Earlier quoted context omitted.
High frequency algorithmic trading. Often ran on colocated hardware within the exchange / trading system data centers. Started with stuff like Sun SPARC, Solaris and Oracle and we slowly made our way to Suse, Intel and... surprise, our own database optimised for fast writes.
Naive question: is this like creating fancy tech that is helping rich people to front-run the poor and middle-class? Because that's what a lot of people think online. Maybe it's more nuanced. I'm curious how someone from that carreer sees it?
When you have a market, you need someone to be there to provide liquidity. Imagine if you're a farmer and you show up to the market with your wheat, but all the bakers have gone home that day. Or the baker shows up and there's no farmer. The market maker stands around all day offering to buy and sell so that you don't have to wait for the guy you're really trading with. Of course this middle man wants to get paid for it, but your cost as an average Joe is next to nothing. This is trading in time.
Now imagine you want to cook a meal and your ideal meat is beef, but actually you're ok with pork, so long as the pork is cheap enough to make it worth it. How much cheaper should it be? Well your fellow who knows all the pork and beef people will be able to gauge where the balancing spread is, given the amount of interest. In fact he will from time to time do the trade when the spread is out of line. This is trading in space.
So why all the fancy tech? After all market makers used to stand around in a pit in a colored jacket, and they didn't have degrees. My first boss in the market was one of these guys.
Well, things have gotten very tech heavy because as soon as prices are out of line, there is money to be made. Or rather, lost. As a market maker, you are constantly out there with your prices, offering to buy or sell at a very small spread. If some news happens that affects prices in a big way, you can be sure that you will buy when it's going down and sell when it's going up. In order to both have tight prices and avoid this "adverse selection", you really want to be able to react as quickly as you can when your system decides that something's up.