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Market Observations by Bob McCormick – August 2018

It takes:
•    3 seconds for a cheetah to go from zero to sixty;
•    Less than 1 second for an Indy 500 car to travel the length of a football field;
•    Less than ½ second for a baseball to travel 60 feet, 6 inches from the pitcher’s mound to home plate at 100 mph.

I thought about the speed of things when I read that high heat and humidity in New Jersey last month was slowing down radio waves that were transmitting trade data between Nasdaq’s center in Carteret to the New York Stock Exchange’s facility in Mahwah. That’s about 27 miles as the crow flies. The 90-degree heat combined with 60 percent humidity caused the data to be delayed by about 8 microseconds.

A microsecond is one-millionth of a second. Sum up about 350,000 microseconds and you have the time it takes the average person to blink, so 8 of these is still pretty darn fast in my book.

What would the founders of the NYSE think of this as they signed the agreement under the shade of a buttonwood tree forming the exchange on May 17, 1792?

It is astounding this delay makes a difference for some investors. Not for us, mere mortals, but for computer-driven, high-frequency trading (HFT) firms the delay was noticeable – and newsworthy. Hundreds of millions of dollars were spent in 2010 on building just one fiber optics line from Chicago to New York in order to increase one-way speeds by about 3 milliseconds (3,000ths of a second) – over 300 times faster than it takes to blink. Since then, at least two competing microwave networks have been built to increase speeds by even a few more milliseconds between these two cities. Big bucks spent for minuscule, but profitable, time improvements.

Consider these speeds the next time you are sitting around in your pajamas day-trading on your laptop, trying to take advantage of the tiny little blips in stock prices that occur throughout the day. It’s not just some big powerful machine you are competing with. It is the near speed of light trading you are racing against. May the force, and very fast fingers, be with you.

Cheers,
Bob

Robert A. McCormick, CFA, CAIA
Senior Executive Vice President & COO
(918) 744-0553
Bob.McCormick@TrustOk.com

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