Michael Lewis’ Flash Boys is a fast moving eye opener for those of us who do not spend our days working in and around ‘dark money’ pools and the backrooms of Wall Street banks.
The book begins by laying out the major players in the High Frequency Trading (HFT) market place. These players include Wall Street banks, traders, stock exchanges, computer programmers and those that are related to those industries.
Lewis then, through a very fast moving person-focused narrative, describes how HFT techniques have hurt the average investor for many years; mostly without the average investor even knowing that they were injured. He describes how techniques such as stock ‘front-running’ and cross market arbitrage causes the average investor to pay more than they should for the trades that they make, The amount of injury for the average trade is small; but collectively as Lewis describes, the amounts are extremely large and in the billions of dollars.
The real strength of the book is Lewis’ ability to bring HFT practices and the workings of dark money pools (pools of money where untracked and untraceable stock trades occur) to the forefront and up for discussion. However, much more research is needed before determining if HFT and dark money pools are in fact good or bad for the working of the economy. For example, some of the trades such as cross market arbitrage trades which equalize the prices investors pay across different exchanges are arguably good for the working of the stock market and the economy. The same case could be made for trades that equalize prices across different time periods (even though the time periods are ridiculously small).
In any event, Lewis’ book, as usual, has shined a light on a area that was previously unseen or imagined by most of us.