I remember having a discussion with a friend, back in August of 2009, when I told him that he would soon hear quite a lot about “high-frequency trading”. It took a bit longer than I expected for that to happen. The release of the book, Flash Boys by Michael Lewis caused quite a stir. Many of the book’s harshest critics emphasized that what Lewis “exposed” was actually an old story. Much had already been written about high-frequency trading (HFT) years earlier.
In fact, here at TheCenterLane.com, I spent some time discussing that subject in the summer of 2009: here and here. I wrote about it on a few subsequent occasions in 2010: here, here and here. More important, in March of 2013, I discussed how HFT had motivated me to avoid using stop-loss orders because of the “mini flash crashes”, engineered by HFT miscreants.
The publication of Flash Boys motivated Charles Schwab himself to discuss his longstanding objections to this sleazy practice.
Despite the cries of Wall Street apologists that Flash Boys was an “old story” which was no longer applicable to the present-day trading environment, Kevin Cook has written a few interesting things on HFT for Zacks Investment Research. Cook explains how HFT is being used right now as well as how to cope with this situation. I was particularly startled by Kevin Cook’s list of ten algorithm programs, which have exploited investors and traders with price behavior manipulation.
Although Attorney General Eric Hold-Harmless has promised to take action against HFT, I’m not holding my breath.