Thinking of entering the world of high-speed computer trading, but don't know whether you're best situated in New York, London, or Hong Kong? Your best bet may be Siberia instead, according to a new study from two MIT researchers.
Ultra-fast computer-assisted trading make up about half the trades in many markets. It's a realm in which a minute might as well be a day; the smartest trades are made by being milliseconds faster than anyone else. For this reason, many firms set up shop near market exchanges, for the simple reason that being closer translates into getting information quicker. "Even money can't move faster than the speed of light," as New Scientist puts it, and our world of ubiquitous digital communications still must obey the laws of physics.
The insight of the MIT researchers, Alexander Wissner-Gross and Cameron Freer, is that some automated traders—or at the very least, their server farms—will be best positioned in-between certain exchanges. Since some trading strategies capitalize on price fluctuations between separate exchanges in different parts of the world, the optimally located server will receive information from those exchanges at precisely the same moment, gaining that millisecond advantage over the competitor. In some cases that pefect location is the midpoint between the two exchanges, but not always—it depends on whether the exchanges' prices move at the same speed or not.
Wissner-Gross and Freer rounded up the locations and price-speeds on the 52 largest global exchanges, and plotted a map of the ideal locations for traders who would want to be perfectly positioned between any given pair. The map, which appears today in an article in the journal Physical Review E, dictates that some traders' servers will be ideally positioned in central Africa, others in the remotest forests of Canada, others in the middle of the Indian Ocean, and still others in Siberia. This all assumes, of course, a proper infrastructure in place—in the short term, Freer tells Fast Company, it might make more sense to approximate these locations, rather than invest in installing a server farm underneath the ocean.
If you think this is all just a cheeky, elaborate thought experiment, think again. "We're currently speaking with financial firms about licensing the technique," and have been for several months, Wissner-Gross tells Fast Company, adding that he and Freer have filed patents.
"We view this work as one of the first serious, credible justifications for covering the planet's surface with computers," he goes on. "Previously, natural resources were viewed as material resources. We've perhaps identified a new type of natural resources that sovereignties might take advantage of."
So if you're a trader—or one of the tech wizards who helps them in their advanced computerized ventures—what are you waiting for? Go west, young man! Or east, or north, or south—your new treasure map, courtesy of Wissner-Gross and Freer, is below.
[Top image: Flickr user hobnob_malevolence]