◼ FINANCE Bloomberg Businessweek May 18, 202025BOOK:
COURTESY
DOUBLEDAY
LikemosttradersatFutex,Saraohadlittle
interestintheoutlookforcorporateAmerica,
perse.He’dnevervisitedthecountry,andhepre-
ferredreadingsoccerwebsitestotheWallStreet
Journal. Hewasn’taninvestorlikeWarrenBuffett,
seekingoutundervaluedcompaniesbyscouring
financialreports,andhewasn’taneconomics
expert.Saraowaswhat’scommonlyreferredto
asa “scalper,”a traderwhonotchesupsmallwins
andpositionshimselftocleanupshouldtherebe
a bigswingonewayortheother.Attheendof
almosteverysession,hemadesurehehadnoout-
standingpositions.
ThesinglemostimportantthingonSarao’s
screenswasa displaycalledtheladder,which
showstradesoccurringandordersenteringand
leavingthemarketinrealtime.It lookslikeanExcel
spreadsheetwiththreecolumnswhosecontentsare
constantlyshifting.Thecentralcolumncontains 20
pricelevels,orderedfromhightolow.Nexttoeach
levelis a figureshowingthenumberoforderswait-
ing“inthequeue”totradeatthatlevel.Theladder
providesanindispensablewindowintoa market’s
supplyanddemandatanygivenmoment.
Staringatnumbersandchartsona screenall
daymightsounddull,buttheladdercanbecome
highlyaddictive—a vast, confounding, ever-
changing,zero-sumgameplayedagainstsomeof
thesharpestmindsintheworldforpotentially
limitlessrewards.Everywinreleasesa dopamine
rush.Everylossis a blow.Adrenalineandcortisol
coursethroughtheveins.
Scalpersanalyze theladder for cluesas to
whetherpriceswillriseorfall.Totakethemostbasic
example,if thetotalnumberofofferstosellsignifi-
cantlyoutweighsthenumberofbids,supplywould
seemtooutstripdemand,andit mightbereasonable
toconcludethepricewillgodown.Butthere’salso
thequestionofwhoplacedtheordersandwhy.An
internationalpensionfundexecutinga billion-dollar
transaction,forexample,willhavea moresignifi-
cantimpactonpricesthana bunchofspeculative
scalpers.Electronictradingisanonymous, but good
traders are able to build a sense of whom they’re up
against and react accordingly.
With his left hand hovering over his keyboard
and his right hand on the mouse, Sarao bought
and sold futures at an astounding rate. “I know it
sounds ridiculous, but he was like one of the robots
in Westworld or Neo from The Matrix or something,”
recalls Leif Cid, who spent time at Futex in 2007
and 2008.
Sarao’s swashbuckling exploits in the market
stood out because they were so at odds with the
way he lived his life. He barely withdrew anythingfrom his trading account to live on, preferring to
let it accumulate like a high score. He’d long ago
ditched his ill-fitting work attire in favor of track-
suit pants and cheap sweaters that he wore for days
on end. For lunch, or, more accurately, dinner, he
ate supermarket sandwiches or a Filet-O-Fish from
McDonald’s. He barely drank, didn’t smoke, had no
love life to speak of, and when the rest of the office
decamped to O’Neill’s pub every Friday, he stayed
behind to continue trading.
The closest thing to a bible for the traders at
Futex was Reminiscences of a Stock Operator by
Edwin Lefèvre. Published in 1923, it recounts
the early life and wisdom of Jesse Livermore, an
American trading guru who went from watching
prices on a bucket shop ticker tape at 14 to mak-
ing and losing a fortune many times over. It was
said that Livermore could “read the tape”—that is,
he could look at price movements in a security or
future and accurately predict where it was heading
based on his careful study of past behavior.
Sarao may not have reached the same heights
as Livermore, and his lifestyle was certainly more
abstemious than that of the freewheeling, three-
times-married playboy, but years later, his peers
at Futex would point out some striking parallels.
Both started out with nothing on the fringes of
finance and had photographic memories; both
could divorce emotion from their decisions and
were willing to risk ruin for a shot at glory; both
prided themselves on the conviction of their calls
and hated discussing trading with anyone else lest
their instincts be contaminated.
They would both also end up inextricably linked
to market crashes. Livermore, who earned $100 mil-
lion shorting stocks in 1929—the equivalent of more
than $1 billion today—ended up squandering it all
and shooting himself in the head in the cloakroom
of the Sherry-Netherland Hotel in Manhattan in- For those paying attention, Livermore’s life is
a cautionary tale about the dangers of blind obses-
sion and the perils of tying your destiny too tightly
to the whims of the market. The traders at Futex
only ever talked about his legendary skills.
As time went on, even the most skillful humans
would find it harder to profit from reading the lad-
der. The computerized high-frequency traders com-
ing into the market were too fast. It was then that
Sarao, who left Futex to trade from home, would
turn his skills to gaming the game itself.
Excerpted from Flash Crash: A Trading Savant, a
Global Manhunt, and the Most Mysterious Market
Crash in History, by Liam Vaughan, published by
Doubleday on May 12. ● Flash Crash,
published on May 12