How the stock market is rigged


Michael Lewis talks to Jon Stewart about his latest book where he explains how the stock market is rigged in favor of high-frequency traders and that since wall street banks, financial media, and government regulators are all locked into the current system and benefit from it, they resist any changes that might make it fairer.

(These clips aired on April 1, 2014. To get suggestions on how to view clips of The Daily Show and The Colbert Report outside the US, please see this earlier post. If the videos autoplay, please see here for a diagnosis and possible solutions.)

Comments

  1. eigenperson says

    Personally, I don’t think this is a big deal for the average individual. The amount stolen by the HFTs is truly tiny, unless you are a day trader. Besides, you save roughly the same amount on the bid-ask spread because of HFT activity (the bid-ask spread is much lower than it used to be).

    If you are a day trader who makes hundreds or thousands of trades per year, it matters, but I don’t have that much respect for what those people do.

  2. Pierce R. Butler says

    Start a poker game with a lot of players.

    Every so often, kick over the table, gathering up all the chips and cards for yourself.

    Then set up the table again, start selling chips and dealing cards one more time, invite everybody back in.

    Repeat ad infinitum.

  3. unre9istered says

    @1 I don’t think this is hurting individuals as far as the cost of trading or stock prices are concerned, I think the harm is that this is another way that people with most of the money are siphoning up more money from everyone else. This is exacerbating the income inequality.

    If I steal a penny from every american every day, I’m not really hurting anyone, am I? But I am stealing over $3 million a day, over a billion dollars a year!

    HFT isn’t qualified as a crime, but it’s a leak of money from the economy into someone’s pocket, and that shouldn’t be permitted.

  4. eigenperson says

    #3:

    But how is what they’re doing any different from what market makers have always done? If you want to buy more than one lot of shares, the market maker is permitted to sell you only one lot of shares and then raise the price for the next lot. The experience for the buyer is the same as here. And someone is still making the money on the difference. As far as I can tell, the only change is that it used to be a traditional market maker who made the money, and now it is a HFT market maker.

  5. Trebuchet says

    I’ve long maintained that the difference between Wall Street and Las Vegas is that one is a hotbed of organized crime where the odds are stacked against you, and the other has topless showgirls.

  6. DsylexicHippo says

    @ #1: It is wrong because it is nothing but front-running by HFT fast machines. It may be legalized front-running but that’s because our laws have not caught up to trickery like this. They will be forced to move their act to currency markets now that IEX is leveling the playing field by slowing them down.

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