Adrianne Jeffries writes: The finance industry is in a race against science being waged with transatlantic cables and ever-tinier chips. A new paper authored by a team of physicists, engineers and industry data experts explores what Physics of Finance blogger Mark Buchanan calls the “approaching singularity.” Improvements in the technology behind high-speed trades is being measured in increments of “sub-seconds” and approaching the physical barrier of the speed of light which will, as the paper puts it, culminate in an “all-machine phase characterized by frequent black swan events with ultrafast durations.” Or, in Mr. Buchanan’s words, “likely lead to disaster.”
The superhuman speed of these trades make it tougher to predict major financial crises, the paper says, citing the recent “flash crash” phenomenon. ”In traditional human-machine systems, real-time human intervention may be possible if the undesired changes occur within typical human reaction times,” the authors note....
This is a really heavy paper, but here’s what we got: machines are moving big chunks of money around faster than our eyes can blink or our tiny brains can comprehend, with the potential to cause crashes that are so lightening-quick they can neither be anticipated nor corrected before causing systemic trauma (because traders are still really fast at panicking). Thanks muchly, science....
Read all about it at http://www.betabeat.com/2012/02/17/high-frequency-trading-approaches-the-speed-of-light/
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