14 ms·
When The Speed Of Light Is Too Slow: Trading at the Edge
- tomjen3 16y agoIt also becoming a problem in semiconductor design: at 1GHz, light will only move 30cm between cycles. Thats not a lot if your memory isn't located close to your ALU.
- jallmann 16y agoOh, wow. Out of order instruction processing makes sense now, assuming that helps compensate for lightspeed latency.
- scott_s 16y agoActually, out-of-order instruction pipelines are limited by this problem because the more instructions you allow in-flight, the more stages in the pipeline. The more stages in the pipeline, the more physical distance information much travel on the chip. So lengthening the instruction pipeline runs into fundamental problems. Hence the move to multicore.
- davidamcclain 16y agoIf Einstein were around today, I wonder if he'd be working on Wall Street?
- dionysiac 16y agoHe did do some trading when he was around: http://www.independent.co.uk/news/science/einsteins-relatively-secret-fortune-519947.html http://www.independent.co.uk/news/science/einsteins-relative...
- powera 16y agoIMO, the obvious solution to this madness is to quantize stock trades; i.e. to only allow stock prices to change once every 10 seconds. As long as transactions weren't announced until the end of the period, there wouldn't be any benefit from microsecond advantages. And then stock trades would begin to go back to being based on the value of the stock, not what a model says it will do in the next 2 seconds.
- falsestprophet 16y agoThat would result in less efficient markets (which means higher spreads and more expensive transactions) and the market makers, who at present trade at high frequency, would capture more wealth than they do now.
- powera 16y agoHow is it less efficient? What knowledge is conveyed in 10 seconds?
- ashika 16y agoI think you're conflating computational finance with geographical arbitrage, and its pursuit by some traders. Computational finance is a general discipline that's more concerned with modeling and prediction of future asset prices, whereas the problem discussed in the article/paper has virtually nothing to do with prediction or modeling. It's much more about the pennies made when taking related product's prices to equilibrium in global markets, and a novel strategy of doing that.
- powera 16y agoI guess the solution is more to combat computational finance, but if there is time for prices everywhere to propagate between trades, the opportunities for geographical arbitrage diminish greatly. I think it's a bug in the system that this arbitrage can even exist, though. It's not like, say, rice, the location of your shares doesn't matter.
- 16y ago
- iwr 16y agoThe speed of light in optic fiber is about 66% of c. Is it feasible to just build a hollow reflective tube/waveguide?
- ashika 16y agoI guess the article is optimistic in that sense. If you can engineer fiber that's 74% of c, or better yet, bore one of your mirror holes directly through the center of the earth, between nyc and shanghai, or something even crazier, you can make a lot of money.
- eru 16y agoIf you have the capability to bore a hole through the center of the earth, you would be so much more advanced than the current state of the art, that our puny earthling money wouldn't buy you anything you couldn't get in easier ways.
- iwr 16y agoI was just wondering if hair thin, hollow, reflective tubes could be made cheap enough for oceanic data cables. It would obviously be more expensive than regular fiber.
- eru 16y agoAnd the advantage wouldn't be that big. Especially compared to co-locating.
- JoachimSchipper 16y agoYou can't colocate at two stock exchanges at once, which is required to make use of the arbitrage opportunities the article talks about.
- eru 16y ago
- zitterbewegung 16y agoMaybe we could use quantum entanglement devices to allow for faster trades? Since the speed of light in the medium is 0.66c you could probably get as close to c as possible.
- panic 16y agoThere's no known way to transfer information faster than the speed of light (and if there were, there are some relativistic tricks you can play to actually send information backwards in time).
- bsk 16y agoInteresting, what are those tricks?
- panic 16y agoI can't find the article I was thinking of, but http://sheol.org/throopw/tachyon-pistols.html http://sheol.org/throopw/tachyon-pistols.html gives the general idea.
- Locke1689 16y agoIn fact, just writing the light cones for an event with two different frames of reference will yield the same result. One of those fun little first-year special relativity results.
- philh 16y agoI interpret his statement as meaning "we could use quantum entanglement to transmit information at c (or c minus epsilon) instead of .66c". But (as far as I understand) quantum entanglement doesn't let you transmit information at any particular speed, so that still doesn't work. (Roughly speaking, QE can be thought of as "the universe transmits information at >c", but in order to extract this information, we have to send messages conventionally. So it has a theoretical upper bound of c, like everything else, but has the same practical limits.)
- andrew1 16y agoIt's funny to think that some of the physicists who've left academia to join these companies might end up being paid a fortune to work on the exact same problems that they used to be paid a pittance to work on!
- jkin 16y agoThere are a lot of quant funds that were started by professors. They hire a lot of PhDs in Math and Physics. And yes, a PhD in Math can make a lot of money if you end up working at a trading firm.
- skybrian 16y agoIt's sad to see fast fiber optics (and the expertise that goes into building and running it) wasted on gaming the system in this way when a change in the rules would remove the loophole giving people incentive to do it.
- kiba 16y agoIt means increased liquidity on the market and that can be a good thing.
- ig1 16y agoIt's not really a loophole. It's a fundamental property of the universe. Consider currencies for example. Say someone in Tokyo was selling USDJPY at 84 and this was the best price anywhere in the world, then naturally anyone buying would want to buy from them. But the guy in London who wants to buy won't see the price of 84 until 90ms later, so he ends up buying from someone in New York at a worst price. So the guy in London got a worse price and the guy in Tokyo didn't get a sale. Despite the fact that in an ideal world they would have been matched together, the fundamental laws of the universe conspire against them. Essentially what ends up happening is that for any one currency you end up with a bunch of local market (NY, Tokyo, Singapore, London) all of which have slightly different prices from each other, which isn't a great situation to be in. Reducing latency won't make this problem go away, but it helps flatten out the markets and ensures that people get the best price globally (as opposed to just locally) wherever possible.
- skybrian 16y agoYou're assuming the conclusion, that continuous buying and selling is the only possible way to run a market. But another way to run it would be to have an auction every five minutes. That way there are more buyers and sellers to match up, so it's more likely that everyone gets a fair price. And don't talk to me about liquidity - nobody really needs to trade that quickly.
- ig1 16y agoIn a way we have what you're suggesting. Look at what happens overnight when exchanges are closed. You see a big jump from the closing price to the opening price the next day. Even though you can't trade over that period the price still changes - you just restrict trading and price discovery to people who can do OTC or pre-market trading. It's not as if people haven't tried other models, EBS who run one of the major currency exchanges restrict price updates to once every 100ms. They're losing customers to other exchanges who allow people to trade faster. People with deep backgrounds in algorithmic game theory have been studying exchanges and auction design for a long time now. If someone could figure out a better design for exchanges, they'd be building it.
- johnglasgow 16y agoAutomated trading is almost to an equilibrium, where the costs will begin outweighing the profits.
- lrm242 16y agoWhy?
- johnglasgow 16y agoQuantitative trading companies are spending more and more money to trade faster, because the barrier to entry continues to plummet. For example, they used to install software programs on computers, now they actually hard-wire programs directly to motherboards to shorten the execution time. As the article mentioned, trading firms are investing heavily into expensive fiber optic lines instead of traditional internet. For these reasons and many more, the fraction of a penny that each trade earns them also continues to grow smaller as the arbitrage that they trade on grows smaller because every firm is investing into the same expensive strategies.
- lrm242 16y agoThe vast majority of quant firms are not high-frequency firms.
- stcredzero 16y agoThe midpoint locations mentioned in this article are directly applicable to Seasteading. http://seasteading.org/ http://seasteading.org/ Many of these optimal trading locations are in the ocean. The spar buoy based structures designed by the Seasteading Institute are directly applicable, as they are about the only seagoing designs that are safe for permanent habitation. (Immune even to rogue waves.)
- Locke1689 16y agoEh, you don't really need habitation -- just a datacenter. It may be more cost-effective to design something specifically for this. At the minimum you're going to have to work out cooling and power anyway (hydroelectric and "just stick the heat sink in the ocean"?).
- stcredzero 16y agoEh, you don't really need habitation -- just a datacenter. It may be more cost-effective to design something specifically for this At the minimum, there should be an expectation of the platform surviving the environment. Decoupling from wave energy is the point of a spar buoy. Even inanimate servers are perturbed by being smashed by walls of water. Did you actually read or search on anything mentioned, or did you just go with the "stead" in the name?
- Locke1689 16y agoI actually looked at the engineering documents -- they weren't that detailed. It's not exactly what I'd expect from a build-ready project. That said, I'm not a civil engineer.
- stcredzero 16y agoI'll also note, if you understood what those folks are about, that many of these folks would be happy to make a home out there if someone would pay them a normal-ish salary to maintain such a datacenter. I suspect this could end up economically advantageous both for the seasteaders and whatever company wanted to establish the datacenter. (As opposed to the 2 weeks on, 2 weeks off, hazard-pay situation people are in for offshore drilling operations.)
- crenelle 16y agoThat cable map is at http://eu-ix.equinix.com/joomladev/images/repository/Equinix_TGMap_MTS_15.pdf http://eu-ix.equinix.com/joomladev/images/repository/Equinix...
- arbitage12 16y agoMost exchanges that trade "arbitragable" instruments are in the same timezone and geographic location (NY-Chicago is one exception). There is no point having the optimal colo between TSE and NYSE because they have no overlapping hours nor do they have anything that trades on both and is fungible. This research is patently academic. This is what happens when two pointy heads in ivory tower with zero empirical trading experience dream up something. Then all geeks go ga-ga talking about fiber optics and sea steading and other bs.
- johnglasgow 16y ago"There is no point having the optimal colo between TSE and NYSE because they have no overlapping hours nor do they have anything that trades on both and is fungible." There is tremendous overlap amongst various stock exchanges, OTC's, dark pools (12% of US trading), and of course there's Forex which is 24/7.