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Trading at the Speed of Light provides a fascinating insight into how the rise, innovation, and politics of high-frequency trading (HFT) have reshaped the global financial markets. In the modern financial landscape, traditional trading floors where brokers engage in face-to-face transactions are rapidly becoming a thing of the past. They have been superseded by high-speed electronic systems that utilize complex algorithms to conduct an astonishing volume of transactions. This book tells the compelling story of this monumental transformation.
Author Donald MacKenzie illustrates how during the 1990s, on the then-perceived fringe of the US financial industry, a revolutionary approach to trading was born – automated high-frequency trading. This innovation rapidly proliferated across the globe. While HFT has injected unprecedented efficiency into global trading, it has simultaneously sparked an intense race for speed, giving rise to an intricate, subterranean confrontation among competing HFT algorithms.
In the realm of HFT, time is clocked in nanoseconds – billionths of a second. In this extremely brief interval, the fastest achievable signal – light in a vacuum – can only cover a distance of approximately a foot. This fact renders HFT incredibly susceptible to the length and transmission capability of cables linking computer servers to exchange systems, and to the positioning of microwave towers that facilitate signal transmission between data centres.
Culled from over 300 interviews with high-frequency traders, technology and communication providers, exchange staff, regulators, and many others, MacKenzie unveils the extraordinary lengths taken to accelerate every facet of trading. He explores how certain markets have seen major banks successfully fending off challenges from HFT firms, and how exchanges sometimes manipulate technical systems to favour specific types of algorithms.
Trading at the Speed of Light concentrates on the tangible, political, and economic aspects of high-frequency trading, providing an unparalleled view into its impact on global finance and projections for its future trajectory.