The new Michael Lewis book, Flash Boys, which focuses on high-frequency trading, is causing a bit of a stir in the financial sector. His book is now a No 1 best seller. And various investment houses and economic commentators are complaining that he is smearing perfectly legitimate fast trading as some sort of scam that rigs markets.
Lewis reckons that high frequency trading (HFT) amounts to high-tech ‘front running’. By that he means that HFT firms, using sophisticated mathematical models and algorithms, are gaining an unfair advantage in knowledge about the movement of prices in financial markets so they can get in to buy and sell a millimetre of a second before others. Moreover these high-frequency traders are getting special privileges from investment banks to trade in ‘private exchanges and ‘dark pools’ of warehoused shares and bonds to gain more advantage over the average investor.
The defenders of HFT…
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