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For those interested in computer technology and the stock market, I recommend the interesting book "Flash Boys" by Michael Lewis. It describes some significant anti-free market aspects of "computer trading".
jedishrfu said:
jedishrfu said:There was a great documentary a few years ago on PBS I think American Experience or Nova about the Black Sholes equation and the notion of zero risk by using it to balance the ups and downs of the stock market and the dangerous assumption that undermined it. Might be on youtube simewhere.
I think this is it - http://www.pbs.org/wgbh/nova/stockmarket/, or http://www.pbs.org/wgbh/nova/stockmarket/formula.htmljedishrfu said:There was a great documentary a few years ago on PBS I think American Experience or Nova about the Black Sholes equation and the notion of zero risk by using it to balance the ups and downs of the stock market and the dangerous assumption that undermined it. Might be on youtube simewhere.
It is a fascinating story, especially the parts about the impact of the inherent latency in communications technology that one could exploit, and the dark pools, in which one's investment company may be putting one at a disadvantage.Stephen Tashi said:For those interested in computer technology and the stock market, I recommend the interesting book "Flash Boys" by Michael Lewis. It describes some significant anti-free market aspects of "computer trading".
andOn the book’s publication day, for instance, an analyst inside a big bank circulated an idiotic memo to clients that claimed I had “an undisclosed stake in IEX.” (I’ve never had a stake in IEX.) Then came an unfortunate episode on CNBC, during which Brad Katsuyama was verbally assaulted by the president of the BATS exchange, who wanted the audience to believe that Katsuyama had dug up dirt on the other stock exchanges simply to promote his own, and that he should feel ashamed. He hollered and ranted and waved and in general made such an unusual public display of his inner life that half of Wall Street came to a halt, transfixed. I was told by a CNBC producer that it was the most watched segment in the channel’s history, and while I have no idea if that’s true, or how anyone would even know, it might as well be.
A defining moment came when Katsuyama asked him [the president of BATS] a simple question: Did BATS sell a faster picture of the stock market to high-frequency traders while using a slower picture to price the trades of investors? That is, did it allow high-frequency traders, who knew current market prices, to trade unfairly against investors at old prices? The BATS president said it didn’t, which surprised me. On the other hand, he didn’t look happy to have been asked. Two days later it was clear why: it wasn’t true. The New York attorney general had called the BATS exchange to let them know it was a problem when its president went on TV and got it wrong about this very important aspect of its business. BATS issued a correction and, four months later, parted ways with its president.
The main premise of "Flash Boys" is that high-frequency trading (HFT) has created an unfair advantage for certain traders in the stock market, resulting in a rigged system that benefits these traders at the expense of others.
High-frequency trading uses powerful computers and sophisticated algorithms to execute trades at incredibly fast speeds. These trades are often based on small price discrepancies and are executed in fractions of a second.
High-frequency trading has been shown to increase market volatility and can create artificial price movements. It also allows for front-running (the practice of placing trades ahead of others) and can lead to market manipulation.
Since the release of "Flash Boys", there have been efforts to regulate high-frequency trading, such as the implementation of circuit breakers and the introduction of speed bumps on certain exchanges. However, some argue that these measures are not enough to level the playing field.
The author of "Flash Boys", Michael Lewis, takes a critical stance on high-frequency trading and argues that it has fundamentally changed the stock market in a negative way. He believes that the system is rigged and that regulators and exchanges are not doing enough to protect investors.