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In the book Flash Boys, Michael Lewis gives a basic explanation of the unethical methodology of high-frequency trading, how it’s affected the financial industry, and how Brad Katsuyama dedicated his career to stopping HFT. Knowing the book’s context also helps to understand the impact the book had on regulations and investigations into HFT.
Here’s a review of Flash Boys, with background, critical analysis, and impact.
Flash Boys Overview
In Flash Boys, best-selling author Michael Lewis explores the US stock market’s use and acceptance of high-frequency trading (HFT). He argues that HFT exploits regular investors and creates unfairness in the stock market. Therefore, he believes any investor should be concerned about high-frequency trading.
Lewis focuses much of the book on the experiences of Brad Katsuyama, a Canadian trader who investigated HFT tactics and was a key player in exposing the practice to the financial world. Lewis examines Katsuyama’s investigation in detail, using it as a lens through which to understand the history and effects of HFT on the market and the economy.
In examining the role HFT plays in the investment world, Lewis explains six features of the stock market and how HFT algorithms exploit each of them to unfairly tilt the playing field in their favor. He explains how these tactics create problems for average traders and investors. Lewis also explores how Katsuyama and his team found solutions to these HFT tactics and their efforts to create a fairer stock market.
About the Author
Michael Lewis is a financial journalist and best-selling author. He writes for publications like The Guardian, Bloomberg, and The New York Times, covering finance, economics, and business to reveal complex and unfair systems. While critics believe he oversimplifies these topics, his books are generally well-received. Lewis also hosts a podcast called Against the Rules, which explores fairness in society and is known for its skepticism of authority.
Lewis grew up in New Orleans and attended college at Princeton for art history. He later received his masters in economics from the London School of Economics. In the 1980s, he was a bond salesman on Wall Street, which prompted him to write his first book, Liar’s Poker. His other books include Moneyball, The Big Short, The Blind Side, and most recently, The Premonition.
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The Book’s Publication
Flash Boys was published by W. W. Norton & Co. in 2014, making it Lewis’s 15th book. The two books that preceded Flash Boys—The Big Short and Panic—both explore elements of the US financial system. Like Lewis’s other books, Flash Boys interweaves narrative with explanations of technical subjects.
Historical Context
Lewis wrote Flash Boys in response to the increase in high-frequency trading throughout the 2000s and 2010s. Several events raised awareness of high-frequency trading, including a 2009 SEC testimony on the practice, a Wall Street programmer’s arrest for stolen trading code, and the “flash crash” of 2010.
Intellectual Context
The increased awareness of high-frequency trading caused experts to research these trading tactics, resulting in mainstream investigation and reporting:
- In a 2009 article, the New York Times published a report on high-frequency trading, causing public interest. Before that point, interest in high-frequency trading was mainly within the financial community.
- A 2010 Duke report analyzed high-frequency trading tactics, including dark pool arbitrage.
- In 2012, a BBC article investigated the cause of the 2010 flash crash.
- A 2013 Harvard article, which Lewis cites in Flash Boys, gave a comprehensive analysis of high-frequency trading tactics.
- In 2013, Rishi Narang published Inside the Black Box, which describes high-frequency trading.
Flash Boys addresses and expands on the issues brought up in these publications, while also discussing the people involved in understanding high-frequency trading.
The Book’s Impact
Flash Boys made a big impact on the financial industry, fueling interest in the topic of high-frequency trading. A day after the book was published, the FBI announced an investigation into high-frequency trading practices. People speculated that the FBI’s decision was motivated by Flash Boys, but the FBI claimed to have been investigating high-frequency trading for over a year prior to the book’s publication.
Critical Reception
Flash Boys was a No. 1 New York Times best-seller. Flash Boys reviewers praised Lewis’s ability to combine explanations of complex topics with an enjoyable narrative. Others noted that the book is an essential read for anyone interested in economics, investing, and finance.
But critics of the book claimed it was one-sided, since Lewis only presented the argument against high-frequency trading. They also believe Lewis oversimplified the issue, criticizing him for a lack of research—beyond interviews—for the book.
Commentary on the Book’s Approach and Organization
The book jumps around in time, place, and narrative focus. Lewis examines high-frequency trading through the perspective of Brad Katsuyama, a Canadian trader, as well as other people who join his team. Lewis also explores the trial of Sergey Aleynikov, a Russian programmer arrested for stealing code. This approach, paired with Lewis’s conversational tone, makes the book easy to read. Some reviewers noted that the book read like a detective novel because of this writing style.
Lewis breaks down complex concepts to make them accessible to readers without a finance background. Even still, readers with stock market and investing knowledge may better understand the book.
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Like what you just read? Read the rest of the world's best book summary and analysis of Michael Lewis's "Flash Boys" at Shortform .
Here's what you'll find in our full Flash Boys summary :
- Why high-frequency trading (HFT) is a threat to your investments
- A look at Wall Street’s greedy response to HFT
- How Canadian trader Brad Katsuyama tried to fight the problem
