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[Read Kindle] ⚞ Flash Boys: A Wall Street Revolt º Flash Boys is about a small group of Wall Street guys who figure out that the US stock market has been rigged for the benefit of insiders and that, post financial crisis, the markets have become not free but less, and controlled by the big Wall Street banks Working at different firms, they come to this realization separately but after they discover one another, the flash boys band together and set out to reform the financial markets This they do by creating an exchange in which high frequency trading source of the most intractable problems will have no advantage whatsoeverThe characters in Flash Boys are fabulous, each completely different from what you think of when you think Wall Street guy Several have walked away from jobs in the financial sector that paid them millions of dollars a year From their new vantage point they investigate the big banks, the world s stock exchanges, and high frequency trading firms as they have never been investigated, and expose the many strange new ways that Wall Street generates profits I was a back office spreadsheet jockey performing daily reconciliations on non dollar swaps for a merchant bank in London in the late 1990 s They employed me because I had a background in corporate accounts but mostly because I looked good in a skirt and knew how to put a bet on a horse at lunchtime To start with it was fun The volume and value of transactions was unlike any job I d had before but eventually I became uncomfortable because I was starting to fall behind When I explained the si I was a back office spreadsheet jockey performing daily reconciliations on non dollar swaps for a merchant bank in London in the late 1990 s They employed me because I had a background in corporate accounts but mostly because I looked good in a skirt and knew how to put a bet on a horse at lunchtime To start with it was fun The volume and value of transactions was unlike any job I d had before but eventually I became uncomfortable because I was starting to fall behind When I explained the situation to my line manager, he had a word with his boss and they sat down to look at my process I couldn t match the transactions fast enough because I wanted my reconciliations to show actual trades I wanted to match the buy notes with the sell notes They understood and encouraged me to ask the US office forinformation on the trades I was having trouble with The U.S office replied, You should know how to do this by now Don t match them, just batch them until you catch up So I did Every day everyone on my team would receive a new spreadsheet containing trades worth hundreds of millions of dollars to reconcile for their particular variation of financial instrument and as long as I was around USD 100,000 under or over at the end of each day, I was told that that wasthan good enough In some ways it was I understand the term material but grewanduncomfortable with my role and no, I never ever caught up It was the scale of it that really concerned me I was just one person on one floor, in one bank, in one city There would have been tens of thousands of us working like this I left because my visa ran out but I was so relieved to go Reading Flash Boys A Wall Street Revolt has been like seeing a therapist I cannot emphasise enough what a relief it was to read about people working in that sector, muchrecently, questioning the fundamentals of what they were doing and then having the courage to create change All I saw, and I was party to it for quite a while, were people who just needed a job and would keep taking that pay packet for as long as they could These were the days when my corner store stocked Verve Cliquot next to the milk and for my very menial 40 hour a week role I was earning enough to buy three bottles an hour If you have a slight interest in financial markets, you ll lap this book up For those who re feeling a little cynical about the author s viewpoint, I still think you ll find it a page turner Highly recommended Considering this is about my husband, I might bethan a little biased. Honestly investment and stock exchange is something that bores me to death so I was putting off having to read this one for a while and today I forced myself to get it over with I was surprised to find that the book was really interesting though, I had no clue about High Frequency Traders or dark pools or even the arrest of Sergey Aleynikov which is honestly absurd I think the information was accessible and easy to understand but I don t think it would be interesting to anyone who didn t have Honestly investment and stock exchange is something that bores me to death so I was putting off having to read this one for a while and today I forced myself to get it over with I was surprised to find that the book was really interesting though, I had no clue about High Frequency Traders or dark pools or even the arrest of Sergey Aleynikov which is honestly absurd I think the information was accessible and easy to understand but I don t think it would be interesting to anyone who didn t have some interest in the engineering or math of the whole thing I did feel bogged down by the details though especially of the people involved and their back stories I know the whole purpose of the book was to talk about the small group of people trying to change things but I thought all the logistic stuff was the most interesting aspect of the book The new book by Michael Lewis criticizing high frequency trading has created quite a stir I m imaging what a PR response might look like, though not an entirely serious one It s structured in FAQ format, but the questions aren t really frequently asked so much as ones I d like to answer The ideal audience would be the inquiring readers of Flash Boys open to a counterbalance.Q Who is this Michael Lewis guy and why has this book been making such a splash Lewis is an influential writer with a t The new book by Michael Lewis criticizing high frequency trading has created quite a stir I m imaging what a PR response might look like, though not an entirely serious one It s structured in FAQ format, but the questions aren t really frequently asked so much as ones I d like to answer The ideal audience would be the inquiring readers of Flash Boys open to a counterbalance.Q Who is this Michael Lewis guy and why has this book been making such a splash Lewis is an influential writer with a talent for making his readers feel smart It s like they ve been given inside access to some previously hidden world Depending on the book, it could be an intimate understanding of how richly compensated alpha males at a trading desk on Wall Street dominate the poor schlubs Liar s Poker how a cash constrained baseball executive can use statistics to cobble together a winning lineup Moneyball how the geniuses of modern day football came to realize the importance of a great left tackle in protecting the quarterback s butt Blind Side , or how a select few investors could foresee the folly of investing in subprime mortgages doomed to default The Big Short And he does this in a readable way He explains complicated mechanics in understandable terms, he identifies heroes and villains, and he structures his narrative like any good writer would, building to conclusions after couching them as mysteries or puzzles for his brainy protagonists to solve.While Flash Boys features many of those same traits, it seems less like good investigative journalism this time In fact, it feelslike marketing literature, or maybe a prosecuting attorney s closing argument Lewis has been criticized for not having spoken to anyone who knew about HFT high frequency trading from the other side of the fence That s the raison d etre for this FAQ of sorts.Q Let s wade in the same way Steve Kroft did with Lewis in his 60 Minutes interview What s the headline here Essentially this Michael Lewis is going to sell a whole bunch of books and will end up, by dint of some serious negative spin, manipulating public opinion waythan HFT has ever manipulated markets Q Is the industry reeling from the critical language You and your market rigging ilk are evidently a cancer nothing but parasites In addition, in an impressive burst of lawyerly bombast, financial fraud attorney Andrew Stoltmann describes you as littlethan digital piranhas, creating feeding frenzies that can send the market into volatile, spasmodic fits leaving a trail of carnage Yeah, but aside from that we re not so bad Seriously, it s frustrating when you know something is, at worst, light gray and someone with a microscope comes along training his lens on the black pixels only, saying Oh, look how black it is and hey, there s another one And it doesn t help when the lens is smudged so that each one he focuses on seems darker than it really is.Q You ll admit Lewis did a good job choosing his hero, right If there s such a thing as Boy Scouts of Canada, I bet Brad Katsuyama earned every one of their badges He s bright, hard working, earnest, and no doubt set the standard for what the Royal Bank of Canada called RBC nice He s the one who explained to Lewis and others what was happening when he attempted do a big trade A split second after he d enter his order, the market dried up on him The quantities displayed on his screen at his targeted price were disappearing before he could get all he wanted.You re right about Brad He does come across well To be honest, though, at first he was a little na ve He was somehow expecting that his order for say 100,000 shares wouldn t have an immediate price impact that reflected the new knowledge of a big and abiding appetite Even back at that time, most sophisticated players in the market knew they d have better luck breaking their order up, trading chunks here and there at different times and different exchanges as liquidity would allow rather than spooking the market with an order size that was bound to change the equilibrium price in an instant.Q Yeah, but what about the front running, where speed demons would take their knowledge of Brad s intention to buy and go to other exchanges to buy ahead of him, driving up the price and making Brad payto get all the shares he wanted OK, first of all, please use quotes when you use the term front running In fact, don t use it at all Front running, properly defined, is an immoral and illegal act where a brokerage firm uses knowledge of its own customers orders to jump ahead of them in the market in anticipation of easy profits when the customer transactions cause the price to change Anybody doing that truly is scum They ve broken the fiduciary trust, may make their customer payby the time the order gets to market, and have stolen privileged information to advantage themselves Q Back to the issue at hand, is whatever this thing is that you don t call front running fair Brad, our authority on what s nice , didn t think so.A certain segment of the market probably does consider itself put out by these fast changing conditions But we need to look at the situation from a broader perspective Once I explain I hope you ll see why not everyone agrees with our nice friend.Q Is this something we can understand by way of the company Lewis made up to illustrate his point Scalpers Inc They re the ones who would hastily get in ahead of every investor order, buy up all the shares, then sell them to the investor at a higher price after front running running in front of them.Grrr running in front of for that I m going to double the length of my response So, in Lewis s unrealistic example we re to believe that those rascals at Scalpers Inc somehow know with great certainty that the poor honest investor has a certain size trade to do, somehow skips ahead in line to snap up those shares, raises the price and imposes its insidious tax, all without risking a dime Bzzzzzzt Wrong I m sure Lewis would argue that this example was concocted for pedagogical purposes, meant only to illustrate net effects that we see But it s so far off the mark that it s very misleading First of all, for the big investor s hand to have been tipped, a chunk of their order had to have traded Then, Scalpers Inc would have to make an educated guess about what the future price impact would be from the unknown remaining order size From there, Lewis would have you believe that a sort of queue jumping would occur Not true The best they could do would be to go to another exchange to see if it s worth crossing the bid ask spread to bet on whether they predicted the big investor s demand and possible price impact correctly The Scalpers Inc team is at its luckiest when they guess right about the price move and some of the participants quoting at the various exchanges often HFT players themselves hadn t reacted yet either because they were slow or they disagreed about what the fair price should be In this scenario, the big investor is likely to see the market back away from its order meaning that market makers are cancelling the rest of their quotes at that price level Again, that s just a natural reaction to what is now viewed to be a new fair value from the market equilibrium Q That makes sense, but it s a lot to chew on all at once Can you back up just a skosh to cover how these markets are structured and who does what, when, where and how Sure The first thing to understand is that everyone wants to buy low and sell high.Q OK, wise guy You do know the meaning of skosh, right Your archaic patois suggests that maybe I should start with intermediaries, specialists, market makers and bid ask spreads As you probably know, market intermediaries have served a useful function since the days cavemen were trading mastodon futures Be they human or algorithmic, the goal is to provide liquidity by committing to buy at a lower price and sell at a higher price, serving as a conduit to facilitate trade Of course it would be easy money if motivated buyers and sellers consistently and in synchrony came along to buy at your higher selling price and sell at your lower buying price However, the spread between those two prices has to be big enough to compensate for the times when it s only sellers coming along and poor you, you ve bought something falling in price without any buyers to sell your inventory to at the higher price Of course, the market maker can be hurt in rising markets, too, with a short position that s gettingandexpensive to buy back Thethe market makers can do to reduce those risks, thewilling they are to cut the distance between their buying and selling prices in order to attract extra business Spreads are now razor thin This is a huge benefit for the rest of the market, and apparently an underappreciated one For anyone who has made it this far, and wants to see , the faux FAQ continues here In it, we cover such topics as the trend not being your friend, picking up pennies in front of steamrollers, whether or not HFT liquidity is a canard, Insider Trading 2.0, and name calling invoking such figures as Marie Antoinette, Hitler and Bernie Madoff.