Friday, May 16, 2014

You could have made a lot of money in one second yesterday if ...

Michael Lewis has written a book entitled the eFlash Boys: A Wall Street Revolt in which he describes the efforts of high speed traders to gain an advantage by saving a few milliseconds in making a trade. Terry Gross also interviewed Lewis on Fresh Air, and you can listen to the interview (37m 25s) here or read the transcript here.

In addition to talking about the advantage that super fast access and trading algorithms confers, Lewis talks of the complexity of computer trading and the possibility of instability.

We saw a small example yesterday, when, as Bloomberg columist Matt Levine put it, the stock market went WOOSH for a second.

As you see here, you could have made a lot of money in one second if you had a super fast computer with a super fast connection to a stock exchange:

Does this sort of thing undermine our belief in the impartiality of capital markets?