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Why does exchange speed matter if your internal model shows profit at the current bid/ask prices and volatility? Is it because in the event of a massive change
by gaadd33 10y ago
Why does exchange speed matter if your internal model shows profit at the current bid/ask prices and volatility? Is it because in the event of a massive change in the underlying you can't exit the positions fast enough to recover some of the premiums?
- SEJeff 10y agoBecause other users with the same or more sophisticated models might have fiber optic direct connections into the exchange, and they will have algorithms which make those decisions before your optical nerves have processed numbers changing.
- JumpCrisscross 10y ago> Why does exchange speed matter if your internal model shows profit at the current bid/ask prices and volatility The implication is that every sophisticated investor who focusses on this domain (i.e. merger arbitrage with options) have probably either (a) seen and passed on or (b) already executed on the pricing you're witnessing. You need an extremely high level of confidence in your models to act. Given you are the less-sophisticated agent, the Dunning-Krueger effect merits consideration. This is not a blanket statement against individual investing. Individual investors have been shown to possess statistical edge, particularly over 20+ trading-day time horizons. But if you're stacking yourself against the experts in a domain marked by legal theory, board-executive politics, other-stakeholder politics, shareholder-board-management politics, et cetera together with thinly-traded non-linear derivatives, you're unlikely to succeed.