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$300M To Save 6 Milliseconds

Soulskill posted more than 3 years ago | from the time-is-money-friend dept.

Networking 524

whoever57 writes "A new transatlantic cable (the first in 10 years) is going to be laid at the cost of $300M. The reason? To shave 6ms off the time to transmit packets from London to New York. The Hibernian Express will reduce the current transmission time — roughly 65 milliseconds — by less than ten percent. However, investors believe the financial community will be lining up to pay premium rates to use the new cable. The article suggests that a one-millisecond advantage could be worth $100M per year to a large hedge fund."

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Cheaper than a huge flying vacuum (3, Insightful)

rolfwind (528248) | more than 3 years ago | (#37384498)

To suck American's and other peoples' money out of their wallets from overhead. Same basic effect.

Re:Cheaper than a huge flying vacuum (5, Funny)

ArsenneLupin (766289) | more than 3 years ago | (#37384534)

Indeed. Everybody knows that light speed is fastest in vacuum...

Re:Cheaper than a huge flying vacuum (1)

zoloto (586738) | more than 3 years ago | (#37384910)

If we could convince them they'd make that much money by laying more cables throughout every state in the lower 48, we just might have speeds comparable to Asia right to the home.

Re:Cheaper than a huge flying vacuum (1)

martin-boundary (547041) | more than 3 years ago | (#37384992)

Hell no. It's not as fast as... Ludicrous Speed!!1!!

Re:Cheaper than a huge flying vacuum (2)

Pikkebaas (1665451) | more than 3 years ago | (#37384548)

Also, the vacuum would only suck real money.

Re:Cheaper than a huge flying vacuum (1)

jellomizer (103300) | more than 3 years ago | (#37384808)

And when the economy is good. It is a great way to increase world wide wealth.
What it really comes done to is the investors willing to invest into an infrastructure. That is a good thing. Other then a small speed increase they are new lines going across reducing failure.

Re:Cheaper than a huge flying vacuum (3, Insightful)

igny (716218) | more than 3 years ago | (#37384966)

Re "What it really comes done to is the investors willing to invest into an infrastructure."

What it really comes down to is investing in a tool to facilitate the robo-gambling, aka Wall Street. The claimed profit of $100m/ year would come from retirement funds of John Does from the Main Street.

and i thought this was for BF3 (2)

cheekyboy (598084) | more than 3 years ago | (#37385010)

Every MS helps to those battlefield3 servers, bullets are fast.

I need every ms too.

Re:Cheaper than a huge flying vacuum (0)

Anonymous Coward | more than 3 years ago | (#37384816)

Why would you want American dollars? They are worthless. The more you take, the more they print.

Re:Cheaper than a huge flying vacuum (0)

Anonymous Coward | more than 3 years ago | (#37384932)

Why would you take American food? It is worthless. The more you take, the more they grow!

Great (2)

second_coming (2014346) | more than 3 years ago | (#37384500)

now they can lose money even faster!

Re:Great (3, Insightful)

Anonymous Coward | more than 3 years ago | (#37384514)

now they can lose everyone else's money even faster!

FTFY

This seems more suitable for arbitrage (1)

igreaterthanu (1942456) | more than 3 years ago | (#37384768)

now they can take everyone else's money even faster!

FTFY.

Re:This seems more suitable for arbitrage (0)

Anonymous Coward | more than 3 years ago | (#37384810)

now they can steal everyone else's money even faster!

FTFY

Blame the market (0)

Anonymous Coward | more than 3 years ago | (#37384506)

This is what happens when money is kept artificially scarce by bankers, and allocated only to their friends. Govt should remedy the injustice by creating more money and giving it directly to the ppl by, for, and of whom the govt exists.

Re:Blame the market (1)

snookums (48954) | more than 3 years ago | (#37384570)

This is supposed to be sarcasm, right? Fractional reserve banking actually creates money. It doesn't create an artificial scarcity.

Re:Blame the market (4, Insightful)

Rosco P. Coltrane (209368) | more than 3 years ago | (#37384616)

Fractional reserve banking actually creates money. It doesn't create an artificial scarcity.

Yep, it creates money and debases it in the process. So you're correct, it doesn't create artificial scarcity, but it creates real poverty in the long term for those who have a little money.

Re:Blame the market (2)

Arlet (29997) | more than 3 years ago | (#37384788)

Yep, it creates money and debases it in the process

Only if you assume the underlying economy doesn't grow. Alternatively, it would be bad if the economy grew, but not enough money was created to handle the increased value. The trick is to keep both in balance.

Re:Blame the market (1)

Dunbal (464142) | more than 3 years ago | (#37384850)

Only if you assume the underlying economy doesn't grow

Cue in the real world. The only growing economies are NOT the US and Europe. Thus we have fiscal, monetary and government policies that require growth to succeed, except there is no growth. Classic "can't see the wood for the trees" situation. Every year that the US and Europe fail to put their house in order, China grows another 10% and Latin America grows another 5. Who cares? Well for a start it means that the US and Europe are facing ever tougher competition for scarce, exhaustable resources like oil. It will suck to turn out to be the little guy when it's time to fight for the last drops of oil.

Re:Blame the market (1)

Arlet (29997) | more than 3 years ago | (#37384864)

Yes, that is a problem. On the other hand, the post WW-2 years would have been pretty bad if the money supply didn't keep up. It's not easy to come up with a system that works in all cases.

Re:Blame the market (1)

KDR_11k (778916) | more than 3 years ago | (#37384986)

Er, I don't know about the rest of Europe but Germany's economy is growing. Not that strongly this year but it'll probably recover. You can't use the economic development in a recession as an argument against inflation.

Re:Blame the market (1)

RoFLKOPTr (1294290) | more than 3 years ago | (#37384994)

The only growing economies are NOT the US and Europe. Thus we have fiscal, monetary and government policies that require growth to succeed, except there is no growth. Classic "can't see the wood for the trees" situation. Every year that the US and Europe fail to put their house in order, China grows another 10% and Latin America grows another 5.

What? Every year we've had a steady growth rate of around 2% (varying slightly... sometimes it's as high as 4% or as low as .5%, but it still averages out to about 2%). That is an ideal rate. Anything higher leads to hyperinflation and a currency that's pretty much useless. By your standards, Yugoslavia should be one of the most powerful countries in the world due to their period of hyperinflation in the early '90s. They went through 4 different currency reforms between 1989 and 1994, exchanging vast amounts of "old" currency for one unit of "new" currency. For instance in their 1993 currency reform, the government was giving people 1 new dinar for 1,000,000 old dinars... but their hyperinflation was still happening and by the end of that year they had to release a 500,000,000,000-dinar denomination. The next year, they were giving people 1 dinar for 1,000,000,000 dinars. By the end of all that madness, one single newest dinar was equivalent to about 1x10^27 pre-1990 dinars. Yeah, extreme growth is great.

Re:Blame the market (1)

Doc Ruby (173196) | more than 3 years ago | (#37385012)

The US economy is growing by at least 2% every year. And it's already really huge - 2% growth is a lot of growth.

BTW, China's growth includes the parts of China that are owned by Americans and Europeans, the fastest part of that growth. At the deep costs to China's environment and labor health.

Re:Blame the market (1)

DarkOx (621550) | more than 3 years ago | (#37384846)

It only debases money when government gets involved and creates fiat currencies, and does bailouts. If you had currency tied to commodity of limited supply, and banks that go bankrupt when they make to many bad loans there would be no debasement.

Banks can create as much additional money through lending as the market can support. When the markets value expand the quantity of currency expands to match, if the bank over steps the loans go bad and have to be written down, the extra money is destroyed. If the banks gets really crazy a run on it happens and the entire bank is destroyed, along with much of the leveraged capital.

Re:Blame the market (1)

cusco (717999) | more than 3 years ago | (#37384886)

I've decided that in order to be either an economist or Libertarian one must first be utterly and completely ignorant of history.

Re:Blame the market (3, Insightful)

sjames (1099) | more than 3 years ago | (#37384622)

It only creates money if it is distributed to all. Currently it creates artificial abundance for a tiny percentage at the top and creates a scarcity for the rest of us.

Re:Blame the market (1)

Spacejock (727523) | more than 3 years ago | (#37384776)

What they should do is apply a 1c tax on every trade placed with every major share market. Collect the lot, split it up and wire the funds to a basket of deserving charities. Even better if they could do it without an admin overhead - set the splits once a year and use automated transfers.

Re:Blame the market (1)

Dunbal (464142) | more than 3 years ago | (#37384856)

This already happens. Except the tax is more on the order of 3 cents, and the "deserving charities" are called NYSE, NASDAQ, Goldman Sachs, JP Morgan and a few others.

Re:Blame the market (1)

wisty (1335733) | more than 3 years ago | (#37384642)

Fractional reseve banking *creates* money while the reserve requirements are being slackened (which happens during bubbles, as the regulators think everything is working), and *destroys* money while the reserve requirements are being tightened (during a crash, when they the regulators realized the *yet again* let the banks sail too close to the wind).

But the bankers don't mind, because they make outsized bonuses during the bubble, and still do OK in a crash, due the asymmetric reward profile of options and bonuses. Bankers *like* year-to-year variability and instability - it makes their fat years so much fatter that in the lean years they can lose their jobs and still retire in luxury, not that many lose their jobs.

Re:Blame the market (1)

neyla (2455118) | more than 3 years ago | (#37384818)

Indeed.

Who would -not- gamble if winning meant netting $10 million whereas "losing" meant coming out with zero ?

Re:Blame the market (1)

Dunbal (464142) | more than 3 years ago | (#37384872)

Even better - there are no lean years anymore. They just have to pick up the phone and the Fed will lend them billions at NO INTEREST. And if they manage to squander those in bad investments (for example Italian sports cars are really bad investments that are easy to hide inside other, larger bad investments) the worst that can happen is that the government will bail them out. Yeah the CEO might have to take his golden multi-hundred million dollar parachute but the company will be just fine. Then he can get elected to the board of directors of companies owned by his other buddies, or even run for public office. Ahh life at the top is so easy nowadays. What's that, you've been unemployed for how many months?

Just imagine how much better gaming will be! (2)

recrudescence (1383489) | more than 3 years ago | (#37384516)

Just imagine how much better gaming will be w-- oop, nevermind, just got headshotted by a chinese / russian sniper again.

Re:Just imagine how much better gaming will be! (0)

Anonymous Coward | more than 3 years ago | (#37384838)

Agreed, the stock market has become a game. It is not about investing but about trying to take advantage of a few milliseconds and trying to beat someone else out on large bulk trades to squeeze small margins for extra profit. The stock market is not about investing in society but trying to exploit a few loopholes. Same thing as it always was, but now they do not try to pretend otherwise. *shrugs*

Wow (2, Funny)

Anonymous Coward | more than 3 years ago | (#37384522)

Slashdot is serious business. You Brits will do anything to get first posts!

Proof that the system is corrupt (5, Insightful)

dargaud (518470) | more than 3 years ago | (#37384524)

This kind of thing is the direct proof that the way the stock exchange is built is deeply flawed. Why don't they try to build it on sounder bases than "the fastest takes all" ?!?

Re:Proof that the system is corrupt (0)

therealkevinkretz (1585825) | more than 3 years ago | (#37384600)

"Proof that the system is corrupt"? That's stupid. The fastest doesn't "take all", but a trade based on an event, or circumstances, or that's a hedge on another position, or *anything*, that takes longer to execute will take less efficient advantage of those circumstances. If you get word about hailstorms in Florida, and you mail in your sell order on OJ futures, you'll lose more than if you call your broker. Is that also "proof" of a "corrupt system"? Please.

Those most outraged and indignant about an issue are often the least informed.

Re:Proof that the system is corrupt (1)

Anonymous Coward | more than 3 years ago | (#37384610)

Apparently you have no clue about HFT and how it works.

Re:Proof that the system is corrupt (1)

Dunbal (464142) | more than 3 years ago | (#37384888)

Nah it all balances out because it's all fine and dandy to be the first one to execute a trade. But this also means that you are the first one to assume the risk associated with that trade - the risk of being on the wrong side of it and taking a loss, or the risk of closing your position too early and losing potential profit. The underlying factor is still the algorithm behind the trade decision and not the velocity of trading. The market really doesn't care who bought what. It makes a difference to you if you are first in line all the time - but sometimes being last in line is a good thing.

Re:Proof that the system is corrupt (2)

oobayly (1056050) | more than 3 years ago | (#37384708)

I second AC, this is blatantly nothing to do with how fast you'll get your news of hailstorms in Florida, as you'll spend more that 6ms deciding whether to type FOJ or OJ (is this a reference to Trading Places?) in your email. This is purely so that traders with the fastest black boxes can take advantage of tiny changes in values.

HFT (High Frequency Trading) [wikipedia.org] is all about betting (vast volumes of shares etc) that there will have a minute change in value, and do it continuously. It has absolutely no relation to reality, or the hugely enjoyable scenes of Eddie Murphy & Dan Aykroyd getting one over on the Dukes.

Re:Proof that the system is corrupt (1)

theVarangian (1948970) | more than 3 years ago | (#37384930)

I second AC, this is blatantly nothing to do with how fast you'll get your news of hailstorms in Florida, as you'll spend more that 6ms deciding whether to type FOJ or OJ (is this a reference to Trading Places?) in your email. This is purely so that traders with the fastest black boxes can take advantage of tiny changes in values.

Precisely, I went to a big presentation a couple of years ago. They were looking for people with a background in network programming and operating systems (for speed optimization work) as well as AI and data mining. What these bozos were planning to do was build a fully automated HTF [wikipedia.org] system that made trades with next to no human supervision to profit from tiny fluctuations in market prices. As far as I am concerned thats 's making money off of market noise and variations in network latency. There are loads of people who carry a big torch for HFT but as far as I am concerned these HFT types are only one step up from e-mail spammers. I'll reserve my respect for people who create real value, for example: by investing money into startups run by crazy nerds with insane ideas about better ways of doing internet searches [wikipedia.org] or bringing computers to the average household [wikipedia.org] .

Re:Proof that the system is corrupt (5, Interesting)

Rosco P. Coltrane (209368) | more than 3 years ago | (#37384602)

This kind of thing is the direct proof that the way the stock exchange is built is deeply flawed. Why don't they try to build it on sounder bases than "the fastest takes all" ?!?

I heard some european head of state (Sarkozy perhaps) suggest that stock transactions be taxed based on speed, i.e. speculators who buy and sell very fast to make a quick buck get taxed a lot, but real investors who're in for the long run and keep their stock for a long time don't. That sounds like a great idea to me. With a scheme like that, the super-fast transatlantic cable would make speculators be taxed even more heavily.

Re:Proof that the system is corrupt (3, Interesting)

wisty (1335733) | more than 3 years ago | (#37384660)

Well, my personal recommendation would be to add some white (or log-white) noise to trade timestamps. If you get in 1ms faster, there would be an almost 50% chance the next guy would make the trade, not you. If you were a whole second faster, you win for sure.

Traders would focus *less* on high-speed performance, and more on more useful stuff.

Re:Proof that the system is corrupt (1)

slackbheep (1420367) | more than 3 years ago | (#37384686)

Might take a bite out of black box trading, which is what I presume this cable is being laid for.

Re:Proof that the system is corrupt (0)

Dunbal (464142) | more than 3 years ago | (#37384914)

When will people understand that liquidity is a GOOD thing? How would you like to be in the situation 100 years ago where you want to sell your stock but no one is around to buy it? What happens to the price then? Or how about when you really want to buy a stock, and no one is selling? Traders who roll over huge volumes of stock are acting as middle-men but they are not "leeches", they are risking capital time and time again and doing you a favor by making stock available or willing to buy stock from you much closer to your desired price. This allows you to get out of a trade quickly and let me tell you that you literally can lose all your money in a matter of hours in a rough market - on days like that you are grateful that there's someone around willing to trade with you. Or you could wait 3 years to get your money back, minus inflation/opportunity cost.

Re:Proof that the system is corrupt (1)

Anonymous Coward | more than 3 years ago | (#37384998)

I'm not sure I'd be upset waiting for 6 milliseconds.

Re:Proof that the system is corrupt (1)

Anonymous Coward | more than 3 years ago | (#37384944)

How about a minimum 24-HOUR latency for every order? Anybody who holds onto a stock for less than a day is not an investor. How about making the commission charged inversely proportional to the time between the current trade and the last trade of the opposite side for a give instrument? (e.g. if you sell IBM, your exchange commission is higher if you had very recently *bought* IBM)

Re:Proof that the system is corrupt (0)

Anonymous Coward | more than 3 years ago | (#37384996)

As a subject in the UK I have to pay Stamp Duty on any stock that I trade. I don't see why these companies should be allowed to get a free ride when people do not. I understand the need for liquidity, but these guys are getting to suck way too much out of the system at minimal risk.

Re:Proof that the system is corrupt (2)

macson_g (1551397) | more than 3 years ago | (#37384604)

That's the most fair way of deciding who should trade on public exchange. Of course in extremes it ends up as 'the trade goes to whoever can afford the fastest link/equipment/code', but what else could be better? And please remember that there are traders who don't care about speed and they use different ways of trading and sometimes different venues.

Re:Proof that the system is corrupt (1)

Rich0 (548339) | more than 3 years ago | (#37384964)

Why not just execute trades once per day, collecting asks/bids all day long. The close of the day will be sometime between 4PM and 6PM each day, determined randomly and with the time not announced in advance. After the close all bids/asks go to the next day. You can cancel a bid/ask an hour after you make it.

Oh, to place a bid you put money in escrow with the exchange, and to place an ask you must hold the stock in escrow with the exchange.

Then you run the whole exchange off of a website that anybody can create an account on for some nominal fee like $10/yr. There are no designated brokers/traders/etc.

Suddenly anybody can trade stocks on the exchange with just about equal access. Investments actually get based on the valuation of companies (which people can ponder all day long), rather than trends measured in minutes. Wall Street firms can still operate as proxies for ordinary people giving them advice/etc, but they aren't the only way to access the markets.

Re:Proof that the system is corrupt (1)

outsider007 (115534) | more than 3 years ago | (#37384654)

Are you seriously wondering out loud why wall st. douchebags aren't less corrupt?

Re:Proof that the system is corrupt (1)

cbope (130292) | more than 3 years ago | (#37384666)

This just further illustrates that those with the deepest pockets can buy the fastest iron to profit the most from the stock market. This just raises the level of the "game" a bit higher.

I say there should be a mandatory artificial trading delay for every single trade to prevent this sort of thing from being used to game the system. There is absolutely no need, beyond pure greed, for trades to be made this quickly.

Re:Proof that the system is corrupt (1)

agentgonzo (1026204) | more than 3 years ago | (#37384750)

... beyond pure greed...

You've pretty much summed up the stock market there.

Re:Proof that the system is corrupt (1)

JasterBobaMereel (1102861) | more than 3 years ago | (#37384804)

There was a test done between an experienced stock trader, a stock buying AI program, a 5 year old child, and a random number generator ... the Stock trader came last, the 5 year old child won ... and these guys get paid for their insight and experience ....

Re:Proof that the system is corrupt (0)

Anonymous Coward | more than 3 years ago | (#37384900)

[Citation needed]

Re:Proof that the system is corrupt (1)

agentgonzo (1026204) | more than 3 years ago | (#37384960)

[citation needed]

Re:Proof that the system is corrupt (0)

Kjella (173770) | more than 3 years ago | (#37384678)

If I learn that the government is going to pass a huge extra car tax on SUVs, is it then wrong of me to try selling my SUV right away before people become aware of it and the market price adjusts itself? That's the essence here, when there's reason to sell I want to be first out the door. When there's reason to buy I want to be first in the door. There's not really many other ways it could happen whenever the company posts a press release or earning figures or anything else that will affect the stock price.

The only other alternative would be if the market operated on some kind of pulse, but it'd be a long legal battle to tell people they can't sell what they own exactly when they want. Not to mention all sorts of funny jurisdiction issues as they move to electronic stock exchanges in non-cooperating countries and such. Until then, being fastest matters.

Re:Proof that the system is corrupt (0)

Anonymous Coward | more than 3 years ago | (#37384766)

If I learn that the government is going to pass a huge extra car tax on SUVs, is it then wrong of me to try selling my SUV right away before people become aware of it and the market price adjusts itself?

How many times per second do you want to buy and sell that SUV?

Re:Proof that the system is corrupt (0)

Anonymous Coward | more than 3 years ago | (#37384862)

"the stock exchange is built is deeply flawed. Why don't they try to build it on sounder bases than "the fastest takes all" ?!?"

Why? We build capitalism on the idea that the rich can invent useless products and market them to the masses as if they're absolute necessities that they'll fail without, and that they themselves must work for, so that the rich can get richer.

If you want to fix flaws in the economy, you'll need to go deeper than the stock market.

Re:Proof that the system is corrupt (0)

Anonymous Coward | more than 3 years ago | (#37385014)

This kind of thing is the direct proof that the way the stock exchange is built is deeply flawed. Why don't they try to build it on sounder bases than "the fastest takes all" ?!?

Faster doesn't take all but fastest front-runs the flow of information and short term pricing of that information. It doesn't mean that the model is flawed only that there is always a buck to be made from taking advantage of faster information flow. This is no different than historical precedents - signalling from the Waterloo battlefield to trade bonds in London, the telegraph to trade commodities between New York and Chicago - small groups invest capital in communication technology to get an edge, and hopefully the advance in technology benefits us all in the long run.

New performance metric. (3, Insightful)

geekmux (1040042) | more than 3 years ago | (#37384528)

"...The article suggests that a one-millisecond advantage could be worth $100M per year to a large hedge fund."

I think we now have real proof that life is moving too fast when the metric to measure your performance as a large hedge fund investor is now measured in single milliseconds.

I'm glad I'm not a large hedge fund investor. Think your 30-minute lunch break is shitty? These guys don't have time to blink.

Re:New performance metric. (1)

Anonymous Coward | more than 3 years ago | (#37384538)

Computerized trading means they can take all-day lunches and laugh all the way to the bank with their bonuses while not contributing any value whatsoever!

Re:New performance metric. (1)

isorox (205688) | more than 3 years ago | (#37384822)

Computerized trading means they can take all-day lunches and laugh all the way to the bank with their bonuses while not contributing any value whatsoever!

If you gain a $100m in a day, you buy lunch. If you lose $100m in a day, someone else buys lunch. Overall there's no net gain, but someone always affords lunch.

Re:New performance metric. (1)

Dunbal (464142) | more than 3 years ago | (#37384950)

while not contributing any value whatsoever!

liquidity [li-kwid-i-tee] noun 1.a liquid state or quality. 2.the ability or ease with which assets can be converted into cash.

I'd say liquidity is pretty valuable. Try doing a transaction in an illiquid market. Next you are going to try to convince me that short sellers are the ones who push stock prices down (hint, short selling is not allowed in Asia, and Asian markets have had some pretty spectacular crashes despite this).

Re:New performance metric. (0)

Anonymous Coward | more than 3 years ago | (#37384568)

Pah, speak for yourself! We just need to be more like the machines...

Last minute I held 17 different jobs, and got fired and re-hired over 420 times!

Instead of attending the meeting I'll just write this post and be a few eons late... I AM only human, eh?

Only Milliseconds You Say? (2)

walkerp1 (523460) | more than 3 years ago | (#37384606)

"Only" a few milliseconds? Do you realize that's trillions of femtoseconds? Twenty thousand femtoseconds for each otherwise worthless dollar. Get some perspective man!

Re:New performance metric. (0)

Anonymous Coward | more than 3 years ago | (#37384782)

"...The article suggests that a one-millisecond advantage could be worth $100M per year to a large hedge fund."

I think we now have real proof that life is moving too fast when the metric to measure your performance as a large hedge fund investor is now measured in single milliseconds.

Quite true, it is the metric system at fault. Would the world have been adopting the more sane FFF [wikipedia.org] system, nobody could speak of milliseconds.

<duck>

ted (0)

Anonymous Coward | more than 3 years ago | (#37384550)

http://www.ted.com/talks/lang/eng/kevin_slavin_how_algorithms_shape_our_world.html

Re:ted (1)

Anonymous Coward | more than 3 years ago | (#37384576)

ted is as overhyped and overrated as it is useless.

Re:ted (1)

Lennie (16154) | more than 3 years ago | (#37384738)

The whole HFT thing is even more stupid, what is your point ?

These fund shysters need slapping down. (0)

Anonymous Coward | more than 3 years ago | (#37384558)

Its about time that the speed of trades between them be internationally mandated to say, a bloke with a forked stick [bookdrum.com] . The uniform might be appropriate too...

Gambling (0)

Anonymous Coward | more than 3 years ago | (#37384588)

All this high frequency stuff is not investing. There should be a random 0-1 second delay in the execution of all trades and a $.0001 tax on each transaction. Level the playing field again.

Re:Gambling (3, Informative)

_merlin (160982) | more than 3 years ago | (#37384936)

Adding delay will actually make investors worse off, because quoting will become less competitive. Let me explain this with a contrived and simplified example.

Let's say I'm a market maker quoting a derivative, a call option on wheat futures for example. I decide what I think the option is worth based on the current price of the future and my guess at volatility, and we come up with a fair price. Let's say that the fair price is $50. The fair price for the option will move when the price of the underlying contract moves. The proportion by which it moves is called delta. Let's say this option has delta of +0.5, so if the price of the future changes by $1, the fair price of the option moves by $0.50.

In order to make some money quoting it, I need to quote a spread - i.e. buy options for less than I sell them for. Let's say I want to quote a spread of 2% of the fair price, or $1 in this case. I drop our bid in at $49.50 and our offer at $50.50. You, as a wheat farmer or exporter, want to hedge yourself against fluctuations in wheat prices, so you're interested in trading these options. When I'm quoting a 2% spread, you can buy or sell options with a transaction cost of 1% of the fair price of the option, or $0.50 on a $50 option. That's not too bad.

But remember that pesky concept of delta? If the price of the wheat futures moves around, I need to move my quotes on the option. For example if the price of the future increases by $2, I need to move by quotes up by $1 on the delta +0.5 option, So if that were to happen, I'd be quoting at $50.50 bid and $51.50 offer - note that I'm still only taking a premium of about 1% of the fair price.

Hopefully you can see that if the price of the future moves around, I need to be able to keep up with it or I'll be screwed over when I try to hedge my options position. If the price of the future moves faster than I can move my quotes, I need to factor a safety margin into the spread I quote to cater for this.

Suppose you introduce a random delay of up to one second. That means I have to consider the worst case scenario. Maybe I think the price of the future might change by up to $10 in one second. Since this is a delta +0.5 option, I need to factor in a risk of a half of $10, or $5, into the spread I'm quoting, because the price of the future could move by that much before I can move my quotes.

So factoring in the $5 base move risk as well as my 2% spread that I'm trying to make money off, I'd be quoting $44.50 bid and $45.50 offer. Now your transaction cost has increased to $5.50 over the fair price per trade on the option, or 11%. It's not looking so attractive now, is it?

Introducing delays won't hurt me as a market marker - I'll just increase my spreads to cover the risk, as will all the other market makers. It will definitely harm you as the person with a need to trade. Lower transaction latencies increases competition between market makers to quote tiny spreads, minimising the transaction costs for people who need to trade. Sure, the money is being distributed differently: instead of more market makers, each with a small slice of the pie, taking a big cut of each transaction, you now have fewer market makers taking a tiny cut of each transaction, competing to get a big enough slice of the pie to remain profitable.

Re:Gambling (1)

thetroll123 (744259) | more than 3 years ago | (#37385008)

> I'd be quoting $44.50 bid and $45.50 offer

That's $55.50 offer, no?

Re:Gambling (1)

_merlin (160982) | more than 3 years ago | (#37385018)

> I'd be quoting $44.50 bid and $45.50 offer

That's $55.50 offer, no?

You, sir, are absolutely correct. I must be too tired - good thing I'm not trading right now, or I'm be hitting myself or quoting below theo at this rate.

High frequency trading (1)

DUdsen (545226) | more than 3 years ago | (#37384596)

At least the high frequency trading mess is leaving some usable wreckage behind that's a lot more then you can say about most of the financial institutions innovations.

It's all about the timing! (1)

Anonymous Coward | more than 3 years ago | (#37384634)

Investing has always been about timing. If the timing is right, here is what happens...

Individual 1: Buys 100 shares for $10,000. Long term investment to make 5% a year.
Individual 2: Receives $10,000 from Investor 1 for 100 shares. Spends $9,500 for 100 shares. Makes 5% in a days.
Individual 3: Receives $9,500 from Investor 2 for 100 shares. Spends $9,025 for 100 shares. Makes 5% in an hours.
Computer 1: Receives $9,025 from Investor 3 for 100 shares. Spends $8,573.75 for 100 shares. Makes 5% in minutes.
Computer 2: Receives $8,573.75 from Computer 1 for 100 shares. Spends 8,145.06 for 100 shares. Makes 5% in seconds.
Computer 3: Receives $8,145.06 from Computer 2 for 100 shares. Spends 7,737.81 for 100 shares. Makes 5% in milliseconds.
==
Individual 1 receives 100 shares. $2,262.19 was skimmed off along the way.

Imagine how much more money they can make with microsecond, nanosecond, even picosecond speed trading.

1ms is worth 100m USD isn't relavent in this case (2)

Alex (342) | more than 3 years ago | (#37384636)

This 1ms advantage is worth 100m USD, isn't relevant to transatlantic bandwidth.

The quote from wikipedia https://secure.wikimedia.org/wikipedia/en/wiki/Low_latency_(capital_markets) [wikimedia.org] is

"A 1-millisecond advantage in trading applications can be worth $100 million a year to a major brokerage firm, by one estimate."

I can't find the original source of this - but IIRC its from the CTO of someone like Goldman's or BoA.

If you are doing high frequency trading on a NY or London based exchange, you don't buy the lowest latency connectivity from the exchange to you. You put your systems as close to the exchange as possible AND THEN you buy the lowest latency connectivity from the exchange to you. Your systems which trade in NY are based in NY, and your systems which trade in London are based in London.

I'm sure there is some minor advantage of NY and London being slightly closer together from a latency perspective, but I'm sure its not as much as 100M USD.

Alex

Re:1ms is worth 100m USD isn't relavent in this ca (1)

myurr (468709) | more than 3 years ago | (#37384664)

Don't you think, though, that the people investing $300m in this cable have thought a little bit about their business model and believe it to be sound? Clearly those 6ms are really valuable to some people, and if not high frequency traders then who?

Re:1ms is worth 100m USD isn't relavent in this ca (1)

adamofgreyskull (640712) | more than 3 years ago | (#37384732)

Yep, this. GP missed the point, but, at the same time, I too am sceptical about that $100m/yr figure...

Re:1ms is worth 100m USD isn't relavent in this ca (0)

Anonymous Coward | more than 3 years ago | (#37384734)

gamers!

Re:1ms is worth 100m USD isn't relavent in this ca (2)

Sqr(twg) (2126054) | more than 3 years ago | (#37384684)

The reason why a low latency connection is valuable is than many identical stocks and commodities are traded in both NY and London. If you are the first one to detect a pricing difference you can make a sure profit.

Re:1ms is worth 100m USD isn't relavent in this ca (1)

mikael_j (106439) | more than 3 years ago | (#37384692)

Well, for someone trading in both Europe and the US it would probably make sense to have the lowest possible latency between their own systems to coordinate trading.

Now, if this would be worth $100M I don't know. But it does kind of make sense if you want your different systems to communicate with each other.

Arbitrage (5, Informative)

Fred Ferrigno (122319) | more than 3 years ago | (#37384744)

If you're in London and you know 6ms before anyone else that the price of oil in New York just shot up, you can buy oil right now and then sell it in 6ms for a tidy profit.

Re:Arbitrage (1)

nzac (1822298) | more than 3 years ago | (#37384898)

No everyone now has to buy bandwidth on the cable so they are not on the wrong side of this.

I don't think anything will change except the company who put the cable in will be charging more than the old company.

Re:Arbitrage (1)

Rich0 (548339) | more than 3 years ago | (#37384978)

Yup. This isn't much different than offering a new TLD - everybody has to pay an extra $20/yr or whatever to make yet another clone of .com.

Re:1ms is worth 100m USD isn't relavent in this ca (1)

gweihir (88907) | more than 3 years ago | (#37384790)

Indeed. And it is really no problem to remotely administrate such a system close to the exchange. The reasoning given in the article is flawed. That said, the lower delay and additional redundancy can be worth a lot.

Re:1ms is worth 100m USD isn't relavent in this ca (1)

CubicleView (910143) | more than 3 years ago | (#37384916)

Arbitrage [wikipedia.org]

Re:1ms is worth 100m USD isn't relavent in this ca (0)

Anonymous Coward | more than 3 years ago | (#37384946)

This ^^

The giant leach on society (5, Insightful)

Puff_Of_Hot_Air (995689) | more than 3 years ago | (#37384676)

The entire finance sector fills me with equal parts revulsion and sadness. This is yet another example of enormous resources consumed for no net gain to society. At least in this case something (however unnecessary), tangible is produced as a result. Think of the huge numbers of brilliant mathematical and programming minds that have been consumed by this nonsense! Think of the resources and financial liquidity that is reinvested into this zero sum game! Every hour of work, every employee, every structure erected in praise of this wholly disgusting idol of modern nihilism, makes the rest of our society just that little bit worse. To those who would praise the enabling power of our new financial systems I say Pah! We can create better financial systems within virtual worlds. The only intrinsic value in the financial institutions is the power it gives; and this has been abused for all it is worth! Give me back my engineers! Give me back my scientists! Give me back my hope for a better future!

Sorry, we do not have future anymore... (1)

TheDarkMaster (1292526) | more than 3 years ago | (#37385002)

... Greed and fear are the driving forces of humanity now. The only thing you and I as "mere mortals" can do now is watch until the final collapse.

My "Monster" cable transatlantic line is better (1)

PolygamousRanchKid (1290638) | more than 3 years ago | (#37384690)

Because it is made of "Monster" cables . . . http://www.monstercable.com/ [monstercable.com]

However, investors believe the financial community will be lining up to pay premium rates to use the new cable. The article suggests that a one-millisecond advantage could be worth $100M per year to a large hedge fund.

So obviously, a cable made of "Monster" cables will be worth* even more! Roll out your checkbooks, all you unfeasibly large hedge funds!

*Your actual worth is subject to local regulation, taxes, palm grease, wind velocity of an unladen swallow, global warming, sea temperatures, etc . . .

Ammateurs (1)

TheInternetGuy (2006682) | more than 3 years ago | (#37384698)

The should of course have slant drilled a tunnel from NY to London instead, making the cable even shorter.

Re:Ammateurs (1)

Dr_Barnowl (709838) | more than 3 years ago | (#37384722)

They should just have two quantum RAM blocks consisting of entangled qubits. When you set a bit at one end, the bit at the other end also flips. Literally instantaneous transmission, meaning that from a relativity point of view, the London exchange hears about events in NY before they actually happen.

It's sad to think that if this tech is ever invented, this will be among the first things it is used for....

Re:Ammateurs (1)

Lennie (16154) | more than 3 years ago | (#37384854)

After which the market collapses and a new financial crisis ensues.

Required reading on this subject (0)

Anonymous Coward | more than 3 years ago | (#37384762)

There was a great article in JavaWorld on the "quest for latency" a while back:

http://www.javaworld.com/community/node/7495

Zero sum game (5, Interesting)

AlecC (512609) | more than 3 years ago | (#37384772)

Sadly, the high speed trading for which this is designed is a zero sum game - the extra dollars made by the hedge funds are shaved off someone else.

Banking has a very valid job to do: transferring money from savers to borrowers, aggregating small savings into large investments, and ironing out risk by spreading it over many loans. But these are, fundamentally, decisions made by humans, and such decisions will be made on timescales of, at the fastest, a minute or so. In order to ensure liquidity, and to even out large lumps in the trading,it is useful to have automated system which work on a timescale which is, say, ten times faster. Such banking and trading adds value. and it the reason we need banks. But any trading faster than that is purely profiting from irregularities in the system, and adds no value to the world. So any value extracted by the traders, or used to build links for such traders (as described in the article) is money wasted: a net loss to humanity.

I would like to put a drag on such trading: one which would dissuade high speed trades while not harming legitimate trades, including legitimate spreading of large risks. A nano-tax might do it - and the premium traders will pay to use this cable suggests the magnitude of such a nano-tax.

Re:Zero sum game (1)

Dunbal (464142) | more than 3 years ago | (#37384968)

It's only a zero sum game if you look at one single trade. If you look at the aggregate of all trades you will find that money is entering and exiting the market all the time at different and varying rates. Therefore it is NOT a zero sum game.

The quants are just messing wallstreet (1)

Jah-Wren Ryel (80510) | more than 3 years ago | (#37384794)

This has been their plan all along. Get Gold Man-Sacks to pay for world-beating ping-times.

Screw hedgefunds, those guys are going to rule in deathmatch mode.

How much for an ROV to cut the line? (1)

Anonymous Coward | more than 3 years ago | (#37384830)

How much for on of those neat ROV's to cut the line?
Just asking the logical question here, if they are going to upgrade the weapons stealing from the people, why not just destroy the whole thing?

Oh hey look over here [sub-find.com] , only $34k , (I wonder if we can rent one)

now off to find a 50 Watt underwater SAW ....

Wouldn't it be funny if HFT traders stole everything so well, that nobody was left to trade since everyone is in destitution. Time it so everything goes to Zero.
Alternatively, Cut the line at the right time.

This was noted earlier (1)

InterGuru (50986) | more than 3 years ago | (#37384858)

by yours truly in 'DailyKos [dailykos.com]

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