It can be hard to wrap your head around the blistering speeds that rule the world of high-frequency trading. We know what a few seconds worth of computer-powered HFT looks and sounds like. Turns out trading in and out of stocks down to the microsecond--the idea being to shave off fractions of a penny per share, or whichever currency unit) on trades--with short-term positions mounting positive earnings day in, day out, is obtuse, and not pretty.
"The stock market today is a war zone," Felix Salmon wrote last year in Reuters, "where algobots fights each other over pennies, millions of times a second."
But to really get a grasp for how truly insane HFT really is, you need to break things down even further. Take Order Routing Animation by Nanex. The visualization connects the untold hundreds of thousands of quotes jammed in Johnson & Johnson stock by high-frequency traders sitting at terminals on May 2, 2013, over the course of one-half second. One-half second. Think about that for a full second. Thing is, this is kind of beautiful looking?
As Nanex explains:
Each box represents one exchange. The SIP (CQS in this case) is the box at 6 o'clock. It shows the National Best Bid/Offer. Watch how much it changes in a fraction of a second. The shapes represent quote changes which are the result of a change to the top of the book at each exchange.
The time, which runs along the bottom of the screen in EST, has been slowed down to the millisecond level. That's 1/1000th of a second. Worth noting is the price discrepanices that can arise from bad connections. Traders can exploit these busted connections for big profits. As one self-professed Wall Street arms dealer told me a few years back, “You’ll hear about this [HFT] 10 years from now. Some guy will be hauled off to jail.”
Then again, maybe it's nothing to cry over?
Reach Brian at email@example.com. @thebanderson
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