Brokers/ firms being able to see orders, and front run them has always been the case on wall street and in the stock market since the beginning of time! However it's so much harder to front run in today’s market, because there are so many different orders books, exchanges and execution platforms, and data is NOT SHARED like it used to be. You also have so many Algo execution systems competing against each other for milliseconds of efficiency, they don't even know who's going to win themselves.
When Lewis is talking about front running, he's really talking about market making, which is what some HFT algos do- however as above, market makers have always been in the market!! It's nothing new, it's just now they're more efficient. In the example with the trader from the royal bank of Canada, he describes how “big blocks” would only get partially filled, and then the price moves up- this is because the orders he was looking at were FAKE and never intended to be executed at that price he was bidding, thus an Algo program pulled them before they were executed, and they were just there to see if any big buyers were lurking to eat them up, which would would mean the firm with this info could then have HFT algos setup to instantly jump the que and get executed infront of them( from a real order), knowing very well that another buy program still had x amount of units it needed to execute at market! Again this isn't actually front running, it's just how smart money/ HFT firms get edges/ inside info against each other.
This type of thing isn't really an issue for retail traders, since their order size is so small and the markets are so liquid that they're not even big enough to effective the spread, their orders just get eaten up at the price infront of them. Execution for retail traders and especially day traders, is now more efficient than it's even been, spreads are also tighter than ever, so what you see is usually what you get. Alot of intra day traders actually benefit from the spread/ execution that HFT algos have created.
Lewis has some fair points, but a lot of what he is saying is largely exaggerated and tailored towards the naive retail market. It's funny how you see articles complaining about HFT firms who combined might make a few billion a year, however forgetting that the size of the total US Market is over 50 trillion!! HFT as Michael Lewis has described it is a dying business ,left to fight for the scraps.
