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      Dark Pools & High Frequency Trading For Dummies®

      Published by: John Wiley & Sons, Ltd., The Atrium, Southern Gate, Chichester, www.wiley.com

      This edition first published 2015

      © 2015 John Wiley & Sons, Ltd, Chichester, West Sussex.

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      A catalogue record for this book is available from the British Library.

      ISBN 978-1-118-87919-1 (hardback/paperback) ISBN 978-1-118-87929-0 (ebk)

      ISBN 978-1-118-87930-6 (ebk)

      Printed in Great Britain by TJ International, Padstow, Cornwall

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      Introduction

      Really only a few completely understand the domain of dark pools and high frequency trading (HFT). Even experienced finance professionals have a limited understanding of how both work. In fact, many still remain baffled. However, because dark pools and HFT have gone mainstream, more and more professionals and investors are interested in discovering as much as they can. Now you can’t read the business pages without someone discussing dark pools or HFT.

      The discussion around dark pools and HFT is the most divisive in finance at the moment. Despite the fact that the operators of dark pools and the traders behind HFT algorithms are slowly being forced out into the open to discuss their actions, much remains a mystery.

      From flash crashes to theories about rigged markets and billions in profits made out of tiny changes in prices, dark pools and HFT are a part of modern markets. If you aren’t knowledgeable in how they work and affect your trading, you’ll be bait for the sharks.

      I’ve spent my career as a private banker, dealing with and managing large amounts of money, finding myself and my clients up against high frequency traders, and using dark pools to get the best possible price for my clients.

      Dark Pools and High Frequency Trading For Dummies shows you the ins and outs of dark pools, including what dark pools are, how they differ from a traditional stock market and how HFT has made day trading next to impossible. I have written this book for the savvy investor who has experience with stock markets and knows how stocks are traded on an exchange. This book is also helpful if you’re a finance professional, particularly if you’re in a client-facing role.

      If you’re an active investor or a financial advisor, you’re already more than likely aware of the growth of HFT and the use of dark pools. You’ve watched the prices on an exchange and seen some strange movements. With or without your knowledge, trades you have been involved with have most likely been conducted in a dark pool or executed against a high frequency trader, or even both.

      The difficulty that you may have had is the lack of information as to what your role is and what your effect is in these circumstances. Some literature out recently has discussed dark pools and HFT, and the pages of newspapers are also full of information. The problem is that most information you read leaves you either feeling that it fails to explain what is really happening or that it’s too technical and difficult to understand. This book corrects that.

      Whether you’re an experienced financial advisor or an active investor, this book gives you a clear overview of how the modern market works and what you can do to avoid yourself, or your clients, becoming victims of predatory algorithms. This is all set up in the easy to understand Dummies format.

      Within this book, you may note that some web addresses break across two lines of text. If you’re reading this book in print and want to visit one of these web pages, simply key in the web address exactly as it’s noted in the text, pretending that the line break doesn’t exist. If you’re reading this as an e-book, you’ve got it easy – just click the web address to be taken directly to the web page.

      I made the following assumptions about you when I wrote this book. I assume that

      No matter whether one or all of these assumptions applies to you, I’m confident that you can find tons of useful information to help be better informed as you wade through dark pools.

      The icons that appear in the book’s margins can help you navigate your way through the book. Here’s what they mean.