Tuesday, July 7, 2009

Why Daytraders Have an Uphill Battle

From our June '07 post "Alternative Energy Stocks...":
...One reason the big nodes (London, New York City, Hong Kong) are still the big nodes is that the speed of light is 11.8 inches per nanosecond. The greater the distance between nodes the slower your execution. Time is indeed money and it can be measured by the cesium-133 standard: 9,192,631,770 cycles (Hz), or turned around, every foot away from the node costs you 9.192 ticks on the atomic clock (and that's photons in a vacuum, in real life you're using fiber-optics or, worse, electrons in copper).

Personally, I think that basing your competitive advantage on execution speed is a mug's game. As IBM said in their Feb. 27 Financial Services newsletter:

"But what happens when every competing firm plugs into algorithmic trading and speed and execution become commodities? Are there other advantages algorithmic transactions can offer?"
Going forward, ideas matter more than money. The kind of intelligence that will be the in highest demand will be the ability to make, as James Burke put it, "Connections".
From Alea:

High Frequency Trading: Order Latency Stats

Source: BATS