This Is What One Half Second of High Speed Trading Looks Like

One time I printed out all the code--at that time ASP, HTML, CSS, and Javascript--that got executed for one page load of the homepage of my employer's primary website. I taped the pieces of paper end-to-end and hung them on my wall.

It made a great conversation piece with my coworkers. Non-technical folks (most of them) were astounded that so much text was being interpretted and executed every single time they loaded the homepage (in less than a second).

What was the point? It helped set a certain emotional tone to our conversations. Folks found it a lot harder to demand their project be done "right now, it's easy" when directly confronted with the complexity behind a single page load.

Likewise, stories that highlight the immense speed and complexity of high frequency trading help set an emotional tone of alienation and fear. It helps trigger the same reflex Frankenstein and The Terminator played off of: "maybe we're unleashing technological forces that no one can control."

But of course if you are well and truly versed in a technology, that feeling goes away. I knew that our crappy brochure website was not very complicated as websites go.

If we eventually decide that all of this ridiculously fast bid/offer blitzing by our HFT overlords is a destabilization risk to the economy [1], couldn't we start taxing these transactions, or the bids/offers themselves? This level of high-frequency noise being thrown into the market can't reasonably go on increasing forever, right... at some point we just bury ourselves in a never-ending war of inscrutable, difficult to predict machine trading algorithms, and nobody will be able to translate market movements into anything linkable to reality, right [2]? Shouldn't either market operators or the government at some point in the future start dialing back the traffic with penalties on the sheer number of actions taken?

... or is that just an insane non-starter, since it affects too many rich people in the finance sector and their colleagues rotating through the current regulatory structure?

I think it's an interesting long-term problem faced by society to decide whether we are OK with investment markets becoming completely impossible for "normal", human investors to navigate. It's already rapidly going that way--the capability to profit is already wildly tilted toward firms that act at HFT volume. If a poker site became overrun by bots to the extent that it was no longer fun for humans to play, they would fight back against the bots (as most do to some degree). But with investments... we may be getting to the point where the average day trader needs a 3000U server farm to compete effectively, and then I question whether we've lost sight of why we subsidize and spend money regulating that market at all. It's like a chess league where the grandmasters get to use computers as aids, and the newcomers have to play blindfolded.

[1] Nothing catastrophic has happened yet, but there have been a few flash crashes that have necessitated trading to be shut down, and having to "roll back" trades is never perfectly equitable and only decreases confidence in a market.

[2] Some of those flash crashes were traced back to one overzealous seller that threw HFT's for a loop (read http://en.wikipedia.org/wiki/2010_Flash_Crash -- it is quite interesting). I shudder to think of a day when the market fluctuates wildly and the data is literally too complicated for regulators to trace it back to any identifiable cause. That day is closer than anybody in finance is likely to acknowledge.

Two things I take away from this

1) Cool use of infographic :)

2) The little dots represent price changes, not trades.

FWIW, some more context around this would be-

All the major exchanges stream their best prices to all the other exchanges.

This is required because US exchanges must execute trades at the National Best Bid or Offer, or NBBO [1].

So how do you track the NBBO. In theory, by having all the exchanges send their best bids and offers to a central Securities Information Processor, or SIP (the 12:00 box) which then disseminates them (which you can see by the waves of stuff it sends out)

In practice, it's slow to go through the SIP on every price movement and the exchanges want to have the best possible information, so the exchanges mostly stream prices directly from the other exchanges (hence the fanout effect on every price movement)

Most of these prices movements don't result in trades, they just represent somebody entering or leaving the market at the BBO.

This feels like a distinction that could have been made better, rather than just saying "yeah, this stuff's complicated."

[1] http://en.wikipedia.org/wiki/Regulation_NMS

edit: formatting / citing

If you can trade faster, the market can react to information faster. Stocks dropped almost as soon as the tweet was released, without needing to wait for a few major news channels -- and recovered in five minutes after people stopped panicking.[1]

[1] http://21stcenturywire.com/2013/04/24/white-house-attacked-o...

I really like that. Did you print libraries and the like, or just the stuff you wrote? I could see value in having a bound version of jQuery if it wasn't on the wall, "I didn't write this, but I know what is in it and how to use it."