June 19, 2014

Flash Boys by Michael Lewis.

Flash Boys by Michael Lewis.

This Is all about ‘Flash Boys’, author’s nickname for HFT (high-frequency traders) who take advantage of time arbitrage. Author is famous for Moneyball (Hollywood movie).

Since there are some VoDs available on the same topic, let me list some important points from the book.

“Spread Networks company pulled a private fiber cable from New jersey stock-exchange to Chicago Mercantile Exchange at the cost of $300 million to reduce latency (aka RTT) from 14 ms (Verizon - National service provider’s WAN link) to 13 ms. By reaching 1 ms early, they could take advantage of price difference in exchanges as these exchanges are connected by Verizon’s network link. http://en.wikipedia.org/wiki/Spread_Networks

However latency between exchanges within NJ itself is around 1 ms and Flash Boys pulled their own private cables and could reach destination exchanges in few microseconds early. Meaning, with few micro-seconds difference, Flash Boys still could make advantages and thus profit. This means, their application, application hosting servers, and network gears et al should work faster in nanoseconds.

Author narrates the thread mainly from one stock trader (Brad Katsuyama) in RBC (Royal Bank of Canada) where he had been issues in buying huge shares on available prices listed in the stock-market. Just before he releases his hand from the keyboard (releases Enter key), price would change and he seldom gets shares at the price he sought.

Book continues with his attempt to find the truth behind the weird issue.

These Flash Boys (HFT traders) never lost money even in a single day due to their superior network links which are faster than exchange links and also due to their super duper high-end trading algorithms.

Just after two years of pulling a $300 million fiber cable from New Jersey to Chicago, new technology using microwave antenna towers brought down the latency to 4.5 ms. Thus making the $300 million cable useless for the purpose it was built.

NYtime Review

Author’s interview in 60 minutes - http://www.youtube.com/watch?v=sK0aoQ5yVmA

Author’s extended interview with Charlie Rose - http://www.youtube.com/watch?v=CkkQkMlaZpc

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