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Why Michael Lewis is wrong

April 3, 2014: 3:20 PM ET
Michael Lewis Lively

Michael Lewis has stirred up plenty of "lively debate" on CNNMoney and beyond about high-frequency trading.

by Lee Munson

I love you, New York City, but you're killing me. There's a reason I stay in my remote third world country called New Mexico.

The media focus on Michael Lewis' new book, "Flash Boys: A Wall Street Revolt," irritates the hell out of me.

Lewis wants everyone to get worked up about high-frequency trading (dubbed HFT for short). Balderdash. This is an old subject with little relevance to individual investors.

Here's what is a lot more dangerous than HFT: Overtrading, not having a plan, and too much focus on short-term performance.

It's time someone took a big stick and beat this HFT nonsense.

First off, Lewis exaggerates.

He gives a false example when trying to convince you, the individual investor, that HFTs are making you pay more.

He tells Steve Kroft of 60 Minutes that because of HFT, you have to pay a higher price when buying 10,000 shares of Microsoft (MSFT). Really?

Stop, go out and buy 10,000 shares of MSFT right now in your discount brokerage firm account. Okay, that came out wrong. Don't actually do that, but go to any quote system -- perhaps (hint hint) -- and notice the volume on the bid and ask. The spread is likely a penny, and plenty of shares are changing hands every second and the price isn't moving that much.

Plus, larger brokerage firms are crossing clients' orders between each other when they can. You're probably swapping your 100 shares of Tesla with your uncle in Tacoma, and you don't even know it.

Second, who cares?

The case is being overstated by Lewis to the point of scaring people from actually investing. He's screaming: "The market is rigged." We know that. But the HFTs are not making nearly the amount of money being suggested.

You are not being gouged a buck a share to invest in stocks (well, at least not by HFTs. Have you checked your broker's fees?).

Remember 15 years ago when there was something called fractions? Before decimalization, spreads were 3,6,12 cents. That increased trading costs a heck of a lot more than HFTs. The fact that Microsoft stock has a mere penny spread nowadays is a huge gain to all investors...everywhere.

It has never been cheaper to trade in the history of the world. If some trader using a fast computer makes you magically pay a penny more, you are still in very, very good shape.

Third, supply and demand still exists, and so do speculators.

Traders can punish a stock in the short term. They can also see, at lightning speed or not, when a big institution is trying to buy a bunch of shares.

Who the heck said Brad Katsuyama, the "hero" of Lewis' book, is entitled to get his orders filled and not move the market? Let's get real: Every trade has the potential to move the market.

Electronic trading allows big players to minimize the impact of large orders versus the past. But any savvy speculator will notice when someone has a big appetite and will buy that for a free ride.

Here's the bottom line: HFTs aren't the problem.

Okay, sponsored access of "flash" trading is repugnant. By that I mean that trading firms paying money to have their computers and servers right next to those of the exchange is a step too far.

If this book makes regulators write a rule saying you can't do sponsored flash trading, fine. But that is not the definition of HFTs.

There will always be a cat and mouse game between new technology and what is right. However, yelling fire in a crowded theater is not productive.

Lee Munson is the founder and CIO of Portfolio Wealth Advisors. He can be contacted directly at or The opinions expressed in this commentary are solely his.

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Heather Long
Heather Long
Markets & Investing Editor, CNNMoney

Heather Long is markets and investing editor for CNNMoney. She was formerly an assistant editor at The Guardian and an editor at The Patriot-News, which won the 2012 Pulitzer Prize for Local Reporting. She started her career at the investment consulting firm Cambridge Associates and is a Rhodes Scholar. Follow her on Twitter @byHeatherLong

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