Furious bulls: how Wall Street became dependent on "high-speed" trades. Part 1
Previously, Wall Street relied on companies producing goods. Now she puts only on technologies that allow making trading operations as quickly as possible.
From the editor: one of the most remarkable moments in the disaster that occurred to Knight Capital Group, a trading company that lost $ 440 million this week [article was published on the website of Wired magazine on 03/08/12 - approx. translator] - the speed of this collapse. News reports reported that most of the transactions that led to the fall in stock prices and huge losses occurred in less than an hour. And this fall, provoked by the actions of the software, once again forced the financial community to think that the race for profit could eventually turn into a choice of fast, but poorly managed and insufficiently “intelligent” software solutions. We publish this story before its official release in print in the September magazine Wired, because it demonstrates how close Wall Street has come to the point when such rapid falls will occur with ever-increasing frequency, and how far traders are ready to go in pursuit of the speed of trading operations.
')
In 2012, the two-day conference of algorithmic traders New York Battle of Quants (“Battle of Quanta”) took place at the end of March, just a few days after a group of researchers admitted that an experiment that could shake the foundations of modern physics was mistaken . The researchers claimed that subatomic particles called neutrinos can move in space faster than the speed of light.
[ Physics and mathematics are called “quanta” in the western stock exchange community, which build algorithms for making profit from short-term price fluctuations, based on quantitative financial analysis (quantitative analysis) - approx. translator ]
However, they were wrong: six months later they had to take back their statements. And, since we have no reason to doubt the postulates of the Special Theory of Relativity, the news that neutrinos obey the laws of physics as before, put a final point in the pursuit of quanta - physicists, engineers and mathematicians-re-qualified-in-financiers generating at least 55% of the stock trade in the United States - for their unrealizable dream. But the ability to send signals faster than the speed of light could provide markets with unprecedented profits — ultimately, this would be tantamount to trading “in the past” —it would be like putting a horse on it after the race.
If this were the end of the requirements, someone would definitely have done something. One of the main topics of this year's conference was the “race for survival” - a competition in which price was not the subject of interest, and which consisted in finding the absolute theoretical minimum of time spent on one trading operation.
This variable, called latency (latency, delay), is rapidly approaching the physical limit determined by the speed of light and quantum mechanics. But perhaps even Einstein was not fully aware of the extent to which electromagnetic waves are obedient to the will of money. Kevin Mac Partland of the Tabb Group, analyzing information on the financial industry, predicted that in 2010 companies would spend $ 2.2 billion on the creation of trade infrastructure - the purchase of high-speed servers that process trading data, and fiber-optic cables connecting them to a network will link the entire globe. But this happened even before the project was launched, connecting the new transatlantic cable New York with London, and London (via the Arctic Ocean) with Tokyo - all in order to reduce the time to receive data and sending commands.
High-frequency traders [ HFC - traders (High Frequency Trading) have also taken root in Russia - approx. the translator ] is a subset of quanta, investors who make money in a new way: they receive a fraction of a cent multiplied by hundreds of shares per unit of time — tens of thousands of times a day. These traders occupy an anomalous position on Wall Street, bringing to its atmosphere an unusual mixture of timidity and arrogance, so unlike the pure, uncomplicated arrogance of ordinary investment bankers.
One of the pioneers of high-frequency trading, the company Trade worx, occupies a rather modest office in two spans from UrbanOutfitters [ companies selling clothes, accessories and household goods that are focused on young people - approx. Translator ] in a sleepy suburb of New Jersey. Twenty people work here, about half of them are “traders on the floor” [ i.e. traders working in the hall of the exchange - approx. translator ], each of which monitors immediately for the three monitors, displaying the second fluctuations of the share of pennies. Only 1.5% of the total shares traded on US exchanges pass through this quiet sunlit room with brick walls per day.
On the first day of the New York conference, Aaron Brown, the legendary quantum and former professional poker player, takes the stage in dented chinos and leather jacket to read a lecture on game theory. He opens his speech with the words "3.14159", after which he pauses in anticipation. From the corner of the hall comes the answer: "265358". Together, these two called the first 12 digits of pi - the secret geek password.
The wheels of the financial world are spinning faster and faster, and at the same time the risk of a sudden catastrophe is growing, when minor changes somewhere in the depths of the system will grow into a global crisis in a split second.
This movement is gaining strength for more than ten years. People who make investment decisions based on their own assessment of the state of the economy and forecasts for individual companies are forced to retreat. Computers — driven by news feeds and trend-generated information from other computers, interacting only with each other — are gaining popularity. Traditional economics regards all this as a pure good: no one questions that all trades strengthen the economy, since they increase “liquidity” - the ability of investors to buy or sell assets at the most favorable price.
Indeed, in 2007, the SEC [ The United States Securities and Exchange Commission - Commission on Securities and Exchange Commission - approx. translator ] put forward a new ambitious rule, and the US national market system has been enriched by dozens of new trading platforms, but now, when the transaction duration is measured in microseconds, and the price spread is in the sixth decimal place, a diminishing return period is likely for these new opportunities .
So if new scientific breakthroughs do not occur in physics, you and I will see a decline in the trend that began when the Rothschilds, according to legend, sent post pigeons to find out the outcome of the Battle of Waterloo and use this information in the bidding process. For almost a hundred years, until the 1970s, the ticker apparatus (for receiving data) and the telephone (for sending commands) dominated financial communications. The high-speed server connected to the exchange with a fiber cable of the minimum possible length is now at the forefront, since each mile of fiber provides approximately 8 microseconds of information delay. Technologies bring such profits to the financial world that any research and infrastructure costs that save these microseconds are worth it.
This race continues in the field of financial hardware. Data Center NYSE-Euronext [ group of companies formed in the process of merging the New York Stock Exchange NYSE and the European Exchange Euronext - approx. translator ] - an international conglomerate that includes the New York Stock Exchange - located in a building in the suburb of Mahvah, New Jersey, 27 miles from Wall Street.
In addition to computers processing trading on the stock exchange and engaged in the selection of sellers and buyers with adequate offers to each other, there are high-frequency trading servers that receive information and form teams to sell or buy in accordance with the programs - algorithms. Traders pay for the opportunity to put their servers in the same building, and to equalize the chances for all, engineers scrupulously increase the length of cables between all servers. Yes, it's about plus or minus a few feet of length. And about the speeds approaching the speed of light.
Now multiply these efforts across the width of the continent or ocean. The quantum or relativistic components of machine-to-machine interaction, which does not require our intervention, are many times ahead of the human reaction. The trend that began with the pigeons will find its end in the world of subatomic particles, transmitting data that become obsolete before they arrive at their destination.
To be continued…
From the editor: one of the most remarkable moments in the disaster that occurred to Knight Capital Group, a trading company that lost $ 440 million this week [article was published on the website of Wired magazine on 03/08/12 - approx. translator] - the speed of this collapse. News reports reported that most of the transactions that led to the fall in stock prices and huge losses occurred in less than an hour. And this fall, provoked by the actions of the software, once again forced the financial community to think that the race for profit could eventually turn into a choice of fast, but poorly managed and insufficiently “intelligent” software solutions. We publish this story before its official release in print in the September magazine Wired, because it demonstrates how close Wall Street has come to the point when such rapid falls will occur with ever-increasing frequency, and how far traders are ready to go in pursuit of the speed of trading operations.
')
In 2012, the two-day conference of algorithmic traders New York Battle of Quants (“Battle of Quanta”) took place at the end of March, just a few days after a group of researchers admitted that an experiment that could shake the foundations of modern physics was mistaken . The researchers claimed that subatomic particles called neutrinos can move in space faster than the speed of light.
[ Physics and mathematics are called “quanta” in the western stock exchange community, which build algorithms for making profit from short-term price fluctuations, based on quantitative financial analysis (quantitative analysis) - approx. translator ]
However, they were wrong: six months later they had to take back their statements. And, since we have no reason to doubt the postulates of the Special Theory of Relativity, the news that neutrinos obey the laws of physics as before, put a final point in the pursuit of quanta - physicists, engineers and mathematicians-re-qualified-in-financiers generating at least 55% of the stock trade in the United States - for their unrealizable dream. But the ability to send signals faster than the speed of light could provide markets with unprecedented profits — ultimately, this would be tantamount to trading “in the past” —it would be like putting a horse on it after the race.
“In the period between the first material, published in September and last week, the guy from my store wrote two articles explaining how this could become a reality,” says a grizzled ex-physicist who looks at Keith Haring’s huge canvas, clearly dominant, over a cup of coffee. over other objects in the hall of Chrisrie's auction house, where the conference takes place. "And of course, you would need a particle accelerator for this."
If this were the end of the requirements, someone would definitely have done something. One of the main topics of this year's conference was the “race for survival” - a competition in which price was not the subject of interest, and which consisted in finding the absolute theoretical minimum of time spent on one trading operation.
This variable, called latency (latency, delay), is rapidly approaching the physical limit determined by the speed of light and quantum mechanics. But perhaps even Einstein was not fully aware of the extent to which electromagnetic waves are obedient to the will of money. Kevin Mac Partland of the Tabb Group, analyzing information on the financial industry, predicted that in 2010 companies would spend $ 2.2 billion on the creation of trade infrastructure - the purchase of high-speed servers that process trading data, and fiber-optic cables connecting them to a network will link the entire globe. But this happened even before the project was launched, connecting the new transatlantic cable New York with London, and London (via the Arctic Ocean) with Tokyo - all in order to reduce the time to receive data and sending commands.
High-frequency traders [ HFC - traders (High Frequency Trading) have also taken root in Russia - approx. the translator ] is a subset of quanta, investors who make money in a new way: they receive a fraction of a cent multiplied by hundreds of shares per unit of time — tens of thousands of times a day. These traders occupy an anomalous position on Wall Street, bringing to its atmosphere an unusual mixture of timidity and arrogance, so unlike the pure, uncomplicated arrogance of ordinary investment bankers.
One of the pioneers of high-frequency trading, the company Trade worx, occupies a rather modest office in two spans from UrbanOutfitters [ companies selling clothes, accessories and household goods that are focused on young people - approx. Translator ] in a sleepy suburb of New Jersey. Twenty people work here, about half of them are “traders on the floor” [ i.e. traders working in the hall of the exchange - approx. translator ], each of which monitors immediately for the three monitors, displaying the second fluctuations of the share of pennies. Only 1.5% of the total shares traded on US exchanges pass through this quiet sunlit room with brick walls per day.
On the first day of the New York conference, Aaron Brown, the legendary quantum and former professional poker player, takes the stage in dented chinos and leather jacket to read a lecture on game theory. He opens his speech with the words "3.14159", after which he pauses in anticipation. From the corner of the hall comes the answer: "265358". Together, these two called the first 12 digits of pi - the secret geek password.
“Here you can hardly find those who are called the powers that be,” says Charles Jones, a professor of economics at Columbia Business School. "For many of those who came here in a tie, this tie is most likely the only one."
The wheels of the financial world are spinning faster and faster, and at the same time the risk of a sudden catastrophe is growing, when minor changes somewhere in the depths of the system will grow into a global crisis in a split second.
“For the first time in the history of finance, cars started trading so quickly that a person does not have the slightest opportunity to intervene in this,” said Andrew Haldein, Bank of England manager, at another recent conference. "And in the future, this gap will only increase."
This movement is gaining strength for more than ten years. People who make investment decisions based on their own assessment of the state of the economy and forecasts for individual companies are forced to retreat. Computers — driven by news feeds and trend-generated information from other computers, interacting only with each other — are gaining popularity. Traditional economics regards all this as a pure good: no one questions that all trades strengthen the economy, since they increase “liquidity” - the ability of investors to buy or sell assets at the most favorable price.
Indeed, in 2007, the SEC [ The United States Securities and Exchange Commission - Commission on Securities and Exchange Commission - approx. translator ] put forward a new ambitious rule, and the US national market system has been enriched by dozens of new trading platforms, but now, when the transaction duration is measured in microseconds, and the price spread is in the sixth decimal place, a diminishing return period is likely for these new opportunities .
So if new scientific breakthroughs do not occur in physics, you and I will see a decline in the trend that began when the Rothschilds, according to legend, sent post pigeons to find out the outcome of the Battle of Waterloo and use this information in the bidding process. For almost a hundred years, until the 1970s, the ticker apparatus (for receiving data) and the telephone (for sending commands) dominated financial communications. The high-speed server connected to the exchange with a fiber cable of the minimum possible length is now at the forefront, since each mile of fiber provides approximately 8 microseconds of information delay. Technologies bring such profits to the financial world that any research and infrastructure costs that save these microseconds are worth it.
This race continues in the field of financial hardware. Data Center NYSE-Euronext [ group of companies formed in the process of merging the New York Stock Exchange NYSE and the European Exchange Euronext - approx. translator ] - an international conglomerate that includes the New York Stock Exchange - located in a building in the suburb of Mahvah, New Jersey, 27 miles from Wall Street.
In addition to computers processing trading on the stock exchange and engaged in the selection of sellers and buyers with adequate offers to each other, there are high-frequency trading servers that receive information and form teams to sell or buy in accordance with the programs - algorithms. Traders pay for the opportunity to put their servers in the same building, and to equalize the chances for all, engineers scrupulously increase the length of cables between all servers. Yes, it's about plus or minus a few feet of length. And about the speeds approaching the speed of light.
Now multiply these efforts across the width of the continent or ocean. The quantum or relativistic components of machine-to-machine interaction, which does not require our intervention, are many times ahead of the human reaction. The trend that began with the pigeons will find its end in the world of subatomic particles, transmitting data that become obsolete before they arrive at their destination.
To be continued…
Source: https://habr.com/ru/post/201062/
All Articles