Maybe if we do not do it are a little oblivious to what happens in that sector, especially escapes the more general headlines can move to more news that is general. You may not we know about the extent to which technological innovations applied here, going beyond the algorithms to use the most advanced physics.
This is not something new, at least not these days. For some years, economists of the most competitive league in trading not hesitate to resort to advances to ensure they get to make a good operation of millions in profits by being the first, even if you try to use atomic clocks or satellite. But not all big businessmen are in favor of these “new” tactics. What bring these instruments in the sale of shares and why there are detractors?
The importance of accuracy
If something has taught us the technology throughout its history is the importance of being the first to achieve success when you have an idea. In stock speed performance issue it is also critical, while not talking about days or even hours or minutes, but millionths of a second; it is hitting what, how much and when to buy.
It is no wonder then that traders and other industry workers think more of the most accurate clocks in the world (which is not the most) atomic clocks. Some instruments with a margin of error measured in thousands of years, with the standard a delay of one second every 3700 million years.
Atomic clocks are named by basing its operations in the calculation of the energy lasting changes in an atom. That is, as well as pendulums mark time on old clocks, in the case of atomic oscillation produced by the atom is measured, being the official reference a second 9,192,631,770 cycles of a cesium atom.
How you take advantage of these complex watches bag? As mentioned, this is not exactly new nor is it something attainable for most companies. In fact it is the next step machines High Frequency Trading (HFT) or high frequency speculation that employ algorithms to make investments in microseconds. Thus, atomic clocks are proposed as the main enemies of the HFT, as being so accurate the other machines will not take the time delays.
This “threat” and spoke New Scientist in 2014, explaining that this difference in microseconds to issue shares movements could involve up to 28 million shares, which can translate into a large sum of money. Specifically they are explaining the intention of the financial district of London connecting optical fiber with atomic clock of the National Physical Laboratory (NPL), about 25 kilometers.
A patent that syncs to all
A few days ago was made public a patent by Renaissance Technologies containing a system of “synchronized execution of orders on multiple exchanges.”A system that included, among other items of advanced technology, an atomic clock.
That is, it is the registration of a mechanism that would give multiple purchase orders with precision using algorithms that brings an atomic clock, quickly surpassing HFT systems. The system operates in several phases in which the atomic clock is key, since, as explained in Renaissance Technologies, being nanosecond precision the HTF systems detected.
That is why in dealing with these proposals talk about Anti-HFT systems, since a fraction of a second manage to be even faster than the above algorithms (without the help of other external elements). Indeed not only speaks atomic clocks, it includes any high accuracy clock as involving quantum, optical or GPS and is considered synchronization with satellites if any adjustment is required in terms of accuracy.
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Fearing large and small fearing
Both the London project we mentioned as other similar projects meant that the authorities should be aroused to what might happen. If the practices of high frequency speculation that occurred to date were challenged to assume undue advantage over small investors, the advent of the atomic synchronization is not going to be less.
The same year from London announcing the project, the regulatory authorities of the financial operations of the US (Financial Industry Regulatory Authority and the Securities and Exchange Commission) sounded the alarm with what was beginning to take shape as a future trend. Here, apart from the dubious validity of the advantage represented by such investments, the authorities pointed to which might have clock drift, i.e. the difference between atomic clocks and the authorities prevented that they could review transactions.
Another voice alarm more recent is that of Mark Gorton, president of Tower Capital, one of the most important companies in high frequency speculation. His ideas, collected by the Financial Times, made no reference to atomic clocks per, if not the volume and complexity of these actions in millionths of seconds are acquiring.
The recent market developments from the hand to the mail have great benefits and save money investors due to the low cost of operations. But the electronic trading comes with new risks, and we need to continue on the path of strengthening the resistance of electronic markets.
On what warns Gorton? On how serious they may be errors in the algorithms with which you work in HFT and the need for regulation to reflect these new ways of investing, emphasizing that there could be a catastrophe due to trading algorithms remembering the Flash Crash 2010 (one of the worst falls on Wall Street in recent years).
Currently there are no exact figures for the number of operations that are performed HFT, although there is talk of 60% in the case of Wall Street and 40% for the stock market. What you will see is how the human component is reduced thanks to advances in technology, whether computer and advanced physics.