Automated Stock Trading Could Speed Up Your ISP - No, Really

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LadyGeek
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Automated Stock Trading Could Speed Up Your ISP - No, Really

Post by LadyGeek » Fri Jul 23, 2010 7:50 pm

Automated Stock Trading Could Speed Up Your ISP — No, Really
Wired wrote:In a never-ending race to react to minute fluctuations in stock prices faster than anyone else in the world, financial firms have gone to extraordinary lengths to build the fastest possible networks, processors and software....

They measure their success by the nanosecond, which is the amount of time it takes light to travel a scant eight inches through a fiber-optic cable. While that might seem absurd to those of us still stuck on sluggish and overpriced consumer net connections, their obsession will, one day, likely become our gain.

For these firms, a few inches of cable means the difference between selling a stock and losing the sale to another firm with slightly shorter cables — or faster processors, networking hardware or trading software. It costs a minimum of $10 million-worth of equipment to play this game, and the stakes are always being raised. As a result, the financial sector is powering the second phase of data-transmission technology, which is no longer about the width of the pipe — but its speed.

“We’ve seen innovations in the past two years that have companies focusing on microseconds, and now we’re actually looking at nanoseconds. A pulse of light in a fiber-optic cable can transmit eight inches in a nanosecond. If you can get your information to the end point eight inches faster than your competitor or eight inches before an event occurs, then that’s important.”

Financial firms evolved into near-light-speed traders thanks to the profits that can be made from algorithms that make buy or sell decisions in nanoseconds. The firms’ hardware sits inside the biggest stock exchanges, where they find themselves in a financial-tech arms race with ever-declining returns. Firms spend more to increase speeds whose advantages are measured in ever-decreasing slivers.
If I move my PC right next to the Verizon FiOS ONT (Optical Network Terminal), I can send my transaction order 30 nS ahead of everyone else (30 nS = 20 feet to the ONT * 1.5 nS / foot propagation at speed of light through cable). :D
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Post by baw703916 » Fri Jul 23, 2010 8:49 pm

30 nanoseconds will help, but...according to my calculation, you live about 600 microseconds from Wall Street. :(

You do, however, have a definite trading advantage over me--I live about 2 milliseconds away. :wink:

Of course, the refractive index of optical fibers is about 1.5--one could in theory make a fiber from a lower index material and gain an advantage. But there's a few practical difficulties with that...

It's curious how in this instance the normal trend of the internet decentralizing things has reversed itself--now everyone wants to be as physically close to Wall Street as possible, just for minimizing the communications time.

Quantum entanglement, anybody?

Brad
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Post by 555 » Fri Jul 23, 2010 9:32 pm

Interesting consequence, but I actually think a solution is to go in the opposite direction. Slow down the "clock speed" of trading so as to allow trades just once per minute. The clock "ticks" once per minute and all open trades are active just at the instant of that tick. Say bids have to be put in between 10 seconds after one tick and 10 seconds before the next tick, giving a 40 second window to submit. (Executed trades are announced 5 seconds after each tick, etc) Bids must be secret. Computers can still be as fast as you like, but the once per minute trading speed levels the playing field.

Is there any reason not to do it this way. I think this idea should be taken seriously.

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Post by grayfox » Fri Jul 23, 2010 11:13 pm

555 wrote:Interesting consequence, but I actually think a solution is to go in the opposite direction. Slow down the "clock speed" of trading so as to allow trades just once per minute. The clock "ticks" once per minute and all open trades are active just at the instant of that tick. Say bids have to be put in between 10 seconds after one tick and 10 seconds before the next tick, giving a 40 second window to submit. (Executed trades are announced 5 seconds after each tick, etc) Bids must be secret. Computers can still be as fast as you like, but the once per minute trading speed levels the playing field.

Is there any reason not to do it this way. I think this idea should be taken seriously.
That is some good thinking there 555.

Right now trading happens asynchrously, so the fastest computer wins. I read where the exchanges have been going to great lengths to make sure all the computers in the building are the same distance from the trading computer.

But you are suggesting synchronizing to some clock so that everyone has a chance to get there trade in before the next clock tick.

That sound like the solution to the arms race of ever faster computers.

I don't know if it has to be slow as 1 minute. It might work as well with one second clock or even 100 milliseconds (1/10 second) clock tick.

(BTW, are you aware that 555 was a famous timer? No, not market timer, but electronic timer. I bet every EE thinks of this integrated circuit when they see the numbers 555)

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Re: Automated Stock Trading Could Speed Up Your ISP - No, Re

Post by tc33 » Sat Jul 24, 2010 7:50 am

LadyGeek wrote:If I move my PC right next to the Verizon FiOS ONT (Optical Network Terminal), I can send my transaction order 30 nS ahead of everyone else (30 nS = 20 feet to the ONT * 1.5 nS / foot propagation at speed of light through cable). :D
That's nothing. I'll set up my high tech trading platform (aka my P3 dell) up in a tree stand attached to the telco pole in my yard, connected with a 1 ft fiber optic cable. I'll find all the materials I need in the one-upsmanship aisle at the Home Depot.

I figure this will allow me to complete my annual rebalancing at least 3 ms faster than the rest of the bogleheads.

I'll show you. I'll show all of you! :twisted:

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Re: Automated Stock Trading Could Speed Up Your ISP - No, Re

Post by Sidney » Sat Jul 24, 2010 8:01 am

tc33 wrote:
LadyGeek wrote:If I move my PC right next to the Verizon FiOS ONT (Optical Network Terminal), I can send my transaction order 30 nS ahead of everyone else (30 nS = 20 feet to the ONT * 1.5 nS / foot propagation at speed of light through cable). :D
That's nothing. I'll set up my high tech trading platform (aka my P3 dell) up in a tree stand attached to the telco pole in my yard, connected with a 1 ft fiber optic cable. I'll find all the materials I need in the one-upsmanship aisle at the Home Depot.

I figure this will allow me to complete my annual rebalancing at least 3 ms faster than the rest of the bogleheads.

I'll show you. I'll show all of you! :twisted:
You may need the mother of all surge protectors up that high.
I always wanted to be a procrastinator.

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Re: Automated Stock Trading Could Speed Up Your ISP - No, Re

Post by bearwolf » Sat Jul 24, 2010 8:51 am

tc33 wrote: That's nothing. I'll set up my high tech trading platform (aka my P3 dell) up in a tree stand attached to the telco pole in my yard, connected with a 1 ft fiber optic cable. I'll find all the materials I need in the one-upsmanship aisle at the Home Depot.

I figure this will allow me to complete my annual rebalancing at least 3 ms faster than the rest of the bogleheads.

I'll show you. I'll show all of you! :twisted:
It seems no matter how fast my transaction gets there I still get the end of day closing price on my mutual funds on my quarterly purchases. I guess I don't understand the rush.

BearWolf

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Post by LadyGeek » Sat Jul 24, 2010 10:36 am

Hold everything, tc33 get down off your tree stand. The transactions are being throttled back by the servers, software, and networking hardware.

A Best of Breed Low Latency Solution for Ethernet Trading Environments from 29West & Voltaire (Performance Report)
The security trading market is experiencing rapid growth in volume and complexity with a greater reliance on trading software, which is supported by sophisticated algorithms. As this market grows, so do the trading volumes, bringing existing IT infrustracture systems to their limits.

Middleware and networking solutions must not only deliver lower latency despite higher volumes, but also sustain performance through market data traffic spikes while minimizing latency jitter and unpredictable messaging outliers.

Latency under heavy load (high throughput), Message rate up to 1,300,000 msg/sec, message size under 64 bytes:
- Average latency under 19 μsec
- 99.9th percentile latency 41 μsec or lower
When comparing to non-accelerated 10GigE performance, the above numbers introduce an improvement factor of 2-3X in latency performance, and, when multiplied with a three-tier trading application with ingress and engress stages taken into account, can save over 100 μsec of the trading roundtrip. This makes a big difference in trading positive yields.
The rest of the report gives a small sample of the many considerations needed to define a benchmark to support the above claims. My take is that their competitor will derive their own benchmark to show things in a different light. The real test comes when these systems are actually used in the field.

I have no idea what "when trading positive yields" means. My guess is that they let the engineers write this section and it slipped by the finance guys.
tc33 wrote:...I'll find all the materials I need in the one-upsmanship aisle at the Home Depot.
That aisle is always crowded.
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