“The world clings to its old mental picture of the stock market because it’s comforting; because it’s so hard to draw a picture of what has replaced it; and because the few people able to draw it for you have no interest in doing so.”

In 2009, a 300 million dollar secret fiber optic line was built, so secret that workers were kept in small groups and prevented from meeting, so secret they were never told the purpose of the line or where it was going, so secret they were asked to report anyone asking questions or digging near the line. Many thought they were on a top secret government project. In truth, they were building a line from New Jersey to Chicago that would shave 1.5 milliseconds off the time data takes to flow between the two points, bringing it down to 13 milliseconds, a privilege for which banks and traders were asked to pay as much as 10 million dollars apiece. It takes, by the way, 100 milliseconds to blink your eyes.

Michael Lewis is one of my favourite financial authors: I think his coverage of the financial crisis in The Big Short was masterful, quite possibly the best book on the subject, and he’s also well known for Liar’s Poker and Moneyball. He uses individual stories to explain complex issues, and in Flashboys, he describes the new world of stock markets, a world in which the markets are black boxes in high security buildings in New Jersey and Chicago, and it’s worth millions of dollars to have your computer two feet closer to that box. Every inch counts when signals only go at 186,000 miles per second. It’s also a world with predators and prey, and Lewis is sharply critical of many of the predators, especially dark pools and high frequency traders, those who trade in a millisecond time frame.

The book has been controversial: in essence, one side argues that though high frequency trading is not implicitly bad, many of the strategies used are essentially robbery: they gather more information than others and then use their advantage to take money that would otherwise have gone to the investor. On the other side, as an ex-Goldman Sachs employee I spoke with a few days ago argued, supporters suggest that such traders play the same role traders have always played, helping bring together sellers and buyers and adding liquidity to the market. Where Lewis is weakest, in justice, is that as with any story he needs a villain, and high frequency takes the role. In truth, however, many of the problems are systematic, and a systemic change is needed, as indeed one of the protagonists attempts to do by setting up his own, fair, stock exchange.

I personally tend to find the mugging side of things more apt, but that’s up the reader. Regardless of what you decide, I can recommend Flashboys as a phenomenal way to understand the modern stock market. Lewis has made a subject few of us understand clear and entertaining, and for anyone interested in flash crashes, hedge funds, algorithmic trading, or just the financial world in general, it’s essential reading. It’s a book on finance that sold 130,000 copies in its first week, is already being turned into a film, and has spawned thousands of articles, interviews, and responses. I highly recommend it.

You can get a copy here, or just read the Amazon reviews.