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Interesting. I'm the opposite. I was sorta curious, so I started reading Flash Boys. It became immediately obvious that A: the author is fucking clueless, and B

Interesting. I'm the opposite. I was sorta curious, so I started reading Flash Boys. It became immediately obvious that A: the author is fucking clueless, and B: I didn't know enough about how this system worked. The book called "Dark Pools" was a bit better (mainly as a light history of electronic trading). "Flash Boys: Not So Fast" was really fun, mainly because it systematically trashes the author of Flash Boys. It was interesting enough that I've picked up a few books on market microstructure, that really get into the details. It's fascinating, not just technically, but from a standpoint of looking at humans. It's odd to see how such strange systems persisted for so long (like Patrick mentions in this post, the crazy 1/8th spreads that were gamed). Or in "Dark Pools", they discuss how some of these traders would call up Nasdaq wondering why a certain trade did or didn't work how it did. And they'd find out all sorts of strange rules. Which makes me wonder, wtf? Are Nasdaq's rules hidden? Or were people doing this as a living just too lazy to read the specs? [1] I can only guess how much easy money there was to be made 20 years ago. I'm so looking forward to Stockfighter, enough that I started looking at FIX and OUCH (OUCH looks far faster since there's ~no silly parsing - just copy into a struct) just in case that's what they offered. It's too late for me to actually work in finance (far smarter people with more experience in math and compsci), but playing the game is still an option. (I've actually been thinking of how we might run some fake exchanges, federated, as a game.) Anyways, I guess to each his own. But I'm guessing I'm not the only one that will find this scenario intriguing. 1: Even basic stuff, like market orders, are weird. Who the hell would ever submit an order that's literally saying "Sell at any price, including $0"? (Well I suppose now it's "current price minus circuit breaker limits".) Or "buy at any price up to $MAX"? Sure, most of the time it works out fine, but if you can't be bothered to come up with a limit, perhaps you shouldn't be buying or selling?

dragonwriter 11y ago
> Or were people doing this as a living just too lazy to read the specs? Pretty much every domain I've worked in has stunned me with the number of people who do things for a living without reading the specs (often literally, or understanding the basics in areas where there aren't literal specs.) Both conscious cargo culting (where people know they are doing what they've learned to do from others without understanding the basics, and know what they don't know) and false knowledge (where people do things based on an understanding of the underlying process that is completely wrong, and so don't know what they don't know) are distressingly common. And just to be clear, I don't hold myself to be superior in anyway. I avoid conscious cargo culting except when there is no practical choice; but I've certainly ran into places where I discovered I had been operating for a long time on false knowledge when good sources existed to correct that, but I didn't know that I had a gap that needed correcting.
- kbenson 11y ago
  When you've been treading water for so long just trying not to drown, it can be hard to focus on better swimming techniques when you get a moment of respite. Eventually, you can get into such a rhythm of almost drowning and recovering, that it can be hard to imagine anything else until you see it. Finally catching a glimpse of your neighbor who happens to just be merrily floating on his back can be revelatory.
radnor 11y ago
> Even basic stuff, like market orders, are weird. Who the hell would ever submit an order that's literally saying "Sell at any price, including $0"? (Well I suppose now it's "current price minus circuit breaker limits".) Or "buy at any price up to $MAX"? In MMORPG games, those kinds of orders on the auction houses are awesome because they mean someone wasn't paying attention. Profit for the person who finds them! :)
- eru 11y ago
  If enough people look for them and compete, the poor sucker won't be out of so much money.
bgilroy26 11y ago
Thank you for the book recommendations!
deleted 11y ago
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sjg007 11y ago
How was Michael Lewis clueless? He gave a step by step description of how regulation in reaction to previous crises and the money gave rise to HFT and specifically that Banks get paid by HFTs to submit their orders to specific exchanges. HFT is a game of speed that arbitrages between dark pools and the various public exchanges that ultimately provides no value.
- patio11 11y ago
  Among other things, there are times in the book where it is very unclear whether he understands execution of an order against the orderbook is atomic. For example, he posits that someone can, on a single exchange, hit a sentinel order placed by a market maker with a larger order and then have the market maker adjust the prices of orders behind the sentinel, in response to the execution of the sentinel order, prior to the original order hitting the orders behind the sentinel. That can't happen. It might sound plausible, understandably, to someone who has never done concurrent programming and who doesn't understand that e.g. locks are a thing which exists in the world. I am attempting to restrain myself from being too critical here, because that's a higher level of technical knowledge than I would generally expect from a journalist writing for a general audience, but then again this journalist wrote a book-length treatise on how distributed systems and concurrent programming are screwing the American public without successfully demonstrating that he has a handle on either of these topics. For the better-informed and book-length version of this comment, see http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-Frequency-ebook/dp/B00P0QI2M2 http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-F... , which is some of the most devastating technical writing I've ever read.
  - deleted 11y ago
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  - bostik 11y ago
    > he posits that someone can, on a single exchange, hit a sentinel order placed by a market maker with a larger order and then have the market maker adjust the prices of orders behind the sentinel, in response to the execution [..] prior to the original order hitting the orders behind the sentinel. "That can't happen." True, technically. But what you described earlier is close what is called the "Last Look" ability.[0] It's highly unethical, because it provides market makers and large operators a privileged data feed and ability to effectively go back in time. Im simplified terms: if an exchange provides LL, executions against standing orders from privileged parties would be flagged as "pending" for a short window and the privileged party is sent a message of the pending execution. During the time window, they are allowed to respond with a cancel, which will be performed in front of the execution. And if a market maker knows that an execution would result in a bad trade, it will then start issuing cancels for other standing orders too. There's also a kernel of truth in the other part I quoted. I firmly believe that market makers can't adjust prices for their standing orders, but in some exchanges there are order types called "reductions", where the market maker is allowed to adjust the available quantity of a standing order. So instead of issuing a cancel + order, the market maker can simply drop the available amount in their standing order while still keeping the order itself in the book. 0: http://www.bloomberg.com/news/articles/2015-03-03/barclays-last-look-at-currency-trades-said-to-face-u-s-review http://www.bloomberg.com/news/articles/2015-03-03/barclays-l...
SEJeff 11y ago
FWIW: I used to work at the predecessor to Virtu Financial with Peter Kovac, who wrote an excellent counter argument book to flash boys. http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-Frequency-ebook/dp/B00P0QI2M2 http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-F... He's one of the most honest and intelligent people I've ever had the pleasure to work with in my entire career. He was at Madison Tyler while I was there roughly 4 years until the Virtu merger (at which point many of us left).
- tptacek 11y ago
  This book, for what it's worth, is fantastic. If you're interested in nuts-and-bolts how-stuff-works, and less in the screenplay-friendly narratives that Michael Lewis wanted to peddle, it's a much better book than Flash Boys itself was.
- MichaelGG 11y ago
  Yep, I mention that in the first paragraph :). I loved the book. It was fantastic. Both for explaining stuff, as well as totally smacking down Lewis's nonsense. It left me wanting to learn more. I'm currently reading Trading and Exchanges, as well as Market Microstructure in Practise (I wanted a newer book as stuff has changed in 2002 and 2010.)
- gammarator 11y ago
  Here's a lengthy critique of the Kovac book alleging it misreads Lewis's point: http://www.amazon.com/review/R28Y8AI4PIPYZ2/ref=cm_cr_dp_title?ie=UTF8&ASIN=B00P0QI2M2&channel=detail-glance&nodeID=133140011&store=digital-text http://www.amazon.com/review/R28Y8AI4PIPYZ2/ref=cm_cr_dp_tit... "Kovac misfires by supposing the "front-running" condemned in "Flash Boys" refers to a particular kind of abuse, and not surprisingly it's the kind he plans to refute. In common usage there are at least two meanings to the term. One common meaning is as shorthand for "front-running demand," which is what happens when someone tries to figure out whether your mutual fund or your pension fund is buying or selling stock, realizes that it will change supply-and-demand dynamics for the stock, affecting the price, and front-runs that demand to profit. Imagine if someone made a reasonable guess you needed milk, raced ahead of you to the only store in town to buy up all the milk before you got there, and then offered to sell you milk at a higher price than the store sold it to him; this is one example of front-running demand, just as described in "Flash Boys." (It's also called "trading ahead.") Another common meaning is "front-running a customer order," a type of insider trading, where a stock broker believes his own customer's order will change supply-and-demand and tries to profit from that; this is what Kovac apparently intends to refute, and it has nothing at all to do with "Flash Boys.""
jackgavigan 11y ago
> ..in "Dark Pools", they discuss how some of these traders would call up Nasdaq wondering why a certain trade did or didn't work how it did. And they'd find out all sorts of strange rules. Which makes me wonder, wtf? Are Nasdaq's rules hidden? Or were people doing this as a living just too lazy to read the specs? Sometimes the functionality is obscure or poorly documented, so it's difficult to understand how it will work, or you make an assumption that turns out to be wrong. Sometimes, different order types interact in unexpected ways (these are effectively complex systems). Sometimes, the exchange just gets it wrong. On a number of occasions, I've investigated an incident and it turned out that there was a bug at the exchange's end.

dragonwriter 11y ago

> Or were people doing this as a living just too lazy to read the specs? Pretty much every domain I've worked in has stunned me with the number of people who do things for a living without reading the specs (often literally, or understanding the basics in areas where there aren't literal specs.) Both conscious cargo culting (where people know they are doing what they've learned to do from others without understanding the basics, and know what they don't know) and false knowledge (where people do things based on an understanding of the underlying process that is completely wrong, and so don't know what they don't know) are distressingly common. And just to be clear, I don't hold myself to be superior in anyway. I avoid conscious cargo culting except when there is no practical choice; but I've certainly ran into places where I discovered I had been operating for a long time on false knowledge when good sources existed to correct that, but I didn't know that I had a gap that needed correcting.

kbenson 11y ago
When you've been treading water for so long just trying not to drown, it can be hard to focus on better swimming techniques when you get a moment of respite. Eventually, you can get into such a rhythm of almost drowning and recovering, that it can be hard to imagine anything else until you see it. Finally catching a glimpse of your neighbor who happens to just be merrily floating on his back can be revelatory.

radnor 11y ago

> Even basic stuff, like market orders, are weird. Who the hell would ever submit an order that's literally saying "Sell at any price, including $0"? (Well I suppose now it's "current price minus circuit breaker limits".) Or "buy at any price up to $MAX"? In MMORPG games, those kinds of orders on the auction houses are awesome because they mean someone wasn't paying attention. Profit for the person who finds them! :)

eru 11y ago
If enough people look for them and compete, the poor sucker won't be out of so much money.

bgilroy26 11y ago

Thank you for the book recommendations!

deleted 11y ago

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sjg007 11y ago

How was Michael Lewis clueless? He gave a step by step description of how regulation in reaction to previous crises and the money gave rise to HFT and specifically that Banks get paid by HFTs to submit their orders to specific exchanges. HFT is a game of speed that arbitrages between dark pools and the various public exchanges that ultimately provides no value.

patio11 11y ago
Among other things, there are times in the book where it is very unclear whether he understands execution of an order against the orderbook is atomic. For example, he posits that someone can, on a single exchange, hit a sentinel order placed by a market maker with a larger order and then have the market maker adjust the prices of orders behind the sentinel, in response to the execution of the sentinel order, prior to the original order hitting the orders behind the sentinel. That can't happen. It might sound plausible, understandably, to someone who has never done concurrent programming and who doesn't understand that e.g. locks are a thing which exists in the world. I am attempting to restrain myself from being too critical here, because that's a higher level of technical knowledge than I would generally expect from a journalist writing for a general audience, but then again this journalist wrote a book-length treatise on how distributed systems and concurrent programming are screwing the American public without successfully demonstrating that he has a handle on either of these topics. For the better-informed and book-length version of this comment, see http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-Frequency-ebook/dp/B00P0QI2M2 http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-F... , which is some of the most devastating technical writing I've ever read.
- deleted 11y ago
  [deleted]
- bostik 11y ago
  > he posits that someone can, on a single exchange, hit a sentinel order placed by a market maker with a larger order and then have the market maker adjust the prices of orders behind the sentinel, in response to the execution [..] prior to the original order hitting the orders behind the sentinel. "That can't happen." True, technically. But what you described earlier is close what is called the "Last Look" ability.[0] It's highly unethical, because it provides market makers and large operators a privileged data feed and ability to effectively go back in time. Im simplified terms: if an exchange provides LL, executions against standing orders from privileged parties would be flagged as "pending" for a short window and the privileged party is sent a message of the pending execution. During the time window, they are allowed to respond with a cancel, which will be performed in front of the execution. And if a market maker knows that an execution would result in a bad trade, it will then start issuing cancels for other standing orders too. There's also a kernel of truth in the other part I quoted. I firmly believe that market makers can't adjust prices for their standing orders, but in some exchanges there are order types called "reductions", where the market maker is allowed to adjust the available quantity of a standing order. So instead of issuing a cancel + order, the market maker can simply drop the available amount in their standing order while still keeping the order itself in the book. 0: http://www.bloomberg.com/news/articles/2015-03-03/barclays-last-look-at-currency-trades-said-to-face-u-s-review http://www.bloomberg.com/news/articles/2015-03-03/barclays-l...

SEJeff 11y ago

FWIW: I used to work at the predecessor to Virtu Financial with Peter Kovac, who wrote an excellent counter argument book to flash boys. http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-Frequency-ebook/dp/B00P0QI2M2 http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-F... He's one of the most honest and intelligent people I've ever had the pleasure to work with in my entire career. He was at Madison Tyler while I was there roughly 4 years until the Virtu merger (at which point many of us left).

tptacek 11y ago
This book, for what it's worth, is fantastic. If you're interested in nuts-and-bolts how-stuff-works, and less in the screenplay-friendly narratives that Michael Lewis wanted to peddle, it's a much better book than Flash Boys itself was.
MichaelGG 11y ago
Yep, I mention that in the first paragraph :). I loved the book. It was fantastic. Both for explaining stuff, as well as totally smacking down Lewis's nonsense. It left me wanting to learn more. I'm currently reading Trading and Exchanges, as well as Market Microstructure in Practise (I wanted a newer book as stuff has changed in 2002 and 2010.)
gammarator 11y ago
Here's a lengthy critique of the Kovac book alleging it misreads Lewis's point: http://www.amazon.com/review/R28Y8AI4PIPYZ2/ref=cm_cr_dp_title?ie=UTF8&ASIN=B00P0QI2M2&channel=detail-glance&nodeID=133140011&store=digital-text http://www.amazon.com/review/R28Y8AI4PIPYZ2/ref=cm_cr_dp_tit... "Kovac misfires by supposing the "front-running" condemned in "Flash Boys" refers to a particular kind of abuse, and not surprisingly it's the kind he plans to refute. In common usage there are at least two meanings to the term. One common meaning is as shorthand for "front-running demand," which is what happens when someone tries to figure out whether your mutual fund or your pension fund is buying or selling stock, realizes that it will change supply-and-demand dynamics for the stock, affecting the price, and front-runs that demand to profit. Imagine if someone made a reasonable guess you needed milk, raced ahead of you to the only store in town to buy up all the milk before you got there, and then offered to sell you milk at a higher price than the store sold it to him; this is one example of front-running demand, just as described in "Flash Boys." (It's also called "trading ahead.") Another common meaning is "front-running a customer order," a type of insider trading, where a stock broker believes his own customer's order will change supply-and-demand and tries to profit from that; this is what Kovac apparently intends to refute, and it has nothing at all to do with "Flash Boys.""

jackgavigan 11y ago

> ..in "Dark Pools", they discuss how some of these traders would call up Nasdaq wondering why a certain trade did or didn't work how it did. And they'd find out all sorts of strange rules. Which makes me wonder, wtf? Are Nasdaq's rules hidden? Or were people doing this as a living just too lazy to read the specs? Sometimes the functionality is obscure or poorly documented, so it's difficult to understand how it will work, or you make an assumption that turns out to be wrong. Sometimes, different order types interact in unexpected ways (these are effectively complex systems). Sometimes, the exchange just gets it wrong. On a number of occasions, I've investigated an incident and it turned out that there was a bug at the exchange's end.