I understand the profit motive. I just don't think that for trades, informing community of value (prices, derivitives, futures) that moving to femto-seconds is adding value.
"I made a lot of money because I have faster komputer than u"
The long-term investor has an interest in liquidity and a reasonable response time to market moving news. He's making decisions about a company based on expectations of the future. Typically, if his trade clears in 1 minute-- or even 1 day-- instead of 1 millisecond, there isn't that much in it except in some corner case situations.
The short-term investor is mostly interested in reacting to the noise in the signal-- getting a few nanoseconds ahead of other sellers and positioning accordingly. If you have enough of a "we got the info first" edge, you don't have to have any real opinion of the companies you're investing in, or even a preference of long or short, you can systematically ride the signals.
The justifications for ever-faster trading tend to break down as "more liquidity" and "less arbitrage", but we're not asking if the marginal increases in performance there are worth the costs-- both in the arms-race for faster market and informaion access, and in the impacts on market behaviour caused by large numbers of super-short-term investors throwing their inertia around tiny swings in the market.
Big problem currently is moving large block (institutional) trades without affecting the market. Thats why a good chunk has moved to dark pools. (I work for a dark pool ATS).
aggregating user data and selling it.
people with dis-equal access to service and collecting everyone else's orders midstream and selling it:
the machine two racks away from the matching engine is selling information to the machine one rack away from the matching engine
and this goes all the way out to your broker, your etrade or robinhood who is selling all of your profile and trade data to the machine two racks away from the matching engine
it adds a lot of value for a lot of people. the actual femtosecond trade isn't what anybody cares about.
regarding the equality, it wasn't that long ago where you had dis-equal access if you couldn't physically be at the stock exchange, in fact thats where you were supposed to be if you wanted to trade. so I can't buy that argument, in isolation.
I do think it is a form of front-running, which is regulated in some capacity but very specifically worded such that your broker can't place a trade before you just because they found out you wanted to. what we have here is front-running but from different unrelated companies in the chain and all automated by machine.
Do I (for instance) pay more? I suspect I do. I suspect the intermediary sniping in, forces prices up to their advantage. The dis-equality is being abused, to extract rent from me because I am slow. HURRY UP! Bidness waiting.
Which means, overall, we all pay more. This is cost shifting to make money, by snatching goods in flight, and charging a minim to pass them on. The intermediary has no intention of doing anything except profiting. they aren't holding, they aren't helping.
I'm not a free market person btw. So, I'd probably say that about a lot of behaviour in 'the market'
My mental model is that pre-HFT, banks and other market makers made a lot more money per share traded. HFT outcompeted them and the HFTs make less money per share. I, as an individual investor, get to keep more of my money and less of it goes to various intermediaries.
-you pay less for an order -it takes less time for your order to get filled -more efficient pricing -liquidity ripples out into risk management products derived from thick order books -easier to manage risk -lower cost of transaction
"badput"
-hard to compete against the liquidity providers -they have unparalleled view of order flow, which runs counter to a market with fair equal access to information
So prices are some pennies more efficient, but some of the trading money is going to the pockets of high frequency traders.
This is good! To a point. Eventually the price tag of improved liquidity could be higher than the value of that liquidity.
It's not hard to pick a location and use its reference frame.
> When you're talking about nanoseconds or less, you're inherently never going to be able to reconcile things that are miles apart
Let's say four miles, for 20 light-microseconds. To be even .2 nanoseconds off, you'd need a time dilation of at least ten parts per million. That's a huge amount. Even GPS satellites, with their very high speed and distance, measure time dilation in fractions of a part per billion.
For things that are "miles" apart, you can completely ignore relativity at the nanosecond level. Or even between any two locations on the planet.
http://math.ucr.edu/home/baez/physics/Relativity/SR/rotating...
I think that number is wrong. When I take 460 meters per second at the equator, double it, and put it in a time dilation calculator, I get a dilation factor of 5e-12. Multiply that by 150ms and you get less than a picosecond of dilation.
But if I made a mistake, and that number is correct, then my core point is still completely right. Locations on Earth that are miles apart are still synced within far less than a nanosecond.
We are long past trading adding any actual value to society.
I recommend you first familiarize yourself with the subject. People are generally misinformed about this subject but feel obligated to opine on it before doing due dilligence, for some reason.