Posted by Brad @ 2:56 pm on July 25th 2009

High Frequency Trading

And in Wall Street Story #2, here’s a practice so stupid it would only make sense in Wall Street. The various stock exchanges have quietly created a service where subscribers can have their computers access trading information and trade on it three milliseconds before that information is publicly released.

Now to you or I that seems almost silly, but for giant firms with the world’s best algorithms and mainframes, that flash trading may be a large reason why trading volume has increased 164% since the practice began in 2005, and why the subscriber firms made a total of $21 billion in profits on the floor.

Donklephant has more.

Of course, if you sell stock because you find out a firm is going to go under, you get thrown in jail. But if you pay to look at information before the rest of us plebes can, that’s healthy trading.

2 Comments »

  1. Three milliseconds.

    The Market Ticker delves further.

    I’m trying to figure out how much it costs for that extra three milliseconds, or the kind of computing equipment and software necessary to trade on it, but am having no luck. Needless to say, my hunch is there are probably only a half a dozen financial institutions in the world able to afford it. Just the image of a computer running the stock exchange hooked up to six other computers next to it trading on that three millisecond window while the rest of us plebes have to do it the old fashioned way, i.e. humanly, is sort of weird.

    Question: is it still a market if no human interaction is involved?

    Comment by Brad — 7/25/2009 @ 7:18 pm

  2. Related?
    http://www.wired.com/threatlevel/2009/07/aleynikov/
    http://www.ritholtz.com/blog/2009/07/is-goldman-stealing-100-million-per-trading-day/

    Comment by thimbles — 7/25/2009 @ 11:19 pm

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