"Flash Boys" is the market rigged

JHuber8383

Having just read Flash Boys by Micheal Lewis I am wondering what stockcharts.com members think of these revelations.

markd

Haven't read "Flash Boys", but have read some articles on the topic. If you are an institution or day trade in size, you probably don't like HST. It does seem to favor the technologically advantaged (in algorithms and/or speed due to co-location). But if you are not trading in that time frame or in enormous size, I think you can ignore it. In fact, the liquidity is much better than the old days and transactions are almost instantaneous. If you are a longer term trader (weeks or months), you want to know whether your stock is being (or has been) accumulated or distributed. HST traders are generally flat overnight, so they don't affect the technical position of the stock. Michael Lewis is fun to read, but I think there might be a little pandering to paranoia in the "market is rigged" theme. Everybody wants to believe when they lose it's someone else's fault. It's not.

Kevo

Excellent commentary markd! You are helping me realize that HST mostly applies to intraday periods. Thanks! Also, I now realize that HST has more to do with speed of execution rather than negatively affecting the technical position of a stock.

I am not familiar with "Flash Boys" or Michael Lewis. However, I would like to comment on the terms "rigged" and "flash". One item in Dow Theory states that "the general direction of the primary trend is not determined by actions of big participants, but rather natural movements of the market as a whole." Also, Chip says to trust the charts and not the talking heads in the news.

I suspect that HST may have played a role in the Flash Crash a couple of years ago. The market recovered quickly, but maybe investors were wronged because of stop losses? I cannot remember, but I think steps were taken to restore some of these positions.

I also think, but not sure, that HST has increased liquidity just like markd says. This generally would be a good thing.

Julius_RRG

agree with both comments. However not sure about the acronym HST ..?? Isn't that supposed to be HFT for High Frequency Trading or UFHT for Ultra High Frequency Trading? Is it a type or maybe an abbrev I have not heard of yet ? Happy to learn

Other than that my 2 cts is that this is simply a result of advancing technologies. 20-30 years ago traders/brokers/investors/etc. could have an advantage over others by simply keeping a (very very expensive trans-atlantic) telephone line open and trade/arbitrage away the differences between the same stock listed on two different exchanges like ADRs on US exchange and the real stock on European exchange for example. We were talking minutes at that time.

The technology has changed and now we do not need telephone lines and humans any more to spot the difference, report it and eventually trade it with the process taking minutes. This is now all done by a computer and fast connections in sub-milliseconds time frames. I'm not sure if that is rigged or rigging...? Nobody will stop anybody to make the same massive investment in technology and brain-power for good programmers and get in the game ....

Kevo

Nice catch Julius_RRG. I was thinking High Frequency Trading too, but just copied HST from markd's comment. So I am not sure what HST is. Also, I forgot that automated computer algorithms might have also contributed to the flash crash until humans intervened.

Sofearnot

i don't know, If he's that Big Short Guy who was wrong 99 times to the 1 that he was right. Yes, the system was rigged, and yes, there was a lot of dysfunctionality, same thing as 2001 or whenever it was that all the Rating agencies stepped-over one another to artificially-Inflate valuations (same, is Still probably happening), but a capitulation can Last for a very long time. That guy lost BILLIONS of Other peoples' money before he was labeled a genius

Sofearnot

Rating agencies .. to artificially inflate valuations on worthless securities..meant to say