StartupLansing Book Review: Flash Boys by Michael Lewis

Allison Book Review, Education

Michael Lewis is part story teller, part explainer of complex human-made institutions. He seeks to find a complicated system that is changing quickly and identifies compelling individuals to show the agency in these dynamic environments. Sometimes its sports (including Money Ball and this great profile of Shane Battier), but often it’s the financial system that he began his professional career in.

In Flash Boys, the system of focus is how stocks are bought and sold, with the new variable being the speed at which trades can happen. One money-making innovation that has taken off in this new set of circumstances is called High-Frequency Trading, and this book profiles this movement, some of its major players, and some of the consequences of this activity.

Digging for Opportunity

High Frequency Trading is basically a hyper-fast form of arbitrage-the buying of a property in one market and selling for a higher price in another. In the world of stock exchanges, your ability to do this is decided by how fast your trade can happen, and whether it can beat other traders and the pricing information they hold. Early in the book, Lewis follows one entrepreneur seeking to outsprint everyone from New York to the Chicago financial markets. To do so, he builds a high-speed fiber optic cable the entire way from Chicago to New York, under parking lots and through mountains, as straight as he possibly can—all to shave off milliseconds from the next fastest trade. The entrepreneur then sells the ability to use this connection to traders, potentially making millions off of his investment. This relationship between speed and money—milliseconds equal millions of dollars—animates what follows.

Dark Pools

The advantage of speed also affects trades and communications over much shorter distances. If the High Frequency Traders (HFTs) have the information about what trades are being requested, they can outrace bids for stocks to their destination, buy the stock, and then turn around and sell it to the originally intended purchaser. These companies are able to turn that brief part of a moment into a risk-free transaction.

You might wonder how that’s possible. In the book, the stock exchanges actually sell the proximity to HFT’s that enables their information advantage. What’s more, large banks and mutual funds allow many trades to happen internally in what are known as Dark Pools. That is, if you are brokering with Bank X, and you request to purchase stock Y at 30.00 to 30.01, the Bank X will conduct that transaction with another of its customers, such that they sell their stock for 30.00, and you buy it for 30.01. What happens to the difference? A HFT company, which pays Bank X for access to the Dark Pool, has served as a middle man, at no value to either side, and pocketed the .01.


The above situation, as Lewis describes it, has since led to a widespread outcry in the year and a half since the book has been published. It also led to the development by of a separate exchange that sought to answer the question “What would an exchange look like that allowed everyone to trade on an even playing field?” Much of the book follows this group as they seek to create this exchange, IEX “A Fair, Simple, Transparent Market”. You can learn more about the exchange at their website, My favorite part of the book describes how IEX recruited a number of programmer and problem-solver types to try and exploit every rule of the new exchange to their advantage, not dissimilar to what the military calls a Red Team. IEX eventually lands on actually slowing the speed of their system, spooling fiber inside their building to ensure that everyone trades at the same speed—the information arrives next door at the same time as everywhere else.

Should you read this book?

There is some controversy as to whether or not High-Frequency Traders damage the market to the extent that Flash Boys describes, or if they supply a benefit in “knitting together the markets,” as a Vanguard spokesman says. I’m not qualified to make that assessment, but the description of how IEX was formed is interesting, whether or not that exchange provides the outsized value the book describes. In any case, Flash Boys brings up a number of provocative questions about the major banks’ and stock exchanges’ interests. Our ability to improve these systems is always limited by our access to information about how they work, and Flash Boys contributes to the public awareness of these issues. It also provides an encouraging profile of the company looking to provide a market-based alternative, and particularly of the steps they take to game-proof their system.

So if you’re interested in learning more about banking and finance, and how they operate now (as opposed to the late 2000’s), there are more up-to-date and even-handed books available. But if you are interested in learning more about what it might be like to be an entrepreneur that works in regulatory and technological systems that are constantly shifting, this book should be a gratifying read.

Terence O’Neill is the Entrepreneurship Librarian at Michigan State University, where he works to connect entrepreneurs to resources that will better inform their business decisions. Through a background in libraries and community education, Terence works to support business and innovation internationally and throughout Michigan.

Have a book you want reviewed, or another comment? You can reach Terence at [email protected]


About Allison

Allison is a writer based out of Lansing, Michigan. She loves writing great content that helps Michigan businesses tell their stories, educate their customers, and promote their brands. Her work has been featured in Capital Gains, Mason Today, Williamston Today and more. She is also helping to promote startup activity in the region at StartupLansing. Follow her @AllySpoon

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