Archive for the ‘Michael Lewis’ Category

RIP High-Frequency Trading?

Monday, April 3rd, 2017

“It’s like a perfect storm. The cheats are going away, the volatility is going down and the costs are going up.”

Haim Bodek, former head of electronic volatility trading, UBS AG

You could conclude, as Credit Suisse has in a new report, that high-frequency trading is so influential, it “has reshaped the financial industry in its image.”

Or you could conclude, as The Wall Street Journal has, that high-frequency trading is a failing niche on Wall Street.

High-frequency trading uses algorithms and technology to make trades at mega-fast speeds to take advantage of price inefficiencies. Author Michael Lewis brought public attention to high-frequency trading when he published his book Flash Boys in 2014, which claimed that the stock market is rigged.

We’ve railed against HFT as far back as 2011, noting that the majority of trades taking place were being driven not by company performance, but by “tiny inefficiencies that only computers can detect.”

At the time, HFT accounted for 73% of all equity trading in the U.S., up from 30% four years earlier, based on research from TABB Group.

By 2016, though, high-frequency trading accounted for just under half of all stock trading. That was about even with the previous three years, but more than double what it had been in 2006, Credit Suisse noted. (more…)

High-Frequency Trading Losing Frequency

Monday, October 5th, 2015

The publication of Michael Lewis’ book Flash Boys early in 2014 brought high-frequency trading (HFT) to the attention of many investors for the first time.

Lewis was quoted on “60 Minutes” saying that HFT rigs the stock market against the small investor. Media made it known that the FBI – the folks who investigate drug dealers and organized crime – was investigating HFT.

Wenning Advice had posted frequently about the practice as early as 2011, warning about the distortion that high-frequency trading causes to market fundamentals, the predatory nature of high-frequency trading, the inequity of high-frequency trading, and the risk that high-frequency trading creates for all of us.  We even pointed out that “Satan is a high-frequency trader.”

Michael Lewis

Michael Lewis

 

But what’s happened to HFT since 2014?  And what happened to the FBI’s investigation of the practice?

HFT has not gone away. But it’s not what it used to be.

We noted in 2011 that HFT accounted for 73% of all equity trading in the U.S., up from 30% four years earlier, based on research from TABB Group.

Rosenblatt Securities estimated that HFT trading volume fell from about 3.25 billion shares a day in 2009 to 1.6 billion shares in 2012. And TABB Group estimated that HFT revenues from U.S. equity trading declined from about $7.2 billion in 2009 to $1.3 billion in 2014.  (more…)