Most likely I won’t be posting again until the end of the week, once I have done all my prep and all my trading – and will post my results here like I did last week. In the meantime, I did some additional “study”…..
So how well do you really know the financial markets?
You can read charts, you can control your emotions, you know how to calculate your position size etc. But how much do you know about the playing field that you are playing on? Who are the other players? What are their agendas? Should this impact on your trading?
Over the weekend I read my way through Flash Boys, a new book by Michael Lewis who has written many true story trading books including The Big Short (which tells the story of the traders who won big from betting against sub-prime mortgages) and Liars Poker (a great account of Wall Street trading in the 1980’s). I have read many of his books , and have found them to be tremendous learning material. Though often, it helps if one already has a certain background knowledge of the financial markets prior to reading. Other favorites of mine are FIASCO (written by a derivatives trader who traded in the late 80’s and early 90’s) and Rogue Trader (written by Nick Leeson himself, the trader who bankrupted his employer Barings). My bookshelf at the office is full of these titles. I cannot stress how educational this books have been for me – all for the price of a few hundred dollars.
Flash Boys claims that High-Frequency-Trading (HFT) firms have managed to significantly rig the US equity markets in their favor for the last decade. It is an amazing read. What is a dark pool? What is electronic front-running? Why do online brokers such as ETrade and Ameritrade sell their customer orders to HFT firms? Why is speed so important? What is the value of a millisecond? What does co-location mean? Did you know there are more than 40 different exchanges and dark pools that now make up the entire US stockmarket?
If this does actually go on in a market that is fairly regulated – in this case, by the SEC – then what kind of trading behavior can one expect in the unregulated FX markets? And what kind of behavior can we expect from UK brokerage firms that have their own dealing desks?
In addition to these books, I also was able to view a good list of YouTube videos whilst trying to rest on the couch – here’s a quick overview [bear in mind that all this comprises completely free education!] of some of the ones I watched:
The Wall Street Code – a great discussion on HFT, comprising interviews with HFT programmers, money managers, journalists and some trading icons.
Flash Crash (May 2010) – brief interview with David Lauer, an ex HFT trader
Nobody understands the stockmarket – interview with Michael Lewis about his Flash Boys book
Introduction to HFT – a fairly simple whiteboard explanation of HFT.
Money & Speed: Inside the Black Box – another round of interviews with many players in the US equity markets over the last 10 years, and detailed discussion of the Flash Crash.
Marty Schwartz Q&A – a one hour Q&A session with “Pit Bull” Marty Schwartz who has been trading the S&P, Oil and most recently S&P options since the early 1980s. Marty also wrote Pit Bull – another fantastic book. He has stopped trading S&P futures (the eminis) because he considers that market has become too difficult to trade due to role of computer-based trading, and is now trading S&P options instead.
The US Bull Market of the 90’s – an overview of some of the mania of the 1990’s US stock market rally.
Black Wednesday – The Run on the Bank of England – a detailed account of the story of run on the Pound in 1992. It also has lengthy discussion on the European Exchange Rate Mechanism (remember this is when Deutsche Marks and Italian Lire still existed), interest rates and political issues. It includes interviews with many politicians and central bankers.