Monday, September 7, 2009

Angling for a spot on the exchange

In the old days, when people traded stocks and commodities face to face and recorded the resulting transactions on parchment with a quill pen, it mattered very much whether you were on the exchange floor or just working through some intermediary. If you were on the floor, you could get your order placed faster. A faster order meant a better price and up-to-date information about market movements. As they say in the biz, old news is no news.

Open outcry exchanges are on the way out now, replaced by shiny new technology. Anyone anywhere can get in the game, set up a trading algorithm, put it on a server and sit back as the cash flows in.

So long, of course, as your server is in the same building as the exchange's servers. Otherwise, your order is going to get there (milliseconds) too late and you'll be edged out by someone with lower latency, who will then be glad to turn around and sell you what you wanted at a slim but persistent profit.

Score one more for Peter Deutsch.

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