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## Contemplating Financial Trading At Picosecond Resolution448

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

• #### To put this in perspective (Score:4, Informative)

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.)

• #### Re:Not good for the market: need synchronous clock (Score:4, Informative)

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.

• #### Re:light travels .3mm in a picosecond (Score:5, Informative)

on Friday March 04, 2011 @01:09AM (#35376810)

Nine orders of magnitude. 1ps is a billionth of a millisecond. (you forgot micro...). I know, brainfart, but 10^9 makes it that much more ridiculous.

• #### Worse than you think :P (Score:5, Informative)

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

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

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:Worthless (Score:5, Informative)

by Anonymous Coward on Friday March 04, 2011 @01:38AM (#35376918)

That's one of the arguments used by HF traders to justify their trade: they claim to provide liquidity to the market. Yes, this is true; however, HF trading violates one fundamental precept of the stock market that makes it work: that market forces determines the actual value of stock, based on an assessment of the value a company provides. There is no such valuation in HF algorithms (the concept of "value" is meaningless to a computer), only arbitrage. HF trading can and often does distort true market values. They can also cause a huge mess very quickly (as witnessed in recent years i.e. the Dow dropping a 1000 points in a very short time due to a chain reaction caused by algorithmic trades).

The ideal function of a stock market in an economy is primarily to raise capital so that wealth creation activities can occur. But because of human greed, a part of it will always merely function as a wealth distribution scheme. This is okay so long as the wealth creation activities are not impeded by the wealth distribution activities. HF trading shifts the balance toward the latter, and at some point, it can actually become a detriment to the economy.

• #### Re:They steal the difference between buyer and sel (Score:5, Informative)

by Anonymous Coward on Friday March 04, 2011 @09:45AM (#35378564)

Man, there is so much misinformation in this thread, I could spend the whole day here.

HFT guys aren't stealing money from you- they are actually stealing money from the guys who have been ripping you off for decades- the exchanges, the market makers, the brokers, and everyone else in between.