[Beowulf] relativistic contraints for trading

Eugen Leitl eugen at leitl.org
Wed Mar 23 06:25:23 PDT 2011


http://www.bbc.co.uk/news/science-environment-12827752

Stock trades to exploit speed of light, says researcher

By Jason Palmer Science and technology reporter, BBC News, Dallas

Map showing relation between exchanges and trading locations Optimal
high-frequency trading locations (blue) exist for pairs of major financial
exchanges (red)

Financial institutions may soon change what they trade or where they do their
trading because of the speed of light.

"High-frequency trading" carried out by computers often depends on differing
prices of a financial instrument in two geographically-separated markets.

Exactly how far the signals have to go can make a difference in such trades.

Alexander Wissner-Gross told the American Physical Society meeting that
financial institutions are looking at ways to exploit the light-speed trick.

Dr Wissner-Gross, of Harvard University, said that the latencies -
essentially, the time delay for a signal to wing its way from one global
financial centre to another - advantaged some locations for some trades and
different locations for others.

There is a vast market for ever-faster fibre-optic cables to try to
physically "get there faster" but Dr Wissner-Gross said that the purely
technological approach to gaining an advantage was reaching a limit.

Trades now travel at nearly 90% of the ultimate speed limit set by physics,
the speed of light in the cables.  Competitive advantage

His first solution, published in 2010, considered the various latencies in
global fibre-optic links and mapped out where the optimal points for
financial transactions to originate - midway between two major financial hubs
to maximise the chance of "buying low" in one place and "selling high" in
another.

That of course resulted in a number of ideal locations in all corners of the
globe, including the oceans. But wholesale relocation of operations does not
immediately appeal to many firms.

"I'm now working... with real companies on real deployments that don't
require you deploy a floating data centre in the middle of the ocean; we say,
'OK, you have your existing infrastructure, that's not moving - now, given
your location, which stocks in various locations are you best positioned to
trade?'"

"If you don't have the budget to put new data centres in the middle of the
ocean you can, for example, use existing data centres that are an
approximation to the optimal location in the ocean - say, Nova Scotia for New
York to London," Dr Wissner-Gross told BBC News.

Because there is a clear, physical advantage to the approach, Dr
Wissner-Gross said that the first firm to try to exploit the effect will be
at significant competitive advantage - until more firms follow suit.

That means that out-of-the-way places - at high latitudes or mid-ocean island
chains - could in time turn into global financial centres.

"It's instructive to start to think about latency correlations as a new sort
of resource," he explained.

"If you're positioned between two major financial hubs, you may be far out of
the way, rather far from population centres, maybe economically poor, but
because of your unique position, that could be a natural resource."


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