

When The Speed Of Light Is Too Slow: Trading at the Edge - limist
http://www.kurzweilai.net/when-the-speed-of-light-is-too-slow

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powera
IMO, 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
That 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.

~~~
quanticle
Really? Do you have any evidence for that or are you just spouting off the
standard line that faster trading necessarily means better trading? I don't
see how any economic conditions could change enough in three or four
milliseconds to justify the amount of high frequency trading that goes on
today.

~~~
notaddicted
First, 4ms is 3.4 orders of magnitude off 10 seconds.

Second, do you have any argument that isn't based on personal ignorance?

The stock market isn't even open _at night_ , no one thinks that it is
necessary to trade 20 times a second every second, they just want to. The
stock market doesn't directly represent economic conditions, it represents
investors assessment of economic conditions, thus it can change as fast as
they can change their mind. If someone wants to only trade every ten seconds
they can go ahead. If someone wants to open a stock exchange where _everyone_
can only trade every ten seconds they can go ahead.

~~~
aroon
How does a machine taking advantage of small arbitrage opportunities that last
fractions of a second represent an "investors assessment of economic
conditions"?

~~~
gaius
Because they have implemented their assessment-making process in code.

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tomjen3
It 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
Oh, wow. Out of order instruction processing makes sense now, assuming that
helps compensate for lightspeed latency.

~~~
scott_s
Actually, 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.

~~~
goalieca
Also, the number of transistors in the path to switching the right bits from
memory (even cache) is also getting comparable to the length of pipeline
sections.

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stcredzero
The midpoint locations mentioned in this article are directly applicable to
Seasteading. <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
Eh, 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
_Eh, 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
I 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
I'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.)

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andrew1
It'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
There 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.

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davidamcclain
If Einstein were around today, I wonder if he'd be working on Wall Street?

~~~
dionysiac
He did do some trading when he was around:
[http://www.independent.co.uk/news/science/einsteins-
relative...](http://www.independent.co.uk/news/science/einsteins-relatively-
secret-fortune-519947.html)

------
skybrian
It'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.

~~~
ig1
It'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
You'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
In 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.

~~~
skybrian
EBS probably wouldn't lose those customers if there were a government
regulation about it. Or are they going overseas?

I'd like to read more about those attempts, if you have some pointers.

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iwr
The speed of light in optic fiber is about 66% of c. Is it feasible to just
build a hollow reflective tube/waveguide?

~~~
ashika
I 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
If 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
I 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
And the advantage wouldn't be that big. Especially compared to co-locating.

~~~
JoachimSchipper
You can't colocate at two stock exchanges at once, which is required to make
use of the arbitrage opportunities the article talks about.

~~~
eru
Ah, ok.

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arbitage12
Most 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
"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.

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zitterbewegung
Maybe 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
There'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
Interesting, what are those tricks?

~~~
panic
I can't find the article I was thinking of, but
<http://sheol.org/throopw/tachyon-pistols.html> gives the general idea.

~~~
Locke1689
In 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.

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crenelle
That cable map is at [http://eu-
ix.equinix.com/joomladev/images/repository/Equinix...](http://eu-
ix.equinix.com/joomladev/images/repository/Equinix_TGMap_MTS_15.pdf)

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johnglasgow
Automated trading is almost to an equilibrium, where the costs will begin
outweighing the profits.

~~~
lrm242
Why?

~~~
johnglasgow
Quantitative 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
The vast majority of quant firms are not high-frequency firms.

