It's So Hot In The US That It's Slowing Down The Speed Of Stock Trades

The NASDAQ MarketSite in Times Square is seen 20 November 2006 in New York City. (Photo: Getty)

If heat waves and the accompanying blanket of humidity make you feel as though the world is moving just a little slower than normal, well you’d be right — at least in when it comes to radio transmissions. Nasdaq warned customers Tuesday that the weather was resulting in slight delays in the transfer of data, which could affect stock trades.

Bloomberg reported the note from the company, which alerted traders who count on response times to be immediate when executing transactions that the humidity would cause information moving between its facilities in New York and New Jersey to take several additional microseconds to process.

The US east coast, including areas where Nasdaq operates, were under a heat advisory for much of Tuesday, with temperatures reaching as high as 33.9C. With the humidity factored in, New York and New Jersey experienced heat index values up to 40.6C, per CNN.

That was enough to put a damper on the transfer of information via radio transmissions.

According to Bloomberg, Nasdaq said that information sent from its facility in Carteret, New Jersey to the New York Stock Exchange data centre in Mahwah was taking about eight microseconds longer to transfer. The company said sending information to the Cboe Global Markets exchange in Secaucus required an extra two microseconds.

A 2015 study conducted by researchers at the University of Jyvaskyla and University Consortium Chydenius in Finland found that heat and humidity can have an effect on radio signal strength:

Experimental results show that changes in weather conditions affect received signal strength. Temperature seems to have a significant negative influence on signal strength in general, while high relative humidity may have some effect on it, particularly below 0°C.

For the average person, the several microsecond difference means basically nothing. Research from the Massachusetts Institute of Technology found the human brain can identify an image in as little as 13 milliseconds, which is 13,000 microseconds.

But for trading firms that rely on computer systems to trigger transactions, those slight loses in can mean a notable difference in outcomes.

High-frequency traders (HFT) have long taken advantage of the slight delays in data transfer caused by latency to make their bucks.

In 2015, financial markets consultancy firm Nanex found HFTs had a 500-microsecond advantage in receiving quote data from Nasdaq than the average trader. An analyst from Nanex told MarketWatch that difference made making transactions essentially “riskless” for HFTs because “they know how both sides of the trade will come out before they ever press the button”.

Between the slightly slower stock trades in New Jersey and the Michigan Avenue Bridge in Chicago requiring the fire department to hose it down to reduce the expansion of metal caused by the heat, things are getting weird out there.

[Bloomberg]

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