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High speed trading

Kevin Drum has a crazy article up about how some lucky companies have the ability to make stock market trades microseconds before an announced trade actually goes through.

Here's how Hendershott's latency-arbitrage strategy worked: Redline allowed him to use its "direct market access" -- cables that run directly from exchange servers to its own. Redline's server was co-located with that of BATS Exchange so that the "latency" on information and orders coming from BATS was cut down to barely one thousandth of a second. As a result, some of the quotes on public feeds such as the crucial "national best bid and offer" feed were a few milliseconds behind those Hendershott could see on his direct link with the exchanges. With a half-decent trading algorithm, Hendershott would have had ample time to buy Apple at a stale price with a guarantee that he could sell at a profit. Every couple of seconds. All day. Risk on the trades: zero.

By fnord12 | September 3, 2013, 2:37 PM | Liberal Outrage