Crazy facts about high frequency trading

20 MIND-BOGGLING FACTS ABOUT HIGH FREQUENCY TRADING O SPEED 1 SECOND = 1.000 MILLISECONDS 1 SECOND = 1.000.000 MICROSECONDS A BLINK OF AN EYE = 300 - 400 MILLISECONDS HFT REDUCED THE DURATION OF ARBITRAGE OPPORTUNITIES FROM 97 MILLISECONDS IN 2005 TO 7 MILLISECONDS IN 2011. IN HFT, EACH MILLISECOND IS WORTH $100 MILLION IN REVENUE PER YEAR. A HFT FIRM PROCESSES ORDERS IN LESS THAN 400 MICROSECONDS (0.0004 SECONDS) - 1.000 TIMES FASTER THAN A BLINK OF AN EYE. IN 1960, AN AVERAGE SHARE WOULD BE HELD FOR FOUR YEARS. IN 2000, 17 THE HOLDING TIME FELL TO EIGHT MONTHS AND TO TWO MONTHS IN 2008. IN 2014, THE AVERAGE SHARE WAS HELD FOR 20 SECONDS. 1 MONEY, PROFIT & VOLUME IN 2013, HFT ACCOUNTED FOR 6.7 TRILLION EUROS OF EQUITIES TRADING VOLUME WHICH IS 39% OF THE TOTAL VOLUME. PROFITS FROM HFT IN AMERICAN STOCKS WERE AT $1.25 BILLION IN 2012, DOWN 35% FROM 2011 AND 74% LOWER THAN THE PEAK OF $4.9 BILLION IN 2009. IN 2009, HIGH-FREQUENCY TRADERS MOVED 3.25 BILLION SHARES A DAY. IN 2012, IT WAS 1.6 BILLION A DAY. PROFITS HAVE FALLEN FROM A TENTH OF A PENNY PER SHARE TO A TWENTIETH OF A PENNY. PROFITABILITY OF ARBITRAGE OPPORTUNITIES HASN'T CHANGED. HFT IS NOT ELIMINATING EFFICIENCIES, IT JUST MAKES THEM DISAPPEAR IN SLIGHTLY LESS OF A FRACTION OF A BLINK OF AN EYE. i PUSHING THE LIMITS A TECHNOLOGY FIRM BUILT A STRAIGHT LINE BETWEEN A DATA CENTER IN CHICAGO AND NASDAQ'S SERVER IN NEW JERSEY BUYING LAND AND BUILDING TUNNELS THROUGH THE ALLEGHENY MOUNTAINS THAT SHAVED 3 MILLISECONDS OFF THE TIME IT TAKES TO COMMUNICATE BETWEEN THE TWO CITIES. THE PROJECT COSTS WERE $300 MILLION. MOST TRANSATLANTIC CABLES HEAD STRAIGHT FOR DEEP WATER, TO GET AWAY FROM SHARKS. SHARKS BITE WIRES, ATTRACTED BY THE ELECTROMAGNETIC FIELDS. SOME FIRMS ALLOW ALGORITHM PROGRAMS TO LEARN AND CREATE THEIR OWN RULES. HOWEVER, THE FIRMS ARE UNAWARE OF THE RULES THE PROGRAMS CREATE. EXCHANGES PROVIDE HFT TRADERS WITH SECRET ORDER TYPES WHICH ARE BEING EXECUTED FASTER AND WITH PRIVATE DATA FEEDS. THESE PRIVATE DATA FEEDS REPRESENT 'ACTUAL' AND REAL-TIME MARKET INFORMATION, WHEREAS THE DATA FEED WHICH IS PRESENTED TO REGULAR INVESTORS IS 1500 TO 900 MILLISECONDS OLD - YEARS IN THE FIELD OF HFT. TO COMMUNICATE BETWEEN THE UK AND GERMANY, LASER BEAM TECH- NOLOGY, WHICH HAS BEEN DEVELOPED FOR THE U.S. MILITARY FOR COMMUNICATION BETWEEN FIGHTER JETS, IS USED. A MICROWAVE SYSTEM SHAVED OFF ALMOST 4 MILLISECONDS FOR A ROUND TRIP BETWEEN LONDON AND FRANKFURT. SEVERAL COMPANIES ARE BUILDING A NETWORK CHAIN OF MICROWAVE RELAY TOWERS BETWEEN NEW YORK AND CHICAGO TO SEND SIGNALS THROUGH THE AIR. RUMOURS ABOUT THE USE OF DRONES, SATELLITES AND BALLOONS TO TRANSFER DATA EVEN FASTER EXIST. FOR A HIGH FEE, HFT TRADERS CAN 'CO-LOCATE' THEIR ALGO-COMPUTERS INSIDE THE ROOM WITH THE CENTRAL SERVER OF THE NYSE. ENGINEERS ADDED EXTRA LENGTHS OF CABLE OF A FEW FEET TO EQUALIZE THE RUNS AMONG ALL THE COMPUTERS. A FOOT OF CABLE EQUATES TO ONE NANOSECOND'S DIFFERENCE. THE MA- CHINES OF ALGO-TRADERS CANNOT EVEN DIFFERENTIATE NANOSECONDS. tradeciety t www.tradeciety.com y twitter.com/tradeciety 9 [email protected] from traders, for traders REFERENCES HTTP://WwW.BLOOMBERG.COM/NEWS/2014-03-30/HIGH-FREQUENCY-TRADERS-RIPPING-OFF-INVESTORS-MICHAEL-LEWIS-SAYS.HTML HTTP://WwW.REUTERS.COM/ARTICLE/2013/05/01/US-HIGHFREQUENCY-MICROWAVE-IDUSBRE9400L920130501 HTTP://WwW.BUSINESSWEEK.COM/ARTICLES/2013-06-06/HOW-THE-ROBOTS-LOST-HIGH-FREQUENCY-TRADINGS-RISE-AND-FALL HTTP://WwW.THEGUARDIAN.COM/BUSINESS/2014/JUN/07/INSIDE-MURKY-WORLD-HIGH-FREQUENCY-TRADING HTTP://WwW.REUTERS.COM/ARTICLE/2013/05/01/US-HIGHFREQUENCY-MICROWAVE-IDUSBRE940OL920130501 HTTP://WwW.THEATLANTIC.COM/BUSINESS/ARCHIVE/2014/04/EVERYTHING-YOU-NEED-TO-KNOW-ABOUT-HIGH-FREQUENCY-TRADING/360411/2/ HTTP://Www.WIRED.COM/2012/08/FF_WALLSTREET_TRADING/ALL/