The Rise of Automated Trading
Michael Lewis first became interested in the changing face of finance after the arrest of Sergey Aleynikov, a programmer for Goldman Sachs. Aleynikov was accused of stealing computer code that the government claimed could be used to unfairly manipulate markets. This raised a troubling question: if the code was that dangerous, why was it acceptable for a major bank to use it? The incident highlighted a new, poorly understood field called high-frequency trading, where computers make decisions at speeds humans cannot match.
The transition to this digital world began after the stock market crash of 1987. During that crisis, human brokers often refused to answer their phones to avoid sell orders. In response, regulators changed the rules to favor automated systems to remove human flaws from the process. This regulatory shift inadvertently laid the groundwork for a system where speed would eventually trump human judgment.
Consequently, the traditional image of shouting traders in colorful jackets has been replaced by silent computers housed in secure data centers. These machines now control the market, operating entirely out of public view. This technological barrier makes it nearly impossible for average investors to understand what happens to their trades after they click a button.
While the public still clings to the old image of the stock market, a small group of Wall Street insiders has realized how much the system has changed. These experts left high-paying jobs to challenge the current state of finance after discovering that the modern market is built on complex programming. By looking closely at these digital systems, it becomes clear that the stakes of the financial game have reached a level that most people never fully anticipated.
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