The SpaceX Starlink satellite network will not for high-frequency trading. It is for the productivity of tens of thousands of finance people in each finance city pair. Latency makes each communication people and machines, machines and machines slower. It is a million tiny cuts per person. Each finance person costing an average of about $200K to $1+ million including overhead.
However, the money lost is from getting in orders behind other traders during market rushes. It is not time waiting and salary lost. It is getting the information a bit later, making a decision and then being at a different spot in the order execution line. You are reacting to a stock moving rapidly higher or rapidly lower. Where are you in line to buy and sell? The Black Friday checkout line at Walmart starts filling up and did you get there ten seconds earlier or ten seconds later. Do you get door-buster pricing or do you not?
The high-frequency trading is taking no market risk. They are shaving the bid and offer gaps. They are taking some money every second by capitalizing on inefficiency in the market.
The speed of light is faster in space than it is through a fiber cable. It is nearly twice as fast. Cities more than 2000 miles away will be able to communicate faster. This is not bandwidth speed but latency or the initial lag at the beginning of each new transmission or data message.
A 5% improvement in lowered delays was worth more than $100 million per between New York and Chicago. New York has major stock exchanges and Chicago has commodities trading.
Latency is like a smaller version the gains going from dial-up modem to ISDN line gains. The 10-second boot-up at the start of the dial-up connection was not latency per se but it was an obvious delay penalty.
Once the data is moving then bandwidth determines the speed.
A dial-up connection had a latency of around 90-110 millisecond. An average ADSL connection is around 30-50 milliseconds. However, those are latency tests to the nearest servers. There is also passing information around the network.
High-frequency trading is nanosecond stuff. They are co-located with the exchanges.
The way to get rid of high-frequency trading is to collect all trades and settle once per second or once per minute. There is then almost no advantage for being nanoseconds faster.
The SEC and the Exchanges need to level the playing with top of the second settlement. This shift would not be that difficult. It is not happening. Certain people and companies keep making billions. It is a corruption tax on the investment returns of everyone else who is not gaining from high-frequency trading.
Brian Wang is a Futurist Thought Leader and a popular Science blogger with 1 million readers per month. His blog Nextbigfuture.com is ranked #1 Science News Blog. It covers many disruptive technology and trends including Space, Robotics, Artificial Intelligence, Medicine, Anti-aging Biotechnology, and Nanotechnology.
Known for identifying cutting edge technologies, he is currently a Co-Founder of a startup and fundraiser for high potential early-stage companies. He is the Head of Research for Allocations for deep technology investments and an Angel Investor at Space Angels.
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