The Speed Traders: An Insiders Look at the New High-Frequency Phenomenon That is Transforming the Investing World
Written by Edger Perez
Published by McGraw-Hill, 2011
$28, 256 pages
An insider’s look is right. Perez does a fine job of laying out the argument FOR high frequency trading, but not so much the against part. He first attempts to define “high-frequency” trading and immediately runs into issues. The various definitions of high-frequency trading given by the interviewees, supports the deep level of misconception the public has. If those in the know can’t even come up with a solid definition then how is the general public going to grasp the pros and cons.
Reading the book, I thought a glossary of terms would have been incredibly helpful. Flash trades, dark pools, SMX, SQL, ETN, microstructure, temporal arbitrage, etc. Even a broker with years of experience needed frequent trips to Google to grasp the contextual meanings of various terms.
The fact that active players in this high-speed shuffle have different ideas of what constitutes high-frequency trading is logical when a new strategy evolves out of breathtakingly fast technological changes. High-frequency trading developers and entrepreneurs have chosen to remain, from inception through the recent flurry of regulation, litigation and bad press, in the shadows as any extremely profitable format of trading logically would.
Many rumors and preconceived ideas have sprung up among the general public as well as the animosity of more traditional investors. As a natural result a continuation of secrecy remains, as you would expect in any number of highly successfully systems.
When a successful money making machine enters the picture, the expansion from the few to the many will occur naturally. The book is very clear on the evolutionary line. Perez has cornered a few of the success stories and had the luck/gumption to interrogate (er, interview) the few who would sit for it. It’s seems to be a cross technique he follows, while not exactly exposing the traders, and not exactly a promotional piece. I am sure their publicist, if they have one, couldn’t have been happier.
The book is interspersed with chapters that lay out in historical timeliness the technological advancements as well as the regulatory and litigation in a way that could leave a reader in a monotonous daze.
That being said, it remains an enlightening read. Case in point, the May 6, 2010 “flash crash” description was a strong argument to pay attention. I was able to gain insight into the shadow world of microsecond to millisecond trading that evolved as systems got better and programmers got smarter.
A brief snug history of the emergence of electronic trading from its inception in 1969 to the mergers of the giant exchanges and the transformation from member owned clubs to giant public run companies. Having witnessed firsthand the trading floors of the Chicago exchanges as they were bled dry of the human element, I may have gone into this exercise with a chip on my shoulder. The author of this book does not seem to acknowledge that side of the game nor the fact that pit-trading local scalpers were the first high-speed traders, though lumbering dinosaur by today standards, being replaced by algorithmic flashes of light, may or may not prove advantageous to the world. The sheer volume of worldwide information obtained and analyzed in mere milliseconds and then acted upon by implementing multi-level algorithmic trading strategies astounds and amazes me as I am sure it will you.
John Siewers III has been a commodity broker for more than 20 years with 15 years experience on the Chicago trading floors.