Forget the trading floor — in the future, an empty lot in Uzbekistan or a barge anchored miles off Chile’s southern coast may be the most lucrative spot for playing the market. A new analysis that takes a particular kind of trading to its theoretical limit finds the precise locations between the world’s major securities exchanges for gaming the speed of light.
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In today’s markets, computers search for and act on relevant information in a flash, sending orders through fiber optic cables at nearly light speed. By buying or selling shares split seconds ahead of the rest of the market, holding stock for mere moments and then doing it all again, high-frequency traders are turning fractions of pennies into piles of dollars. To trim time in the extreme, firms will even buy space for their computers as close as possible to an exchange’s computers, a practice called “colocating” that cuts data travel time, giving some traders an edge.
But to exploit the 50-odd milliseconds it takes for information to cross the Atlantic, it turns out that the sweet spot isn’t always at the exchange’s door. For some assets sold on more than one market, such as the New York and London stock exchanges, the money-making spot is in the middle of the Atlantic Ocean, researchers report in a paper to appear in Physical Review E.