The $300 Million Cable That Will Save Traders Milliseconds
September 13th, 2011Now with more Flashcrash!
Via: Telegraph:
In the high-speed world of automated financial trading, milliseconds matter. So much so, in fact, that a saving of just six milliseconds in transmission time is all that is required to justify the laying of the first transatlantic communications cable for 10 years at a cost of more than $300m.
It struck me how similar algorithmic trading is to card-counting in blackjack (that’s where you keep track of the cards that are dealt by assigning a number system such as +1, 0 , -1, and adjust your bet based on the running tally; it gives a small statistical advantage to the player when the card count is more favourable to him than to the dealer, and you then increase the bets accordingly). Its just like high-frequency trading, really – you play many, many hands, and may only “win” 50% of the hands dealt, but win a tiny bit more on the winning hands than the losing hands, and eke out a small profit that way. The algorithms are just counting the cards, really, giving an advantage to the trading firms, with the “House” being the average investor instead of the Casino.