139. Flash Boys by Michael Lewis

Welcome back everybody!

Here is a book review that I never knew I’d be posting; today on the blog I’ll be talking about *Flash Boys by Michael Lewis.

It is a non-fiction book but it mainly revolves around the complicated and complex world of finance and stock trading  – High Frequency Trading to be exact.

So, if you ever dreamt of becoming the next Wolf of Wall Street or think you can untangle this mess of financial jargons and transactions, then this book is for you!

It’ll be a treat to read.

Before I begin, let me preface by saying that I had zero information about stock exchanges and stock trading. I’m not a Quant or an Econ Major, so this book was purely to indulge my curiosity and see if I could understand something, if anything at all.

I’m still woozy about many terms and would have to re-read many portions just to make sense of words that formed a sentence, but I tried and I did enjoy it. Although, at some points I wanted to smash my head against the wall.

Now, what is Flash Boys all about you may ask? Well let me tell you something about the author first! It’ll make more sense if you know the writer before the book.

Michael Lewis is a financial journalist and has authored books that include the Big Short and the Blindside; both of which have been adapted for the big screen with Brad Pitt, Ryan Gosling, Stevel Carrell and Sandra Bullock leading the cast.

(Image from Amazon)
(Image Courtesy of IMDB)

He likes to find the absurdities and anomalies in the financial and sport systems, and write these compelling books that become a big hit.

“The U.S. financial markets had always been either corrupt or about to be corrupted.”

Flash Boys is another such book that caused quite an uproar in the financial world (Wall Street more so) because here was a man not working at Wall Street but writing about an issue that many big executives and veterans of the financial world were thinking but couldn’t find answers too.

“The world clings to its old mental picture of the stock market because it’s comforting; because it’s so hard to draw a picture of what has replaced it; and because the few people able to draw it for you have no interest in doing so.”

The issue occurred when technology took the entire system of manual stock trading – where you’d see the floor of stock exchanges full of screaming men watching the ticker go up and down regarding their shares – and put that system inside a computer.

“It was like a broken slot machine in the casino that pays off every time. It would keep paying off until someone said something about it; but no one who played the slot machine had any interest in pointing out that it was broken.”

Now, it wouldn’t take a genius to figure out a way with the help of algorithms to manipulate transactions and orders, so that they would have an advantage when someone wanted to sell/buy shares or stock.

“Every systemic market injustice arose from some loophole in a regulation created to correct some prior injustice.”

Those manipulators are called High Frequency Traders, who basically rob money from legitimate investors through various loopholes of the financial world, that Michael Lewis explains in great detail.

“People no longer are responsible for what happens in the market, because computers make all the decisions.”

And with that, he introduces us to the Batman of the Wall Street who figured out these shady traders and their market manipulations, named Brad Katsuyama; an executive working at the Royal Bank of Canada.

“The markets were now run by technology, but the technologists were still treated like tools. Nobody bothered to explain the business to them, but they were forced to adapt to its demands and exposed to its failures—which was, perhaps, why there had been so many more conspicuous failures.”

He would go on to quit his job and establish a new stock exchange where through the same algorithms, he would stop High Frequency Traders from intercepting market orders and shared before they even arrived on the exchanges.

The information, processes, regulations, and financial theories are all riveting things to read about. I was quite engaged throughout the book and it blew my mind how physics and computer science had affected this industry(if we can call it that) tremendously.

Flash Boys goes into detail about a lot of things that go down in a Stock Exchange or Hedge Funds or High Frequency Trading firms, and for a minute you’re dumbfounded by all the complexities involved in dealing with money matters.

For a minute it boggles your mind as to how can money create so much mess, but then human greed and ambition is a serious drug and cancer, that has lead capitalism and its disciples to go batshit crazy!

I may or may not read this book again but it has opened my mind to a whole another world that I have barely just scratched the surface of.

Onto the basics:

  1.  Rating: 4.0 /5.0
  1. Favorite quote: The stock market at bottom was rigged. The icon of global capitalism was a fraud. How would enterprising politicians and plaintiffs’ lawyers and state attorneys general respond to that news?”
  2. Reader level: A lot of financial terms that you’ll need to look up if you’re not acquainted with the world of Stock trading and economics.
  3. Should you read: If you’re interested to know how money works, this will be a treat to read.
  4. Would I read it again: If by some turn of events I venture into becoming a Quant then I might.

Till next time,

-Sarah

*Linked is my affiliate Book Depository link if you’re interested in the book. There are no extra charges and helps me out if you use it 🙂

 

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