of money involved — if you spread it across the market — are trivial, it’s a penny a trade. But it’s offensive as hell that rich people are stealing from middle-class people — even if it’s just a penny. There’s also the issue of what HFT does to the stability of the marketplace as a whole. And then there’s the question of the whole screwed-up model it creates for success in life, when the guys who get rich do so by skimming on the market, so all of a sudden the young people at the best schools want to go skimming in the market — like that’s a noble career path.”<p>>> “I don’t understand that argument. The little guy is the big guy. The little guy is not the day trader on eTrade; it’s all the money packed up in pension funds and college endowment funds and mutual funds. The savings of the country is in big institutions.”<p>Michael Lewis seems like a solid guy and I love how there's endless attempts to portray him as a sinister, self-interested actor.
So if the one particular strategy Lewis describes in his book -- inter-exchange arbitrage that inadvertendly beats someone's split up order -- was stopped/prevented, is that the end of it? There are many, many strategies across a million different products that HFTs run that have nothing to do with trying to "front-run" someone's order, many of them market making a product that only trade on one exchange (so no inter-exchange arbitrage to front run anyone) on products that trade an order of magnitude more dollar volume than US equities, e.g. E-mini S&P futures, US or german bond futures complex, etc. Are <i>all</i> HFT strategies bad, or does Michael Lewis have a hard on for this single, particular strategy? My guess is that the overwhelming majority of profits of any HFT firm do not have anything to do with the particular strategy described in his book.
Has anyone read the criticism of the book in question? The Amazon review linked to in the article is very informative. I just finished the book and it read like an advertisement for IEX.<p><a href="http://www.amazon.com/review/R3PJO6KJGRMWUE/ref%3Dcm_cr_pr_viewpnt#R3PJO6KJGRMWUE" rel="nofollow">http://www.amazon.com/review/R3PJO6KJGRMWUE/ref%3Dcm_cr_pr_v...</a>
Folks interested in HFT might like this - HFT firm Virtu has a nearly flawless daily trading record over the past 3.4 years:<p><a href="http://www.businessinsider.com/virtu-hft-only-one-losing-day-2014-3" rel="nofollow">http://www.businessinsider.com/virtu-hft-only-one-losing-day...</a><p>Prospectus:<p><a href="https://www.sec.gov/Archives/edgar/data/1592386/000104746914002070/a2218589zs-1.htm" rel="nofollow">https://www.sec.gov/Archives/edgar/data/1592386/000104746914...</a><p>Looking at the S&P 500, it was positive for 55.8% of the trading days between 2010 and 2013:<p><a href="http://www.crestmontresearch.com/docs/Stock-Yo-Yo.pdf" rel="nofollow">http://www.crestmontresearch.com/docs/Stock-Yo-Yo.pdf</a><p>BofA had 10 trading day losses in 2013:<p><a href="http://blogs.marketwatch.com/thetell/2014/02/28/goldmans-trading-revenue-more-daily-losses-fewer-outsize-gains/" rel="nofollow">http://blogs.marketwatch.com/thetell/2014/02/28/goldmans-tra...</a><p>US equity HFT revenues are around $1.3 billion, making it a pretty small niche compared to wider market activity: "TABB Group estimates that US equity HFT revenues have declined from approximately $7.2 billion in 2009 to about $1.3 billion in 2014."
I will admit that Lewis has rustled my jimmies. But if he's interpreting this "punching in the balls" as a good guy punching the bad guys, he's mixed up. Electronic trading is the present, and it should be the future. In fact, every market that still exists as a network of people calling one-another or standing in a pit would be made many factors better by opening them up to the public and allowing trades to take place on electronic exchanges.<p>I get scared of what Lewis is saying in the same way it scares me when I hear of school districts banning the teaching of evolution. I'm not scared that Lewis is right. I'm scared that his misinformed screed will actually gain traction.
Tangential question :<p>What are the barriers to entry to HFT?<p>Or, put differently - how well funded would a venture have to be to realistically compete in this space?<p>Assuming talent (e.g. market knowledge, quantitative skills, ML competence) was not an issue - how realistic would it be to get access to the fiber & real estate necessary to compete with the very few market leaders?
Billy Beane still hasn't been to a World Series let alone won one. Michael Oher was illegally recruited by an Ole Miss booster who skirted NCAA rules by adopting him.<p>Michael Lewis is Malcolm Gladwell with normal hair. He does seem like a solid guy who really knows what he's talking about. That's how he sells books.
I applaud Lewis' effort and maybe it will sink in this time, but this is not really news for a lot of people.<p>The story is that Wall Street big powerful trading firms have an inside edge against retail (middle class) customers.<p>It's not exactly new. This has been happening for decades.<p>They did it before computers with information, now they are doing it with fiber cable.