In the spring of 2014, Michael Lewis did something that very few people in the financial world had ever managed to do: he made the plumbing of the stock market interesting. Actually, he didn't just make it interesting; he made it a scandal. When he went on 60 Minutes and told the world that the "market is rigged," he set off a firestorm that still hasn't quite burned out.
Honestly, the book Flash Boys changed how we look at our own retirement accounts. It wasn't just a story about numbers. It was a story about guys like Brad Katsuyama, a trader who realized that every time he tried to buy a stock, the price would jump before he could finish clicking his mouse. It was like some invisible ghost was always one step ahead of him.
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He wasn't crazy. It was real.
The $300 Million Shortcut
The book kicks off with this wild story about a company called Spread Networks. They spent $300 million just to dig a hole. Well, a very long, very straight hole. They laid a fiber-optic cable from Chicago to New Jersey that cut through mountains and under rivers. Why? To shave a few milliseconds off the time it took for data to travel between the two cities.
In the world of high-frequency trading (HFT), a millisecond is an eternity.
If you have a faster cable, you see the price change in Chicago before the guy in New York does. You can buy the stock in New York and sell it back to him before he even knows the price moved. It’s basically legal front-running. Lewis explains that this wasn't just one company. The whole market was becoming a series of these tiny, high-speed toll booths.
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Banks were charging HFT firms for "co-location," which is just a fancy way of saying they let the HFT computers sit in the same room as the exchange's servers. If your computer is six feet closer to the server, you win. It's that simple. And that ridiculous.
Who Is Brad Katsuyama?
Katsuyama is the hero of the story, and he’s not your typical Wall Street shark. He was working for the Royal Bank of Canada (RBC) and just trying to do his job. But he noticed that the market had become "fragmented." Instead of one big New York Stock Exchange, there were dozens of different venues.
When Brad tried to buy 10,000 shares of Intel, he’d see the shares available on his screen. He’d hit the button. He’d get maybe 200 shares, and then the price for the rest would instantly go up.
He eventually figured out that the HFT firms were seeing his request hit the first exchange, and then they were racing him to all the other exchanges to buy up the stock before he could get there. They were using his own order as a signal to screw him.
To fix this, Brad and his team created IEX, the Investors Exchange. Their big "innovation" was actually a step backward: a speed bump. They coiled 38 miles of fiber-optic cable in a box—the "magic shoebox"—to slow down incoming orders by 350 microseconds. That tiny delay was just enough to make sure that the HFT firms couldn't jump in front of the trades.
The Controversy: Was It Actually Rigged?
This is where things get messy. Not everyone thinks Michael Lewis got it right. If you talk to people who actually run HFT firms, they'll tell you that Lewis is a great storyteller but a terrible market analyst.
Critics like Pete Kovac, who wrote Flash Boys: Not So Fast, argue that HFT actually made the market better for regular people. Before computers took over, you had to pay a human "specialist" a huge spread to buy or sell a stock. Now, those spreads are tiny. You can trade for free on Robinhood because of the liquidity these firms provide.
The SEC Chair at the time, Mary Jo White, even testified that the markets weren't "rigged." She argued that the system is just different now, and while it's complex, it's more efficient than it used to be.
But Lewis didn't back down. He argued that even if the market is "efficient," it's unfair. If the system is designed to allow a few people to skim a tiny bit of money off every single trade, that’s a tax on everyone else. It’s a "diffuse harm with a concentrated benefit," as Katsuyama put it.
The Sergey Aleynikov Mystery
One of the weirdest parts of the book involves Sergey Aleynikov, a programmer for Goldman Sachs. He was arrested by the FBI for allegedly stealing computer code when he left the firm.
Lewis uses Sergey’s story to show how desperate the big banks were to protect their HFT secrets. Sergey ended up in prison, even though the code he took was largely based on open-source software that anyone could find on the internet. It was a classic "big guy vs. little guy" story that Lewis loves, but it also showed the sheer scale of the money involved. Goldman didn't want anyone else having that edge.
What Happened After the Book?
It’s been over a decade since the book came out. Did anything change?
Sorta.
IEX became a real, SEC-approved stock exchange. It's still around today, though it only handles a small percentage of total market volume—usually around 2% to 3%. But its influence was huge. It forced other exchanges to be more transparent about how they handle orders.
The HFT firms also evolved. The "easy money" from simple speed advantages mostly dried up as everyone got the same fast cables. Now, the game is more about sophisticated AI and predictive algorithms.
Actionable Insights for Your Portfolio
You probably aren't a high-frequency trader. You're probably just someone with a 401(k) or a few shares of Apple. So, how does Michael Lewis Flash Boys affect you?
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- Use Limit Orders: Never place a "market order" if you can avoid it. A limit order tells the exchange exactly what you're willing to pay. This prevents an HFT algorithm from jumping the price by a few cents the moment you hit "buy."
- Watch the Spreads: If you're trading a stock with low volume, the HFT firms have more room to maneuver. Stick to high-volume ETFs or stocks where the "bid-ask spread" is only a penny.
- Think Long-Term: The "Flash Boys" only care about the next microsecond. If you hold a stock for ten years, a three-cent price jump on the day you bought it doesn't actually matter. Time is the one thing the machines can't beat you at.
- Check Your Broker: Some brokers sell your "order flow" to HFT firms (this is called Payment for Order Flow, or PFOF). It’s how they offer $0 commissions. It's not necessarily a scam, but it's good to know who is on the other side of your trade.
The reality of the modern stock market is that it’s no longer a room full of guys in colorful jackets screaming at each other. It’s a room full of servers in New Jersey humming in the dark. Michael Lewis didn't stop the machines, but he at least turned the lights on so we could see them.
To get the most out of your investing, start by reviewing your broker's execution quality reports. Most major platforms are required to disclose where they send your orders and how much "price improvement" they actually get for you. If your broker isn't giving you a fair shake, it might be time to move your money to a platform that prioritizes transparency over "free" trades.