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Speed Racer on the Virtual Trading Floor
Posted 08 Jan 10
Some doomsday reporting last fall on “high velocity trading,” where massively powered computers running PhD-designed algorithms buy and sell stocks in fractions of a second. Technology Review has a great article on the topic this month (if you don’t subcribe, or aren’t an MIT alum, another copy may be found here).
The technology is amazing; one hedge fund is quoted saying they have computing power equivalent to Lawrence Livermore National Laboratory’s. High-velocity quant funds, as they’re known, will trade millions of shares every hour, with notional values of hundreds of millions of dollars — in and out in seconds, arbitraging the tiniest differences in prices across markets.
Critics claim these guys threaten to crater the market again, like 1987′s Black Monday, only on vastly larger scale and over in micro-seconds. The funds argue they’re merely providing liquidity, and their positions are net market-neutral, but they would say that, right? They’re making money faster than the mint can print it.
I don’t know who’s right. But it is obvious that the incredible ingenuity, effort and investment spent on devising these systems could have gone elsewhere: curing malaria? developing better solar cells? eliminating E.coli from children’s school lunches? NOT canceling the manned space-flight program?
Still, the technology is fascinating — and surely provides framework for someone’s next financial thriller.
This post indexed as: Finance, Technology
Wait a second. Are you saying the manned space-flight program is a good use of resources? Or just that it’s better than diverting resources to tools of mass financial destruction?
Well, yes, I do think manned spaceflight is worthwhile. We have to get those orbital habitats up and running. Where do you think humanity is going to move after we’ve degraded this planet past livability?
Actually, I’m most disappointed at the cutbacks in unmanned missions. Small, relatively cheap probes have been visiting the remotest parts of the solar system, scoping out truly amazing photos and data from the moons of the outer planets, Mercury, asteroids, you name it. Each one barely costs more than a Wall Street bonus or two. Seems like our priorities are a little out of whack.