A lot of the biggest stock moves of the global economy are made by a bunch of dudes yelling at each other in a huge room, right? Wrong. Computers are in charge, battling for the speediest connections. Fastest gets richest.
The new wave of robotic trading—known as High-Frequency Trading, or HFT—excludes humans, because, well we’re just not capable of pulling off what these financial black boxes do. Every minute HFT firms use powerful computers to execute thousands of trades every minute. And these aren’t your traditional, Welp, I bought this share for $US15, now I’ll sell it for $US20! stock trades. HFT computers are able to machine gun completely automated trades across the world, taking advantage of only penny differences in prices across foreign markets.
Remember playing games online when not everyone had a high speed connection? The asshole with broadband just teleported around and slaughtered everyone. The same goes for today’s financial snipers—the guy with the fastest connection makes a killing, because the rest of the suckers are lagging too far behind. Firms around the world are competing for (and building) blazing fiberoptic networks to ensure they’ve got a millionth of a second edge over the competition—so that they can feed the latest prices into their algorithms while other HFT firms are playing robot catch up (if you can call microseconds catchup).
Where’s this heading? It’s a financial frontier, so nobody really knows how the playing field will be leveled—or if it even can be. But we like the solution posited by MIT professor Alex Wissner-Gross and the University of Hawaii’s Cameron Freer: stick all the computers in Antarctica, so everyone’s at an equal disadvantage. [Wired]