Ali’s blog

Mostly quant stuff with occasional digressions


Posted by alifinmath on March 7, 2008

I was glancing through David Cay Johnston’s latest book, “Free Lunch,” yesterday evening at my local B&N. He mentioned in passing how an automated trading company, Tradebot Systems Inc., moved its headquarters from Kansas City to NYC because, well, the slowness of the speed of light was interfering with the speed of excecution of trades. The 1/50th of a second the firm saves on each automatic trade actually comes in handy and contributes to the bottom line. Difficult to believe.

This is from a WSJ article on Dec. 12, 2006:

NORTH KANSAS CITY, Mo. — About four years ago, Dave Cummings moved his trading firm’s computers from a storefront in this Kansas City suburb to buildings in New York and New Jersey that house central computers for two big electronic stock exchanges.

The move shaved a precious fraction of a second from the time it takes Mr. Cummings’s firm, Tradebot Systems Inc., to buy or sell a stock on computer-based exchanges like Archipelago. It now takes Tradebot about 1/1000 of a second to trade a stock, compared with 20/1000 before the move — a difference of about the time it takes a computer signal to zip at nearly the speed of light from Kansas City to New York and back.

That may not seem like a big difference, but in Mr. Cummings’s obscure corner of the stocktrading universe, speed is critical and fractions of seconds loom large. Tradebot’s computers are programmed to detect, among other things, tiny, fleeting differences between bid and offer prices of stocks, then to pounce, buying stocks at one price and almost immediately reselling them for a fraction more. If his firm hadn’t moved its computers, says Mr. Cummings, “we’d be out of business.”

(Unfortunately I can’t provide a working link to this article. However, if one types “Firms Seek Edge Through Speed As Computer Trading Expands” in Google search, a link to a PDF appears, which has the full article.)

Here is an old (2005) article on Tradebot, when the firm was still in Kansas City.


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