The hunt is on for the £26million allegedly pocketed by a British rogue trader accused of triggering a £570billion Wall Street crash from the suburban semi he shares with his parents.

Navinder Singh Sarao, 36 – who called the FBI's fraud allegations 'a bolt from the blue' – was warned at Westminster Magistrates' Court yesterday that he faced a 380-year prison sentence in the United States.

Sarao allegedly masterminded – from his home computer – the Wall Street 'Flash Crash' of 2010 in which almost a trillion dollars was wiped from global share prices. But the whereabouts of his alleged £26million profit was a mystery last night.

Pictured: The hunt is on for the £26million allegedly pocketed by British trader Navinder Singh Sarao. He is pictured, circled, at his high school prom in 1995

Scotland Yard's extradition unit arrested Sarao on Tuesday night at the request of the FBI, which claims he set up an offshore company in the Caribbean called 'Nav Sarao Milking Markets' and arrogantly told financial officials to 'kiss my a***'.

In West London, neighbours of the man now dubbed the 'Hound of Hounslow' were puzzled by his supposed wealth, saying he lived humbly.

Even District Judge Quentin Purdy questioned the vast haul, saying: 'That amount could well buy a home somewhere more lush than Hounslow. So where is it?' Prosecution barrister Aaron Watkins warned Sarao that, if convicted, he faced a 'lengthy' jail sentence.

Arrest: Navinder Singh Sarao is accused of making £26million by 'spoofing' the stock market from his parents' semi in Hounslow, west London

Despite appearances, Sarao, who was scruffy and dishevelled in the dock, was able to offer a £5million surety to secure conditional bail. Last night he was still in custody as he tried to access the funds.

The former Brunel University student allegedly made £550,000 in five minutes on the day of the crash in May 2010 when £570billion ($850billion) was wiped from the value of the world's biggest companies. It was the biggest one-day collapse in Wall Street history and sent New York traders into a frenzy.

Sarao allegedly used computer programmes to create fake transactions on the Chicago Mercantile Exchange (CME) – all from his three-bedroom home in Hounslow, where yesterday the curtains were drawn and a battered Vauxhall Corsa was parked outside. His father Nachhattar Singh Sarao reportedly vowed: 'We will fight the claims – it's all a set-up.'

The Brunel University graduate lives at home with his parents, is said to be 'scruffy', 'not flashy' and does not own a car - but is often in his father's Vauxhall Corsa, neighbours have said.

After graduating he started trading at Futex in Woking, where mentors quickly realised he had a talent for trading - and making money.

A former colleague told The Times: 'For him it was like playing a video game. He didn't care if he was up or down, it was about beating the system.'

Sarao is said to have 'loved making money, not spending it'.

There was said to be an ongoing joke in the office that 'Nav', as he was known to friends, was so frugal he would not arrive in the Surrey office before 10am so he could travel on an off-peak ticket.

The 36-year-old, always dressed in tracksuit bottoms and Nike Air trainers, would also wait until long after lunch to buy lunch so he could secure a cut-price sandwich.

A security van believed to be transporting Navinder Singh Sarao arrives at Westminster Magistrates' Court yesterday

Adam Whiting, a fellow trader who sat next Sarao for eight months, said: 'One thing I will say is Nav used to wear a tracksuit every day even when an early millionaire!'

He added: 'Everyone banging on about his s***** Hounslow house. From what i remember Nav only loved making money, not spending it'.

Mr Whiting revealed that Sarao had spent £100 on clothing Sports Direct but he later made £15,000 on a single deal

He said: 'When the trade came back he took all his clothes back.'

He was also Futex's most profitable trader and would not look up from his many screens between 2pm and 9pm - when the US markets were open.

New graduates would be shown to his desk to watch him work where he would show them, in his words, 'beautiful' trading graphs, but was unable to express how and why it occurred.

WHAT WAS THE £570BN 'FLASH CRASH' AND HOW DID IT HAPPEN? A flash crash is a sudden plunge in stock prices. On May 6, 2010, the US stock market dramatically collapsed – wiping billions off the world's biggest companies. Between 2.42pm and 2.47pm, the Dow Jones shed 600 points, having already been down more than 300 points – a startling 6 per cent fall in just five minutes. Very soon it had recorded an almost 1,000-point loss on the day. But, by 3.07pm, the market had miraculously regained most of the 600-point drop – making the flash crash the second-largest point swing ever recorded. Hours later, European markets opened and crashed in similar fashion. The UK's FTSE 100 fell 138 points, France's Cac shed 163 points, and Germany's Dax dropped 193 points. The cause of the crash puzzled US officials. Theories included technical glitches, high frequency trading or changes in market structure – but never criminal activity. Advertisement

He left Futex in 2008 and after a short stint in the City started his own business, before the 'Flash Crash', but he is still remembered for his trades.

Senior trader Milto Savvidis spoke at a conference at King's College in London in March and said: 'During the financial crisis, this guy, for want of a better word, had balls. He used to get into big positions, he saw the risk, he saw the reward, and he took on the trades.'

Another trader said last night: 'Nav was a legend wherever he worked'.

Other traders fear that Sarao is being used as a scapegoat by the US authorities.

Expert Remco Lenterman, MD IMC Financial Markets in Amsterdam told Bloomberg: 'To say it's one guy who caused this is ludicrous. To say that it contributed, that makes more sense. Many factors contributed.'

Nick Leeson, a rogue trader who brought down Barings Bank, Britain's oldest investment bank, told LBC Radio: 'I think he is surrounded by more uncertainty than he has ever felt in his life, and it is very difficult to work out the way forward.

'Events are now controlling you, and he'll be very, very scared.

'The story doesn't entirely ring true for me at the moment. It looks maybe that some of the trades that he initiated were trigger points and they have set in motion a series of events that have led the market to fall so swiftly.

'We are talking about a young trader operating out of his mum and dad's house in Hounslow and he is effectively being charged with forcing around the biggest stock market in the world, going up against some of the biggest investment banks that exist.

'It just doesn't ring true. I hate to jump to conclusions, but is he a scapegoat? It's just very difficult to see how somebody so small has done something so big.'

Friends described Sarao as a 'normal' man with a 'Cockney accent'. One neighbour of the family's three-bedroom £350,000 semi, Harmesh Singh Johal, 55, said: 'They were a very nice family. We've lived next door to them for about 25 years. They are a religious family. They weren't a flash family showing off with a Mercedes or anything like that. Navinder didn't have a car.'

WOLF OF WALL STREET? MORE LIKE THE HOUND OF HOUNSLOW The 36-year-old trader lives with his parents in this modest home in Hounslow He is the 'high-frequency geek' accused of wiping half a trillion pounds off the US stock markets in five minutes. The brazen British trader who allegedly told suspicious American officials just days later to 'kiss my a***'. But Navinder Singh Sarao is no 'Wolf of Wall Street'. Instead, the man accused of triggering the 2010 'Flash Crash' operated from his parents' modest three-bedroom semi-detached house in west London. The 36-year-old trader, now dubbed the 'Hound of Hounslow', lives with his parents and drove their beaten-up Vauxhall Corsa. Schoolfriends recalled a 'prankster who never got caught'. Granting Sarao bail yesterday, even District Judge Quentin Purdy appeared a little sympathetic, telling him: 'I suspect the last 24 hours have been somewhat traumatic for you.' Sarao was granted bail until May 26 in return for a £5 million security. Just how a man who still lives with his parents in a London suburb can raise £5 million will be of interest to the authorities – and to neighbours who say there was no hint of his vast wealth. Born in Hounslow, Sarao excelled at Heston Community College. Studying maths and science at A-Level and graduating from Brunel University in west London, he apparently spent his holidays playing football and badminton. Neighbour Anil Puri said Sarao's mother Darshaw Kaur Sarao used to work two jobs because his father Nachhattar Singh Sarao was diabetic and could not work. Sarao's brother Jasvinder is an optometrist and director of Specsavers, while his other brother Rajvinder lives with his wife and two children opposite his parents and works in IT. School friends described Sarao as 'a bit of a cheeky chappy but popular', adding: 'He was a bit of a geek but was funny also. He was a bit of a prankster but never got caught.' In a yearbook, Sarao's form teacher wrote: 'Much stays the same – Navinder is still late most mornings…' Advertisement

Support: His father Nachhattar Singh Sarao, believed to be pictured yesterday, has said: 'We will fight the claims, it's all a set-up'

Mr Watkins said he faced 22 charges in the US, with possible prison sentences ranging from five to 25 years on each count, which could total 380 years. Sarao bit his lip nervously during the proceedings and tugged on his sweatshirt as the charges were read out. Asked if he consented to being extradited to the US, he replied: 'No.' An extradition hearing is expected to take place later this year.

Joel Smith, defending, said: 'This matter has come as something of a bolt from the blue for Mr Sarao.'

The US government opposed Sarao's release on bail in case he fled, but Mr Smith described him as a man of 'impeccable' character with no previous convictions who lived with his parents.

The judge granted him conditional bail on a £5,050,000 surety, which included £30,000 offered by Sarao's retired father and £10,000 each from his two brothers. The £5million remainder came from one of Sarao's trading accounts – although the court heard £4.7million of this was a loan.

Addressing bail conditions, the judge said Sarao's computer use had 'clearly upset the Americans, to put it mildly', and ordered him not to use the internet. Sarao must live at his home address with his parents and wear an electronic tag monitoring a curfew from 11pm to 4am. He must surrender his passport and the passports of his parents, report to a police station three times a week, and not leave England or Wales.

Bailing the trader, Judge Purdy said: 'I suspect the last 24 hours have been somewhat traumatic for you. Whatever the position was before, you are now aware the US government seeks your extradition. You face very serious charges.'

Sarao is accused of making £26 million from illegal trades over five years and an investigation team involving six agencies in the US and Britain want him put on trial in New York.

He allegedly used automated trading software to 'spoof' the market by placing up to 19,000 orders and then cancelling them, all in under one second.

Representing the Judicial Authority of the United States of America, Mr Watkins said: 'It is said he was asked to desist his conduct by the US authorities but continued to do so knowing it was wrong.

'With that outlook, the sentence is likely to be high.'

Nick Leeson, the rogue trader who brought down Barings Bank in the 1990s, said yesterday Sarao might be being used as a scapegoat by the US authorities. He told LBC Radio: 'The story doesn't entirely ring true for me. I hate to jump to conclusions, but is he a scapegoat? It's just very difficult to see how somebody so small has done something so big.'

'Flash crash': Sarao, a Brunel University graduate, is accused of causing the Wall Street 'Flash Crash' on May 6, 2010, when £570billion ($850 billion) was wiped from the value of America's biggest companies in five minutes

Hound of Hounslow who made '£26million and helped trigger £500billion Wall Street crash is skinflint who only bought cut price food and wore tracksuits'

Friends of the 'Hound of Hounslow' today described a frugal maths whizzkid who always wore a tracksuit to work even after making his first million pounds.

Sarao is said to have 'loved making money, not spending it', would travel to work late so he could go off-peak and would only buy lunch if he could find cut price supermarket sandwiches.

Yet the US authorities claim Navinder Singh Sarao, 36, is one of the world's most wanted rogue traders and may have squirrelled away up to £27million in the Caribbean.

FBI investigators say he caused the £570billion ($850million) 2010 Wall Street 'Flash Crash' by conning the markets with fake trades and suggest he is a brash British financier who once told officials to 'kiss my a***'.

In West London, neighbours of the man now dubbed the 'Hound of Hounslow' were puzzled by his supposed wealth, saying he lived humbly with his parents.

Trader Navinder Singh Sarao, 36, is shown here at Westminster Magistrates' Court where he refused to be extradited to America - last night he was held in custody while he waited for proof he could find £5m for bail

During an extradition hearing yesterday Even District Judge Quentin Purdy questioned the vast haul, saying: 'That amount could well buy a home somewhere more lush than Hounslow. So where is it?'

Despite appearances, Sarao, who was scruffy and dishevelled in the dock, was able to offer a £5million surety to secure conditional bail. Last night he was still in custody as he tried to access the funds.

CHARGE SHEET: WHAT NAVINDER SINGH SARAO IS ACCUSED OF Sarao faces 22 charges in the US, which carry sentences totalling 380 years in jail. They include 10 counts of commodities fraud, each of which carry a sentence of 25 years. He is also accused of a single count of wire fraud, which carries a sentence of 20 years. Sarao also faces 10 counts of commodities manipulation and attempted commodities manipulation. The final count is of 'spoofing' - a practice of bidding or offering with the intent to cancel the bid or offer before execution Each charge carrying a maximum sentence of 10 years. Advertisement

The Brunel University graduate lives at home with his parents, is said to be 'scruffy', 'not flashy' and does not own a car - but is often in his father's Vauxhall Corsa, neighbours have said.

After graduating he started trading at Futex in Woking, where mentors quickly realised he had a talent for trading - and making money.

A former colleague told The Times: 'For him it was like playing a video game. He didn't care if he was up or down, it was about beating the system.'

There was said to be an ongoing joke in the office that 'Nav', as he is known to friends, was so frugal he would not arrive in the Surrey office before 10am so he could travel on an off-peak ticket.

The 36-year-old, always dressed in tracksuit bottoms and Nike Air trainers, would also wait until long after lunch to buy lunch so he could secure a cut-price sandwich.

Adam Whiting, a fellow trader who sat next Sarao for eight months, said: 'One thing I will say is Nav used to wear a tracksuit every day even when an early millionaire!'

He added: 'Everyone banging on about his s***** Hounslow house. From what i remember Nav only loved making money, not spending it'.

Mr Whiting revealed that Sarao had spent £100 on clothing Sports Direct but he later made £15,000 on a single deal

Neighbours: Anil Puri and Harmesh Singh Johal both said the fraud suspect was a 'normal' and 'polite' man and not 'flashy' at all

He said: 'When the trade came back he took all his clothes back.'

He was also Futex's most profitable trader and would not look up from his many screens between 2pm and 9pm - when the US markets were open.

New graduates would be shown to his desk to watch him work where he would show them, in his words, 'beautiful' trading graphs, but was unable to express how and why it occurred.

He left Futex in 2008 and after a short stint in the City started his own business, before the 'Flash Crash', but he is still remembered for his trades.

Senior trader Milto Savvidis spoke at a conference at King's College in London in March and said: 'During the financial crisis, this guy, for want of a better word, had balls. He used to get into big positions, he saw the risk, he saw the reward, and he took on the trades.'

Another trader said last night: 'Nav was a legend wherever he worked'.

Friends described Sarao as a 'normal' man with a 'Cockney accent'. One neighbour of the family's three-bedroom £350,000 semi, Harmesh Singh Johal, 55, said: 'They were a very nice family. We've lived next door to them for about 25 years. They are a religious family. They weren't a flash family showing off with a Mercedes or anything like that. Navinder didn't have a car.'

The hi-tech sharks who cost us all so dearly

Commentary by Alex Brummer

Nothing might seem more improbable than the idea of a single rogue trader, sitting in front of a bank of computer screens in the unfashionable London borough of Hounslow, causing shares on the world's biggest stock market in New York to plummet a record 1,000 points in a few hectic minutes.

But that is precisely what the all-powerful American Department of Justice accuses 36-year-old Navinder Singh Sarao of doing in May 2010, when the Dow Jones Industrial Average plunged in what has become known as the Flash Crash because it took just about everyone by surprise.

US prosecutors believe Mr Sarao used special computer software to manipulate the market on Wall Street

Sarao's alleged actions not only sowed confusion across the global share markets – which take their lead from New York – but most worryingly threatened the savings of ordinary people with investments held in pension funds, insurance policies and ISA-like products, all of which came under threat of being dragged down too, and thus losing millions in value.

Sarao is one of a new breed of stock market traders, operating far from the heavily policed glass and steel towers of Wall Street and Canary Wharf in London, who have shown themselves capable of using ever-faster technologies to outwit the standard computers that drive international trading in shares, government bonds, commodities and foreign currencies.

Most of us have fixed in our mind the television pictures of the New York Stock Exchange as a bear pit populated by sharp-suited men and women, scurrying between stands on the floor of the market executing orders for clients.

But this last vestige of traditional trading – which was abandoned in the City of London in the late 1980s – is nowadays little more than a quaint tourist attraction. It is reminiscent of the old bookmaking trade on Britain's racecourses in an age when almost all the betting is now done online.

The world's financial markets are dominated by computer trading. The dealing rooms, once populated by shrewd operators from the East End of London, are now inhabited by some of the nation's most brilliant minds – the mathematicians and PhD economists with the best knowledge of computer modelling and software writing.

The big City and Wall Street firms which employ this new breed of financial eggheads know that the better the software they have, the smarter the dealer and the faster the computers they control, the greater chance there is of outwitting their competitors and running up the biggest profits.

And while the biggest global trading firms such as Merrill Lynch, Morgan Stanley, Goldman Sachs and Barclays employ the best and the brightest of this brigade, there are virtually no bars to maverick individual traders setting up shop in their back rooms or on industrial estates, and trying to manipulate the markets to their own advantage.

Panic: Traders at the New York Stock Exchange watch in disbelief as the markets tumbled during the 'Flash Crash' five years ago

Remarkably, Britain's previously anonymous lone trader from Hounslow is said to have taken on the wealthiest, most skilled traders and the most intrusive regulators in the world – and looked to be winning until the police, acting on behalf of the US federal authorities, caught up with him on Tuesday of this week.

Sarao allegedly used an automated computer program to trick the markets into generating orders to sell large numbers of shares – it is claimed more than £100 million worth. (Though it's unlikely he actually owned those shares, it's possible for traders to 'borrow' shares and bet that the market will fall in the hope of cashing them in at a lower price.)

His large orders to sell pushed prices sharply downwards. But he cancelled those trades milliseconds before they could be executed, and then, when the market had fallen, bought into it at a lower price. Because that market rose again sharply once the initial trades were cancelled, the genuine positions he bought when it was depressed then made him handsome profits – an alleged £26 million.

According to American prosecutors, he played a large part in the so-called Flash Crash because his computer trades set off a chain reaction of similar computer-driven trades which drove down US share prices in an uncontrolled fashion. It was as if Sarao had, through his market-rigging trades, triggered a virus on such a scale that it became impossible to manage.

The black arts of computer-driven trading, where a small time advantage can deliver billions of pounds of income, were exposed last year by the former Wall Street trader and now celebrated author Michael Lewis in his ground-breaking and incendiary book Flash Boys: Breaking the Money Code.

Sarao is one of a new breed of stock market traders, operating far from the heavily policed glass and steel towers of Canary Wharf (pictured) in London

In the book, Lewis recounted how a small army of construction engineers, financed by Wall Street traders, built a super-fast cable network between Chicago and New York with the aim of sending digitalised trading messages faster than other connections.

By speeding up the connection by fractions of a second, the 'flash traders' were able to beat their rivals to the punch when it came to trading shares, generating profits for the owners of the speedy systems.

Some experts have estimated that as much as $20 billion in extra income could be earned simply by controlling the fastest information channels.

The bitter truth of the matter is that income earned in this way comes at the expense of pension funds, insurers and private traders who have no access to such communications, and so cannot execute their buying and selling orders at the best prices.

Flash trading is no more a victimless crime than traditional insider trading, where people benefit from knowing financial secrets ahead of everyone else.

Free markets operate fairly only if there is absolute transparency. But it has become increasingly clear in recent times that advanced technology is the biggest challenge to the level playing field.

Indeed, some of the biggest trading houses, including Goldman Sachs and Barclays, have embraced another secretive form of trading in what are called 'dark pools'. These, as the name implies, disguise the nature of share trades and who is making them.

The claim from the inventors and proponents of dark pools is that by directly matching buyers and sellers of shares and other securities, away from the official exchanges, they can obtain the best deals for their clients.

That may be the case, but the problem for investors using official markets such as the London Stock Exchange is that they'll have no information on the volume of transactions done in these dark pools or the prices being set there, which immediately puts them at a disadvantage.

Now, the spotlight has been thrown on another kind of trading activity. If Navinder Singh Sarao is extradited and found guilty of market manipulation, it will have been a huge coup for the American regulators and prosecutors.

Modern financial markets, where the speed of software, computers and communications really matter, have opened a new front for the hucksters to dupe a financial system that is vulnerable to manipulation.