Trading at the Speed of Light
High-frequency financial trading has now become so fast that the time
it takes light to travel between securities exchanges in different
cities (e.g., New York and London) has become a limiting factor to
reacting quickly to market opportunities. In a new study, physicist
Alex Wissner-Gross at MIT and mathematician Cameron Freer at the
University of Hawaii have devised a strategy that partially overcomes
this light-speed barrier by positioning computers at specific
geographic locations between exchanges to coordinate trades. The
researchers used this strategy to calculate a representative "treasure
map" (see attached image) of such uniquely profitable locations on the
Earth's surface and showed that many of them lie in oceans or other
sparsely networked regions, which may ultimately motivate hedge funds
and other financial firms to build high-density networks that connect
through these locations worldwide. As trading networks become denser,
the researchers also found that a novel econophysical effect should
become observable, in which trading effectively slows or stops the
propagation of financially useful information, just as light itself
can be slowed or stopped by passing through certain materials.
