Is the American stock market rigged?
Financial writer Michael Lewis has cast a critical eye over the world of high-frequency trading.
The US stock market is rigged, said renowned financial writer Michael Lewis this week. The author of Liar's Poker, as well as a compelling account of the subprime debacle, has shone the spotlight on high-frequency trading (HFT) with his latest book.
HFT is stock trading done by computers that are so fast that they can spot an opportunity and execute a trade in a thousandth of a second.
In essence, says Lewis, the supercomputers can see which stocks retail investors or funds are about to buy, then scoop them up and sell them back to investors for a higher price. This front-running has cheated people out of billions, he says.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
America's Securities and Exchange Commission and Federal Bureau of Investigation are both looking into HFT. The row has prompted Virtu, a high-speed trading group, to delay listing.
What the commentators said
With more frequent buying and selling, liquidity has improved, but high-speed computers were also blamed for the flash crash' in May 2010, when the Dow Jones Index plunged by 1,000 points in minutes.
One thing Lewis doesn't mention, however, is that HFT isn't as significant as it was, said Reuters.com's Felix Salmon. The number of trades per day has fallen sharply in the past few years and the amount of money being made by the HFT industry is "in sharp decline".
Lewis also "reserves blame for the wrong villains", added Andrew Ross Sorkin in The New York Times. He fingers the hedge funds and investment banks engaged in HFT.
But while they "are complicit", the "real black hats" arethe big stock exchanges, who cash inon HFT by charging more for faster trading through their infrastructure. "The exchanges have a financial incentive to create an uneven playing field."
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.
After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.
His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.
Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.
-
Bitcoin price one of the most-asked questions on Alexa - here's how to buy the cryptocurrency
According to figures from Amazon, which cover September 2023 to November 2024, pop star Taylor Swift and Bitcoin were named among the most popular Alexa queries of 2024
By Chris Newlands Published
-
Investing for children this Christmas – five ideas
It might not come with a shiny ribbon, but an investment fund could be the gift that keeps on giving. We share five ideas if you are investing for children this Christmas.
By Katie Williams Published