This is a comprehensive multimedia book review of the New York Times Bestselling book, Flash Boys A Wall Street Revolt, by Michael Lewis. Navigate the various tabs on this blog to explore Lewis' supporting evidence to his thesis that in the United States, "the stock market is rigged."
Front Running
So
how could HFT firms front-run brokers? Their investments in co-location
and fiber optic wiring allowed HFT firms’ computers to register the receipt of a
trade performed by a trader at a brokerage firm a couple of hundred
milliseconds before the trader himself. A millisecond is only one-thousandth of
one second and may not seem like a material time advantage to which a human
could react. To put this into perspective, consider that it takes roughly 350 milliseconds to blink
an eye. However, Lewis stresses that seeing a trade just one hundred
millisecond in advance might as well have been one hour in advance. This is because of how
quickly automated algorithms can use two inputs buried in the trade receipt
to purchase a stock (the output). This allowed HFT firms to quickly purchase
that same stock on a different exchange before the brokerage firm (whom they anticipated
had already sent in an order that is due to reach the second exchange within a
few hundred milliseconds).
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