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Contemplating Financial Trading At Picosecond Resolution 448

Posted by timothy
from the race-to-the-bottom-yowza dept.
pbahra writes "One complaint made of the modern stock market is that it is concerned too much on the short term. A second is a long time in cash-equities trading. Four or five years ago, trading firms started to talk of trading speeds in terms of milliseconds. But in recent weeks trading geeks have started to talk about picoseconds, in what is a truly mind-boggling concept: a picosecond is one trillionth of a second. Put another way, a picosecond is to one second what one second is to 31,700 years."
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Contemplating Financial Trading At Picosecond Resolution

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  • Worthless (Score:4, Insightful)

    by Anonymous Coward on Friday March 04, 2011 @12:06AM (#35376512)

    These people are parasites. They provide nothing of value to the world; they just take. This crap should be illegal.

    • Re: (Score:3, Interesting)

      by Myopic (18616)

      I don't think it should be illegal, I just think one dimension of the assessed taxes should be length of time the asset is held. Set thresholds at, say

      1 second -- 99.99% marginal tax
      1 minute -- 99% marginal tax
      1 hour -- 95% marginal tax
      1 day -- 90% marginal tax
      3 months -- 50% marginal tax
      1 year -- 15% marginal tax (today's capital gains rate)
      10 years -- 10% marginal tax

      I actually know a local guy who implements trading algorithms in programmable-gate-array hardware for the purposes of instant trading.

      • Re:Worthless (Score:5, Interesting)

        by afidel (530433) on Friday March 04, 2011 @12:52AM (#35376734)
        Nothing that crazy is needed just add a 10c per trade tax, the only problem is all the major trading countries would need to do it simultaneously or else the market would just move. I thought we were close a few years ago when the central banks and regulators started moving in lock step on policy but that only lasted until the first European debt crisis hit and China and the US got in the spat about currency valuations.
        • by hedwards (940851)

          No, the GP is correct, I think that the tax rates aren't right, but the idea is definitely sound, anybody that's trading on sub second intervals is definitely not engaged in otherwise legal behavior. The people that are doing that are trading based upon insider knowledge not available to the individual investor. And even the people trading in intervals of less than a minute are more likely to be scoundrels than people trying to correct a mistaken trade.

          • by afidel (530433)
            Think about how freaking complex the Schedule OMG would be for such a scheme and how simple a point of sale tax on the transaction would be. They both accomplish the goal of punishing unfair trading but one creates bureaucracy and headaches and the other is just like any other simple sales tax.
        • Re:Worthless (Score:5, Insightful)

          by Tom (822) on Friday March 04, 2011 @05:23AM (#35377604) Homepage Journal

          Nothing that crazy is needed just add a 10c per trade tax, the only problem is all the major trading countries would need to do it simultaneously or else the market would just move.

          Everyone says that, but is it true? Look at who is saying it. Mostly the people we know for being in bed with the stock market exploiters. The same people who bailed out the big banks with our tax money, while before and after telling us that they need to cut this and cut that because they don't have enough money.

          It's a strawman.

          Here's a much more likely scenario:

          Imagine one large country or region (the US, or the EU) starts to introduce a trade tax. Say, 0.01% - irrelevant to any real trades, destructive to margin trading. So real trade won't move, because moving would be more expensive. Some high-volume and all margin traders would move. Say the EU starts the tax. So they move to the US, to Asia, etc.

          But now the US and Asia and everyone else are in an interesting position. Instead of elaborating on it, let's play it through: The US also introduces a trade tax, but at 0.005% - half of the EU, mostly same effect. Real traders couldn't care less and stay put. Some high-volume traders stay, most margin traders go out of business or move to Asia.

          Now Asia's in the same position. A bit of quick thinking reveals that they can make billions in taxes by introducing a 0.001% trade tax. So they do. Real trades stay put, as before. High-volume trades move to Asia, though some move back to the US and EU since operating costs and other factors start being more important than the tax difference. Margin trading stops being profitable unless the margin is considerable enough to be worth it.

          Saying that you can't be the first because everyone else doesn't do it ignores the fact that "everyone else" is not a static entity. There are many, many cases throughout history where "everyone else" was just waiting for someone to make the first move.

          It's a strawman. Don't fall for it. Anyone saying "we would love to, but we can't, it needs to be introduced simultaneously world-wide." really means "I don't want to".

      • Can we move the 15% out to 4 months? I'm just Joe Average, but I make some decent cash selling covered calls 2 to 3 months out. No need to pick on little old me.

    • Re: (Score:3, Funny)

      by geekprime (969454)

      A penny a share tax on any share traded will fix this problem immediately.

      It will also dispose of all of the fraudulent "penny stocks" action.

      It would also balance the US budget in about 8 hours.

    • by Anonymous Coward on Friday March 04, 2011 @01:35AM (#35376904)

      And you also don't understand how deep this goes. This is not about trading fast. They are actually trading ahead of trade execution.

      Flash trading is a practice in which some equity exchanges hold orders to buy and sell shares for a split second before making that information public (available to other exchanges). The exchanges' customers can view these prices ahead of other traders for a fee. High-speed computer software can take advantage of that brief period between when an order is placed and when it's executed to allow those members to potentially get better prices and profits by slipping in and making the trade themselves.

      http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aZwoslIGa5JQ
      http://www.marketswiki.com/mwiki/Flash_trade

      Now, the time window is about 50-300ms that the orders to be executed are posted and the automated systems can intervene. Basically, if you have orders like following coming in within 200ms (1/5 of a second),

      PUT 1000@31
      PUT 500@30
      PUT 500@30.1
      CALL 1000@market
      CALL 100@29.5

      the flash orders will come in, buy the two sell orders and sell it @ 31 to the market order and you end up with,

      PUT 1000@31
      CALL 100@29.5

      This effectively stole $950 from the market order. But then they will pay 2x the trade fees to the exchange to split in their trades ahead of the others. This isn't about "testing" the market, but simply going right in the middle between transactions and milking them for the most they can. It is not trading - it is stealing.

    • Re: (Score:2, Insightful)

      by Antisyzygy (1495469)
      You are simply wrong. Its just a more advanced form of a "merchant class". You may as well get pissed at your local grocer or furniture store. After all, you can go buy produce from a farmer, and hire someone to build you a couch.
      • by Assmasher (456699)

        Yes, you can go buy straight from the farm (or hire someone to build your furniture); however, this is what people in the market are trying to do but can't.

        The analogy would be similar to someone telling a farmer "hey, I like your prices I've seen right now so I'd like a few dozen eggs..." and the farmer puts the eggs on the truck for delivery; unfortunately the trucking company stops by the docks where men of dubious and flexible morals are standing around and they buy YOUR eggs off the truck driver but do

    • by magarity (164372)

      These people are parasites. They provide nothing of value to the world; they just take. This crap should be illegal.

      The computer you used to write that rant was made possible by many, many investors who never even met combining their capital through the stock market to hire the management, hire the engineers, hire the construction workers, buy land and material for the factories, hire people to work in the factories etc, etc.

      • Re: (Score:2, Insightful)

        by Nursie (632944)

        The people who put up the initial capital, and who sold when the company had achieved real value?

        Sure.

        The parasites that suck money out of the system by interposing themselves between other trades at the millisecond scale?

        Not so much.

    • by timeOday (582209)
      But they're supplying all-important liquidity! Do you want to have to wait a whole *millisecond* to rebalance your retirement investments when Wall Street could reduce that to *picoseconds* for just a few hundred billion dollars per year?
      • by 517714 (762276)
        Liquidity in the stock market is as undesirable as it is in a Southern California hillside. Stability is the key to generating wealth, liquidity only serves to redistribute it more quickly, and frequently catastrophically.
  • by PJ6 (1151747) on Friday March 04, 2011 @12:07AM (#35376518)
    So unless they've found a way to break the light barrier, this is a load of bull.
    • by Anonymous Coward on Friday March 04, 2011 @12:15AM (#35376556)

      Moore's Law fixed that. Light can now travel 300 m in a picosecond. By the time this product is developed it should be able to travel a few km.

    • by slyborg (524607) on Friday March 04, 2011 @12:27AM (#35376612)

      You don't get it. The next step is Market On A Chip technology. The NASDAQ, NYSE, etc. will be condensed onto an integrated circuit in Lloyd Blankfein's office. But don't be concerned, the Market will still be FULLY FAIR AND TRANSPARENT for all...

    • by pz (113803) on Friday March 04, 2011 @12:28AM (#35376616) Journal

      I have a few friends in high finance. They're well-educated folk. So when they use certain terminology within the realm of finance, it makes them cringe because they know it's wrong, but the rest of the knuckle-draggers dont know the difference between a made-up Greek letter ("vega" ... no I'm being serious, look it up; it has to do with the volatility of options pricing) and a real one. When milliseconds are too slow, nanoseconds aren't a big enough improvement, they need to go one step beyond! No one with a brain is going to seriously consider speeding up by six orders of magnitude to the ludicrous level of picoseconds, but abuse of terminology is rife within the financial field.

    • by zippthorne (748122) on Friday March 04, 2011 @12:29AM (#35376620) Journal

      It just means that the trading companies will be trying to co-locate.. to an adjacent core....

      • Why stop at the level of cores? Only grandmas and mutual funds let their algorithms languish in L3 cache, and Goldman has a 99 year lease on L1; but for just a little extra a few million gates of L2 can be yours...
      • by tlhIngan (30335)

        The funny thing is, the fastest clocked processors these days take hundreds of picoseconds to execute a single instruction.

        Yes, at 3GHz, each instruction is around 333ps. So unless we have a CPU architecture that does trades in a single instruction, it's going ot take many nanoseconds just to get the information, process it, then issue the trade order.

    • by Kell Bengal (711123) on Friday March 04, 2011 @12:34AM (#35376654)
      Well, this isn't a case of time-lag so much as it's a recognition that interactions with stock trading is actually a control system. The traders are trying to use feed-forward control to predict when and where the market is going to move and apply the right 'control action' (ie. buy or sell) at the appropriate time. Unlike most dynamic systems, however, you are not the only controller - you are trying to predict and exploit the behaviour of other controllers in the system.

      With multiple players, the aggregate dynamics are something akin to a dog-fight as each trading algorithm circles and dodges, trying to exploit weaknesses and failures in its adversaries so as to make fractional gains in the time available. If you can control on a tighter time-scale than your opponents, then you can achieve more finely-grained dynamic buy-sell strategies that maximise your profit.

      The fixed time-lag between you and the actual market is actually largely irrelevant because of the way the fast dynamic control strategy is being employed. To extend the metaphor, think of them like a attack formation flying to the enemy. If your aircraft can make their attack and withdraw before the enemy can reposition defenses, you will be more successful. The fact that it took an hour for your formation to reach the enemy in the first place is irrelevant.
      • Don't they call that "leading your target"?

      • The fixed time-lag between you and the actual market is actually largely irrelevant because of the way the fast dynamic control strategy is being employed. To extend the metaphor, think of them like a attack formation flying to the enemy. If your aircraft can make their attack and withdraw before the enemy can reposition defenses, you will be more successful. The fact that it took an hour for your formation to reach the enemy in the first place is irrelevant.

        There are two lags involved in s

    • by msauve (701917)
      They skipped microseconds!

      But, to your point, the latency (actually, queuing delay) of a minimal Ethernet packet at 10 gbps is ~51 ns at a minimum. Double, when you consider the return time, so a minimal trade would be on the order of 0.1 us plus processing time (that overclocked 5 GHz PC takes 0.2 ns per instruction cycle) on both ends (and add another 51 ns for the NIC to receive the frame in order to send it up a layer). And that only if you're within a few feet (~1 ns/foot) and on the same switch as th
  • Wonderful (Score:5, Insightful)

    by ArchieBunker (132337) on Friday March 04, 2011 @12:09AM (#35376532) Homepage

    Thanks for fucking up the market for the rest of the world. This image comes to mind..

    http://farm4.static.flickr.com/3014/2907411559_117ac480b5.jpg [flickr.com]

    • by hedwards (940851)

      This has been going on since the 30s, it's just that now the window has shrunk from about 12 hours to mere milliseconds. Ultimately what's going on is massive organized fraud, and the individual investor ends up paying the price for it. Some exchanges still allow for investment firms to buy with full knowledge of what the price of a stock will be in a fraction of a second, which is why those firms co-locate next to the exchange, it allows them to buy with perfect precision, in effect robbing the investor th

  • by jo42 (227475) on Friday March 04, 2011 @12:09AM (#35376534) Homepage

    Wouldn't it be faster to just add some zeros to a number in a bank account? In the end, that is all that the modern stock market (AKA one giant ponzi scheme) does. Wall St. does sod all as far as producing real goods, real jobs and any real value.

    • by FooAtWFU (699187)

      There are stupid bubbles. It's true. But in the long run the stock market actually does result in investment in things like factories and oil pipelines and other useful goods and services, and it works more effectively than if you had to finance it one tycoon at a time. The real Ponzi scheme is Social Security.

  • by rubycodez (864176) on Friday March 04, 2011 @12:11AM (#35376538)
    light moves 0.3 millimeters in a pico-second. They are going to get all transactions on earth to occur in a sphere of 0.15 mm diameter? and somehow instantly get a traders transaction into that sphere from hundreds of kilometers away? That is pure inactionable bovine manure.
    • Well I bet it is measured in the 10's of thousands. Reading your comment made me realize you have some insight there...found this one out:

      [...]10^12 1 picosecond ps One trillionth of a one second 1 ps: half-life of a bottom quark
      4 ps: Time to execute one machine cycle by an IBM Silicon-Germanium transistor 1 ps, 10 ps, 100 ps

      10^9 1 nanosecond ns One billionth of one second 1 ns: Time to execute one machine cycle by a 1 GHz microprocessor
      1 ns: Light travels 12 inches (30 cm) 1 ns, 10 ns, 100 ns

      10^6 1 microsecond s One millionth of one second sometimes also abbreviated sec
      1 s: Time to execute one machine cycle by an Intel 80186 microprocessor[...]
      (source [wikipedia.org])

      I suppose the reasons they use picoseconds is primarily:
      ---at the scale of a microchip, 3mm is quite the distance
      ---the jump for units of measurement goes from a picosecond to a nanosecond. We all know nanoseconds could definitely be a bit slow in today's world and real decimal values are messy, unfortunately this means a jump from 10^6 to 10^9. We all know that is qui

      • by Nemyst (1383049)

        This is market trade we're speaking of. It's global. They're speaking of transactional processes on the level of a picosecond, but just reaching the central server HAS to take them at least a few miliseconds (it's the law!), excluding any possible processing.

        It's a load of bull, seriously. Any scale below what it takes for light to travel a few dozens of kilometers is physically unfeasible unless we suddenly invent time travel or FTL micro jumps

        • any possible processing.

          Yeah, that is the only possibility of what I was thinking that could ever be considered... I guess the best way to look at this, if we are looking for a hint of truth, would be for the programming of very efficient algorithms to still produce calculations... after all calculations can take millions of pico seconds and a certain block of code executed 1 million times might be 50 picoseconds better than another per iteration. It all adds up internally.

          Efficiency of algorithms is a big deal even with some lat

        • by afidel (530433)
          Nah, ping times in a HFT complex should be on the order of 100 nanoseconds (Infiniband port to port times). Even 10Gb Ethernet is only around 10us latency for short runs.
    • by bmo (77928)

      I suggest that we all make an honest effort to pack all high frequency traders into a sphere .15mm across.

      It would create a sphere of evil so dense that not even light could escape. A singularity of evil.

      Then we could launch it into deep space.

      Sounds like a plan to me.

      --
      BMO

  • by masterwit (1800118) * on Friday March 04, 2011 @12:11AM (#35376540) Journal

    To put this in perspective:
    ---A picosecond is roughly "330 picoseconds (approximately) – the time it takes a common 3.0 GHz computer CPU to add two integers" (source [wikipedia.org])
    ---To put that in perspective, since obviously a large large amount of data must be inputted and then "processed" in real time, but then they are concerned with ~350 cpu cycles?
    ---Even if a processor can do tons of these operations a second, the amount of data they are receiving must be ghastly!
    Makes me think of the patriot missile system and the round-off error tragedy that occurred. I am just hoping our market does not "experience the same fate". (I do understand it was all a fundamental bad programming situation before, but decisions that are made in picoseconds should be taken with some level of precaution.)

    • by emurphy42 (631808)
      TFA is slashdotted right now, so this is necessarily a guess, but maybe they're talking about e.g. 1,000 CPUs each doing one operation in 330ns as basically equivalent (in terms of net work done) to 1 CPU doing all 1,000 of those operations in 330ps apiece?
      • 1,000 CPUs each doing one operation in 330ns as basically equivalent (in terms of net work done) to 1 CPU doing all 1,000 of those operations in 330ps apiece?

        Haha, I was just saying that in reply to the comment [slashdot.org] I had posted as a reply above. 10^6 to 10^9 is the next jump in the verbal scale so even if they have to use 10,000 picoseconds as the basis, that is still better than dealing with the possibility of a real decimal representation in a nano-second. All the little guys add [slashdot.org] up after a while...

    • by Thing 1 (178996)

      [...] decisions that are made in picoseconds should be taken with some level of precaution.)

      That just amuses me.

  • Hocus Pocus (Score:5, Interesting)

    by bigmo (181402) on Friday March 04, 2011 @12:14AM (#35376552)

    In Kurt Vonnegut's 1997 novel Hocus Pocus, the United States is brought to its knees financially by a company called Microsecond Arbitrage. Everyone invests through them and makes lots of money until a glitch happens and someone else's computer is faster that day. Then the entire country loses its shirt.

    Word to the wise.....

  • by Richard_J_N (631241) on Friday March 04, 2011 @12:15AM (#35376564)

    Honestly, this is really a bad idea for overall market stability. What we really need is a much slower, yet fairer system.

    What I'd suggest is something similar to synchronous clocking:
          Every second, on the second, prices are published.
          500 ms later, orders are placed and fulfilled.
          500 ms later, the updated prices are published.

    Benefit #1: fairness - those who are closest to the exchange or have stupidly fast hardware can't get in front of the rest.
    Benefit #2: slower responses. If the clock can only "tick" 60 times a minute, there is a chance for human intervention before disasters happen.
    Benefit #3: markets are more able to serve the rest of society, rather than being used purely for "gambling". imho, the existence of "high frequency trading" is a kind of tragedy of the commons: nobody really "wins", but if everyone else does it, and you don't, you lose.

    • by Nazlfrag (1035012) on Friday March 04, 2011 @12:22AM (#35376592) Journal

      I'd suggest every minute and 30 seconds respectively so human beings can also participate.

      • by earls (1367951)
        And the next guy suggests an hour and half hours. The guy following disagrees, 500ms should be enough, 250ms to split the difference. I agree in principle that a line should be drawn, but how do you draw an arbitrary line that's fair and agreeable to all? I don't believe that's possible, hence you can never draw a line at all. YEEEEAH! HENCE!!
        • by Richard_J_N (631241) on Friday March 04, 2011 @12:43AM (#35376690)

          Actually, I think we can draw a line. It takes about 200ms for an electrical pulse to travel round the world (speed of light in glass is lower than c), and we have a bit of switching delay. So this should imply the minimum timing limit. Anyway, fortunately the exchange can set the rules here, if it wants to.

    • by Myopic (18616)

      I like that idea, and I've thought of things like that before, but wouldn't there still be in incentive to be first in line with putting in your order? If everyone gets the prices published at a server in NYC at a particular moment, then the knowledge of that publication still propagates away from NYC at the speed of light. It's an improvement for the markets in some ways, but I don't think in that way.

      • Well, you could put your order in any time before deadline, but orders are only executed at the instant of the deadline. So, you get all the "thinking" time you need, and once the deadline is reached, orders are processed simultaneously (or in random order). This is similar to how concert tickets (or, for that matter, new issues of stock) are sold: you have a week to post in your cheque, and then all envelopes are opened at the same time - in the interests of fairness, the should be shuffled first if there

  • Trading latency (Score:4, Insightful)

    by woboyle (1044168) on Friday March 04, 2011 @12:34AM (#35376648)
    I was a software developer of risk analysis tools for companies on the CBOE (Chicago Board Options Exchange). Milliseconds are significant when you need to hedge a position (balance your risks). Picoseconds? That is just idiotic, IMHO. Personally, I think we need to throttle back the trend toward automatic computerized trading. There are too many badly understood issues with regard to chaos effects in these time frames.
    • by NoSig (1919688)
      There is no amount of time too small to matter if what matters is being faster than someone else.
  • by Anonymous Coward

    We still haven't solved the problem that was first noticed in the Industrial Revolution: How to occupy workers replaced by technology, and share the financial benefits of technology equitably.

    Luddites and Communists attempted to supply answers early on.

    Both answers have obvious flaws.

    Later in the 20th century, it looked like Keynsian economics and moderate socialism might be the answer; but that's debatable because WW2 caused massive re-employment and reconstruction which occupied a generation.

    Things seeme

    • Jay Gould is said to have remarked "I can hire one half of the working class to kill the other half."(unclear if he actually did; but it is a punchy line...)

      With today's advances in robotics, we are likely to see an even more efficient solution to the problems of displaced workers and productive capacity in excess of purchasing power: Humans who are replaced by robots can simply be massacred by robotic-ally manufactured robots. Sure, this will eventually result in the replacement of the human race by a d
  • Yes, light can only travel a tiny distance in 1 picosecond. You can still trade at that speed. It would require the traders to be running their programs on the same machine that is running the market. These programs would have to be implemented in silicon since 1/picosecond is a terahertz and we don't have general purpose terahertz machines - you'd even need more than a terahertz since a trade probably cannot be carried out in just 1 cycle. The real solution to this madness is to run the market at 1 hertz o
  • Thou shalt not process faster than your clock jitter will alloweth.

  • by Anonymous Coward on Friday March 04, 2011 @02:04AM (#35377014)

    Agree with those who say these guys are essentially parasites. But, it's worse.
                The one thing that MUST change -- these high frequency trading systems have malfunctioned, so they end up dumping ~$30-40 a share stock for $1 a share. Did the company running it lose money (and, consequently, everyone else make a bit by getting stock at a substantial discount)? Oh no. The stock exchange *CANCELLED* their trades. If you, I, or some regular trader, accidentally put up stock for $1 instead of $41, would anyone "fix" it for us? Of course not. These true parasites benefit from their high frequency trades, but when that would lose them money at high frequency the exchange "fixes" it for them.

  • Millisecond trades make sense, you can reliably anticipate how many ms your latency is and plan your trades accordingly. No one further than the next room away can have any chance of predicting picosecond latency.

    This would introduce some randomness into the process and introduce more opportunities for shenanigans.

    Or is there some obvious benefit that I'm missing?

    LK

  • How pathetic is it that we need to bring discussions of the fucking speed of light into stock exchange? Is there any reason why these people can't participate at a normal speed like everyone else? Normally I have a fairly libertarian slant to my views, but when something this big and important is only being made fully available to a select few super-rich, there's a problem...
  • 1 picosecond (ps) is 10^(-12) secs.
    You can run a single instruction in a 1000 GHz CPU (please scale to your favourite multicore system) during 1 ps.
    In 1 ps you can go as far as 0.03 cm at the speed of light in vacuum (wich is more than the speed of light in the fibers and the speed of electrons in a copper wire).
    So are you insensitive clod designing such a system?
    All this at zero latency along the full data path.
    In the end there will only be random things happening. As random as the trading market.
  • by Animats (122034) on Friday March 04, 2011 @03:36AM (#35377322) Homepage

    Although the picosecond thing is silly, the New York Stock Exchange now operates a co-location facility in which each trading platform gets a uniform 35 microsecond latency for the incoming trade data. Some systems can turn around that data and do a trade within 12 microseconds.

    Computers aren't fast enough for this. The latest thing is writing trading algorithms in Verilog and compiling them into an FPGA. [stoneridgetechnology.com]

    This worries me.

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