The Flash Crash by Liam Vaughan

Discussion in 'Educational Resources' started by Michael R, May 16, 2020.

  1. Michael R

    Michael R

    The new book Flash Crash by Liam Vaughan tells the story of an extraordinary trader, Nav Sarao, who outsmarted the HFT firms at their own game, so they had him destroyed. Its also the story of clueless lawmakers and large profitable HFT firms abusing their dominant position to spoof regulators into falsely blaming a modern-day boy plunger for the Flash Crash and eliminating him as their competitor. After the GFC, over-excited lawmakers somehow figured that moving a market up and down a few ticks was a serious crime and decided to outlaw spoofing in futures markets. “it was as if bluffing had been outlawed in poker”

    I liked that the book paints a definite picture of Nav’s personality and skills. He was a socially awkward computer gamer that through hard work and focus became an extraordinary trader. He had superb memory, hyper focus and high confidence that enabled him to make huge profits taking mega sized bets and without protective stop loss orders! He made a fortune as a point and click trader before he even started using algorithms like his competition, the HFT firms. He complained to the Exchange about spoofing by them, but he was ignored so he designed his own algorithms to join in the game. The regulators acted like the hired muscle of the HTF firms and put him in jail for it.

    I would have liked the book more with finer details about Nav’s trading; more over to see his screen recordings that the regulators obtained. I look forward to Nav’s autobiography akin to Reminiscences of a Stock Operator about the original boy plunger. Meanwhile, I won’t hold my breath waiting for the regulators to investigate the obscene profits made by the large banks and HFT firms.
    edu, jys78 and guru like this.
  2. Have you finished reading the book? Does it contain trading insights or is it just an entertaining story?
    Nobert likes this.
  3. How is it possible to spoof a market like S&P futures?

    An arbed, massive market like that is spoofable? That sounds crazy to me but
    what do i know. I'm actually stunned that thats even a thing with sp futures.
  4. Metamega


    Funny to see them target the poor guy.

    I’d like to see some blame on HFT. Knight capitol had an algo run wild.

    Problem is speeds so critical you can’t have any extra code to say “ hey, is this stock worth a penny?”

    heard on a podcast, can’t remember his name, he was talking about how they had put their logic into chips themselves to increase speed. That’s when you know it’s getting ridiculous.
  5. arbs are spoofs and you can move the sp very easily a tick or 2. here is how you spoof.
    you sell the mkt during a quiet period i.e. no reports and relatively normal day. you place a buy limit below your sell a 3 ticks. you then place a large buy limit 5 ticks below that and wait a few seconds. then you move that large order up to 2 ticks below your actual buy limit..then every second or 2 u move the large buy limit lower a tick then up a tick then lower a tick. the algos will be figuring out how to get that liquidity by moving the mkt lower. you aroused their interest. they will come down and investigate. as they do this they will fill your initial buy limit to offset your sell. then you cancel your big order that was used to get tje algos to move lower. HE WAS DOING THIS MANUALLY. but they got too fast n started picking him off. hft does the exact same thing all the time using cancels to thin the book then they spike it. he programmed his system to move n cancel quickly.
    You can do this yourself with 1 lots and 5 lots in the overnight mkt if u want to see how it works. but dont cancel your 5 lot after getting filled. just move it lower so ur not spoofing. this is also why u will see huge spikes at times. you can get those algos interested very very easily. they are so smart they are dumb.
  6. they went after him for many reasons.
    1. he showed the truth behind wash trades and hft bullshit liquidity which would undermine the entire system
    2. he made lots of money gaming the algos who game stale orders. stop placing limits that kust sit there you must move them frequently which is legal. a stale order is only retail. as u move orders on the book watch all the other orders change and react. those are all pretty much the algos so maybe 10 companies max owning all that liquidity. when they know the book and u place an order and it sits stale they know ur human. when you move it a lot..they think ur an algo
  7. you are not allowed to pull lots of money out of the exchange without spending lots on infrastructure and trades.
    by the way DRT admitted to spoofing and the judge said u actually are just a smart trader and charges were dropped
  8. thought i posted a reply
  9. jordi742


    I'm reading the book. It's quite interesting. I like this fragment :

    Time and again it did, and by the second week of January, Nav had gone from shorting a handful of contracts to betting two hundred lots a night, a $15 million position that yielded sixfigure profits.

    NAV, at one point, shorted 200 DAX contracts and held the position overnight!!
  10. there are 200 lots done all the time and held
    #10     May 16, 2020