How Wall Street Got Addicted to Light-Speed Trading

Wired reporter Jerry Adler wrote a very well researched article on Wall Street high speed trading. It was originally scheduled for Wired's September issue but published in advance due to the 440M trading loss at Knight Capital Group.
The author provides very interesting takes on the quants, their world and their obsession with more speed. Many people mentioned in this article are not stranger to our community so it's good read.

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The 2012 New York Battle of the Quants, a two-day conference of algorithmic asset traders, took place in New York City at the end of March, just a few days after a group of researchers admitted they had made a mistake in an experiment that purported to overturn modern physics. The scientists had claimed to observe subatomic particles called neutrinos traveling faster than the speed of light. But they were wrong; about six months later, they retracted their findings. And while “Special Relativity Upheld” is the world’s most predictable headline, the news that neutrinos actually obey the laws of physics as currently understood marked the end of a brief and tantalizing dream for quants—the physicists, engineers, and mathematicians-turned-financiers who generate as much as 55 percent of all US stock trading. In the pursuit of market-beating returns, sending a signal at faster than light speed could provide the ultimate edge: a way to make trades in the past, the financial equivalent of betting on a horse race after it has been run.

On the first day of the New York conference, Aaron Brown, a legendary quant and former professional poker player, took the stage in rumpled chinos and a leather jacket to lecture the assembly on game theory. He began his talk by saying, “3.14159,” and then pausing expectantly. From the back of the room came the response: “265358.” Together they made up the first 12 digits of pi—a geek shibboleth. “You won’t see a lot of masters of the universe here,” said Charles Jones, a professor of finance and economics at Columbia Business School. “A lot of these guys, if they’re wearing a tie, it might be the only one they own.”[prbreak][/prbreak]
 
Thanks for sharing. Interesting article.
Good way to make money, but I want to ask what is the role of high frequency trading in financial markets? Besides improving liquidity and lowering ask-bid spread, does HFT really contribute to the economy or help maintain the normal operation of the whole system?
 
The article tries to be critical but ends up being misguided venture and clearly the author has not even a sprinkling of what HFT is.The author tries to make neutrinos look viable(some serious jackassery).As for Han please dont ask the question for what HFT does for the economy ,dont go by all the gloss around they are in fact just traders trying to make nickel per trade. As for Flash Crash it was known an age old investor from Kansas city Watchell Reed caused it not HFT
 
The article tries to be critical but ends up being misguided venture and clearly the author has not even a sprinkling of what HFT is.The author tries to make neutrinos look viable(some serious jackassery).As for Han please dont ask the question for what HFT does for the economy ,dont go by all the gloss around they are in fact just traders trying to make nickel per trade. As for Flash Crash it was known an age old investor from Kansas city Watchell Reed caused it not HFT

We all know that speculators helps a lot in financial markets. But in terms of pure making money which you regard HFT as, I doubt if there is something whose funtion is just making money without other significance.
 
Han: I would recommend this as a good starting point on the role of High frequency traders. I am still digesting the post and will re-read again, so won't try to summarize.
 
There are different niches within HFT adelphius. There is certainly a subset of HFT who are trying to get as close to c as possible, and if there are other ways than using photons I'm sure they'll be interested in it. Of course, neutrinos are a pipe-dream at present, but who knows what the situation will be in 20-50 years time?
 
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